Chapter 2 Quiz - Dstockmarket Stock Market Course

Congratulations on finishing Chapter 2 of Dstockmarket's Stock Market Course. Not many people even finish Chapter 1. Give yourself a big pat on the back for your persistence. You are on your way to stock market mastery. The best way to know whether you have absorbed the lessons is to take the quiz.

1. Technical analysis is the study of:

  • A) Companies and their balance sheets
  • B) The economic factors that move the markets
  • C) Price action, volume and chart patterns
  • D) Volume, insider trading and management performance

2. Which is the best stock charting software for trading?

  • A) Freestockcharts.com
  • B) Stockcharts.com
  • C) TC 2000
  • D) The one that you are comfortable with

3.  What are the different type of orders that you need to use?

  • A) Market order only
  • B) Market order, stop loss order, market if touched order and limit order depending on the situation
  • C) Market order and stop loss order depending on the situation
  • D) Market order and limit order

4. What are the 4 important components of a trade?

  • A) The setup, an entry point, a stop loss and profit target
  • B) The setup, entry point and profit target
  • C) An entry point, a strategy, a profit target
  • D) The best commissions, an entry point, a target

5. What are the 3 trends of the market

  • A) Volume trend, what is hot and money flow 
  • B) The uptrend, downtrend and sideways trend
  • C) Industry trend, sector trend and general market trend
  • D) Money flow, industry trend and amount of sell orders

6. A stock that is in an uptrend will exhibit these characters:

  • A) Move at a 45 degree upwards angle, make higher highs and higher lows and is above its rising 20, 50 and 200 MA
  • B) Move from the bottom left of the chart to upper right, make lower highs and lower lows and is above its rising 20 MA
  • C) Is above its 20, 50 and 200 MA
  • D) Is sloping upwards and is above its 200 MA

7. The 200 day moving average can be used to:

  • A) Spot oversold and overbought areas
  • B) As support and resistance
  • C) As support and resistance, spot oversold and overbought areas and determine the health of a stock
  • D) As support when a stock is in an uptrend

8. The 50 day moving average is called a major moving average because:

  • A) It is observed by thousands of traders and investors
  • B) It acts as a very good support for uptrending stocks
  • C) It acts as a very good resistance for stocks
  • D) It acts as a very good support and resistance for the S&P 500 Index

9. Choose the correct statement with regards to Overbought Oversold

  • A) Overbought and oversold is very useful for traders to buy and sell stocks
  • B) When a stock is overbought, you should sell half of your stock
  • C) Overbought and oversold are helpful for us to identify potential reversal areas
  • D) When a stock is oversold, you should start accumulating the stock

10. The stochastics is:

  • A) Overbought when it is over 80 and oversold when it is below 50
  • B) Overbought when it is over 80 and oversold when it is below 20
  • C) Overbought when it is over 70 and oversold when it is below 30
  • D) Overbought when it is over 90 and oversold when it is below 10

11. Choose the correct statement about stochastics

  • A) The stochastics can be overbought for a long time when a stock is in an uptrend
  • B) When the stochastics is oversold, you should start buying the stock
  • C) The stochastics can be overbought for a long time when a stock is in a downtrend
  • D) When the stochastics is overbought, you should sell half of your stock

12. The RSI is useful to

  • A) Spot overbought and oversold stocks
  • B) Spot extreme overbought and extreme oversold stocks
  • C) Spot overbought stocks
  • D) Spot oversold stock in an uptrend

13. You could consider buying a stock when:

  • A) It is in a downtrend and the stochastics is oversold
  • B) It is in an uptrend 
  • C) It is at the rising 50 MA and the stochastics is oversold
  • D) It is in a downtrend and the RSI is oversold

14. If you see a stock that fits all the criteria in your swing trading buy strategy, you will enter the trade if:

  • A) The SPY is above its 60 min 20 MA
  • B) Doesn't matter what the general market does
  • C) The SPY is below its 60 min 20 MA
  • D) The SPY is oversold on the daily charts

15. If you want to make money on the long side you should:

  • A) Buy stocks that are oversold
  • B) Buy stocks that are making a 45 degrees angle upward
  • C) Buy stocks that are recommended by analysts
  • D) Buy a hot stock

Answers

1. C) Price action, volume and chart patterns

Technical analysis is the study of price action, volume and chart patterns. We study price and volume because they reflect the actions of market participants. Sometimes, the big players tip their hand before a big move happens. You will often see stocks experiencing unusual volume a few weeks to a few months before a monster move in the stocks occur. The smart money or big investor are the ones pilling in to the stock early. Chart patterns work very well because market participants' emotions are the same yesterday, today and tomorrow. They are driven by greed and fear and these emotions will create a pattern that will repeat again and again in stock charts.


2. D) The one that you are comfortable with

There are many award winning stock charting softwares out there. Many of them provide extremely good features and functions. Despite this, the best charting software is the one that you are comfortable using. It's just like a car. You might prefer an Audi but your friend will prefer a Tesla. It's down to a matter of preference. As long as the car takes you to your destination then its good enough for you. Same goes for trading.


3. B) Market order, stop loss order, market if touched order and limit order depending on the situation

In this course, we focus more on swing trading, position trading and investing and not day trading. Therefore we only need a few very useful type of orders. The market order lets you buy the stock at the current price. The stop loss acts as an insurance in case your stock doesn't behave the way you want it to be. The limit order is used if you want to get the best price for a stock. The market if touched order instructs your broker to only buy or sell a stock if a specified price is hit. What type of order you use to enter and exit the stock will depend on the situation.


4. A) The setup, an entry point, a stop loss and profit target

When it comes to success in the stock market, you need to have a setup ( a strategy). The setup must be of a good quality setup to help you weed out the bad trades. Your strategy will require you to have a good entry point. You then proceed to set the stop loss in case your trade does not work out. Finally, your strategy should have a profit target which helps you to be realistic of the amount of money you can expect to make for that trade.


5. B) The uptrend, downtrend and sideways trend

There are 3 trends in the stock market which are made up of the uptrend, downtrend and sideways trend. A stock will alternate between these 3 trends and your job is to find out which trend your stock is currently in. You buy when a stock is in an uptrend, you do nothing when the stock is moving sideways and you stay away from the stock if it is in a downtrend. You could also learn to short stocks when they are in a downtrend.


6. A) Move at a 45 degree upwards angle, make higher highs and higher lows and is above its rising 20, 50 and 200 MA

For a stock to be in a good uptrend, it needs to look like it is making a 45 degrees angle upwards move. Some of the things that you will observe in a stock that is starting an uptrend is that they start to make higher highs and higher lows. To aid your eyes in spotting uptrending stocks, we use the rising 20,50 and 200 MA. A stock that is above these rising MAs are in an uptrend and will usually continue to move higher.

7. C) As support and resistance, spot oversold and overbought areas and determine the health of a stock

The 200 MA is a very versatile moving average. It is observed by thousands and thousands of eyes in the marketplace. The 200 MA can act as a support and resistance which often marks a reversal point. It can also help us spot overbought oversold areas. When a stock is too far away from the 200 MA, they tend to revert back to the 200 MA. Finally, many investor tend to view a stock to be very unhealthy when they drop below their 200 MA.


8. A) It is observed by thousands of traders and investors

The 50 MA can act as a very good support and resistance for stocks and indexes. However, the power that they have is given by the many traders and investors who observe them. Sometimes, everyone expects a stock to bounce off the 50 MA and that in turn makes it into a self fulfilling prophecy. When something is viewed by many many people, it becomes very important. Therefore, it is called a major moving average.


9. C) Overbought and oversold are helpful for us to identify potential reversal areas

The concept of overbought and oversold is useful to help us spot potential reversal areas. One should never make a buying or selling decision based on any indicator. When a stock is overbought or oversold, we should study it properly to see if it warrants any action on our part. For example, if you are holding a stock and your stock gets overbought and also reaches a major resistance area, you should consider selling your position. Odds are, the stock will reverse and fall.


10. B) Overbought when it is over 80 and oversold when it is below 20

The general rule to interpret the stochastics is that it is considered overbought when over 80 and oversold when below 20.


11. A) The stochastics can be overbought for a long time when a stock is in an uptrend

The stochastics is just an overbought oversold indicator which tells us of a potential reversal area. You should never buy or sell a stock purely on the readings of the stochastics. The stochastics can be overbought for a long time when a stock is in an uptrend. Therefore, you should not take overbought readings seriously when a stock is trending up.


12. B) Spot extreme overbought and extreme oversold stocks

While the RSI does give us an overbought or oversold signal, they are not very frequent. If you follow them, you would probably missed out on a lot of trades. However, the RSI is very useful to spot extremely overbought or oversold stocks which may snap back very quickly.


13. B) It is in an uptrend and C) It is at the rising 50 MA and the stochastics is oversold

This is a trick question. Both B and C is correct. You can consider buying a stock that is in an uptrend because the odds of it continuing higher is very good. The 50 MA can act as a very good support area because it is a major moving average. When you have an oversold stochastics at a major moving average, the odds of a reversal increases. Therefore, you can consider buying the stock for a swing trade.


14. A) The SPY is above its 60 min 20 MA

For a successful buy (long) swing trade, you need to have the SPY in a positive territory. Ideally we want to see the SPY above its 60 min 20 MA. This tells us that the general market environment is positive to buy stocks. You should not buy stocks just because the SPY is oversold. An oversold SPY may continue to fall and drag your stock lower along with it.


15. B) Buy stocks that are making a 45 degrees angle upward

The odds of you making money on the long side is to buy stocks that are making a 45 degrees angle upward. This is known also as an uptrend or Stage 2. Stocks that are in motion tend to continue their upwards move.

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