Chapter 3 Quiz - Dstockmarket Stock Market Course

Congratulations on completing Chapter 3 of the Stock Market Course. You have now laid a foundation to mastering the stock market. You have learn the basics of technical analysis and you are ready for greater things to come. In order to determine how much you have absorbed, take the quiz below.

1. What constitutes support?

A) Congestion areas, previous highs and previous lows
B) The major moving averages like the 200 MA
C) Round numbers like 50, 100, 200
D) Previous highs and previous lows

2. What constitutes resistance?

A) The place where there is lots of sellers
B) Congestion areas, previous highs and previous lows
C) Former highs
D) A target price that analyst set

3. When a stock is in an uptrend:

A) Previous lows are not good support
B) Previous highs are difficult to overcome
C) Congestion areas do not act as support
D) Previous highs once overcome act as good support

4. A major support is

A) An area where there is a lot of price action and have kept the stock from dropping for many times
B) An area where many indicators are oversold
C) An area where round numbers are present
D) An area where there is lots of congestion

5. A minor support is made of

A) Previous highs and previous lows
B) Previous highs
C) Previous lows
D) Oversold areas

6. What are examples of subjective support?

A) Previous highs that was overcome
B) An area of congestion
C) Fibonacci retracement where there is a lot of price action
D) Round numbers, Fibonacci retracement, 200 MA and 50 MA

7. The 200 MA is a subjective support because

A) It is a major moving average
B) A lot of people look at it
C) Sometimes there is no price support there but stock still bounces off it
D) Nobody really looks at it

8. Choose the correct statement

A) Volume often precedes price
B) An unusual volume tells us that insiders are selling heavily
C) Volume is not important, the only thing that is important is price
D) Low volume days show the stock is in trouble

9. The trendline is useful because it helps us to

A) Spot institutional buying
B) Determine support and resistance areas
C) Spot an early trend change and as subjective support and resistance
D) Enables us to buy stocks at the optimum price

10. A stock that breaks an uptrendline tells us that

A) The uptrend has ended
B) The uptrend has ended and a new downtrend begins
C) It is time to sell that stock and consider shorting the stock as it is overbought
D) Momentum is slowing down and a possible trend change is taking place

11. A stock that gaps down on unusual volume tells us that

A) People are selling the stock and a crash in the stock might happen
B) It is a great time to buy the stock because it is cheap
C) Bad news has just made the stock gap down
D) We should consider buying stock options on the stock

12. Heavy volume when a stock is trading sideways tells us that

A) People are fed up with the stock not making any move and they are selling it
B) The smart money and institutions might be accumulating the stock
C) Nothing of significance has happened. Just don't buy the stock
D) We should not buy the stock as there are many people selling it

13. A stock is considered to have unusual volume when

A) Volume is 2X more than the previous day's volume
B) Volume is 50% less than yesterday's volume
C) Volume is 50% more than the average volume
D) Volume is at least 2X the average volume

14. The MACD or Moving Average Convergence Divergence can be used to:

A) Buy and sell stocks
B) Spot divergences, as a trend indicator, show us buy and sell signals and tell us momentum is slowing down
C) Spot overbought and oversold conditions
D) Spot institutional buying

15. The Bollinger Bands is useful to

A) Spot unusual volume in the stock
B) Spot heavy buying or selling in the stock
C) Spot the best stocks to buy for investment
D) Spot reversal areas when combined with other indicators

Answers

1. A) Congestion areas, previous highs and previous lows

Real support consists of price which can be congestion areas, previous highs and previous lows. Other type of support like the 200 MA and round numbers are subjective support.

2. B) Congestion areas, previous highs and previous lows

Resistance consists of price which can be congestion areas, previous highs and previous lows. They are the same as support because price can act as support and resistance depending on where the stock price is at the moment.

3. D) Previous highs once overcome act as good support

When a stock is in an uptrend, it is very bullish and it can easily overcome previous highs. Once the old high has been conquered, it acts as a good support for the uptrending stock.

4. A) An area where there is a lot of price action and have kept the stock from dropping for many times

Major support is usually found in weekly charts where there has been a lot of price action at a particular area. The area has a history of keeping the stock from dropping. That is why it is called a major support.

5. A) Previous highs and previous lows

Previous highs and previous lows can act as support. Previous highs once overcome can act as a support. Previous lows are able to keep the stock from falling because they may be buyers waiting to step in there.

6. D) Round numbers, Fibonacci retracement, 200 MA and 50 MA

Subjective support are usually price derivatives which are very popular. Because so many people use them to spot support and resistance areas, they become a self fulfilling prophecy.

7. C) Sometimes there is no price support there but stock still bounces off it

The real support is made out of price. Sometimes the 200 MA can act as support even though no price support is present because there are so many people who look at it and think that it is support. Thus is becomes a self fulfilling prophecy.

8. A) Volume often precedes price

An unusual volume often precedes a big price move. We do not know which direction the stock will break into. Just because there is a heavy volume it does not mean people are heavily buying or selling the stock. We need to look at the chart and do our analysis to see whether the volume is a result of accumulation or distribution and make an educated guess.

9. C) Spot an early trend change and as subjective support and resistance

The trendline is very useful to spot an early trend change. If a trendline is broken, it does not mean the trend has ended. It just tells us the stock "might" have a trend change. Many times a stock may move sideways for awhile before resuming higher. Trendlines can also act as subjective support and resistance depending on whether the stock is in an utprend or downtrend.

10. D) Momentum is slowing down and a possible trend change is taking place

Just because your stock broke the handy uptrendline, it does not mean we should sell the stock. The trend has not ended yet. It just tells us that momentum has slowed down. From there we need to monitor the stock carefully to see if a new downtrend emerges. Many stocks that break their uptrendline tend to trade sideways before moving higher.

11. A) People are selling the stock and a crash in the stock might happen

Stocks that gap down usually do so because of bad news or it did not meet Wall Street's expectations. While it does not mean the stock is doomed, there are many times a gap down on unusual volume can point to heavy selling by insiders and institutions. With no support from the smart money and big money, the stock is very likely to crash in the coming months.

12. B) The smart money and institutions might be accumulating the stock

A stock that is trading sideways and not moving much is said to be consolidating or resting. The sideways move should not be choppy and it should be in a tight range. When you see heavy volume coming in during these periods, it tells us that the smart money and big money may be accumulating the stock in anticipation of a big move in the coming months.

13. D) Volume is at least 2X the average volume

For it to be classified as an unusual volume, the stock needs to have at least 2X the average volume. Sometimes, you can see the volume 5 to 10 times the average volume. The higher the volume the better.

14. B) Spot divergences, as a trend indicator, show us buy and sell signals and tell us momentum is slowing down

The MACD is a very versatile tool which is why there are so many people using it. However, it is not a very good overbought oversold indicator. You will need to complement it using other indicators such as the stochastics.

15. D) Spot reversal areas when combined with other indicators

Stocks tend to bounce off the upper and lower bands. Price action tends to be in the band 90% of the time. When you combine the Bollinger Bands with other overbought oversold indicators such as the stochastics, you can actually create a very reliable trading strategy.