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Question 1Technical analysis of financial markets

Under Dow Theory, the broad market movement that persists from several months to several years is called the:

  1. minor trend
  2. primary trend Correct answer.
  3. secondary trend
  4. intraday trend

Explanation

Dow Theory nests market action into three degrees of trend: primary (the tide, lasting months to years), secondary (waves, weeks to months), and minor (ripples, days). The primary trend is the broad movement that defines the bull or bear market.

Question 2Technical analysis of financial markets

A head-and-shoulders top shows a head at 120, shoulders near 110, and a neckline at 108. The conventional measured-move downside objective is:

  1. 84
  2. 100
  3. 96 Correct answer.
  4. 108

Explanation

The measured move takes the distance from the head to the neckline (120 - 108 = 12) and projects it downward from the neckline break point. Subtracting 12 from 108 gives a target of 96.

Question 3Technical analysis of financial markets

After a well-established support level is broken decisively, technicians generally expect that level to:

  1. guarantee the start of a downtrend
  2. lose all analytical significance
  3. act as support once again
  4. act as resistance on later rallies Correct answer.

Explanation

The principle of role reversal holds that a broken support level becomes potential resistance, because buyers who are trapped above it tend to sell on the rebound to break even. The same logic works in reverse for broken resistance becoming support.

Question 4Technical analysis of financial markets

The 14-period RSI prints a higher high while price prints a lower high. This pattern is best described as:

  1. a volume divergence
  2. a bullish divergence
  3. a bearish divergence Correct answer.
  4. a failed breakout

Explanation

A bearish divergence occurs when price makes a lower high while the momentum oscillator makes a higher high, showing that upside momentum is fading despite the price action. It is a warning of potential weakness, not a stand-alone sell signal.

Question 5Technical analysis of financial markets

A 'golden cross' is said to occur when:

  1. the 50-day moving average turns up while still below the 200-day moving average
  2. price closes above its 200-day moving average
  3. the 50-day moving average crosses above the 200-day moving average Correct answer.
  4. the 200-day moving average crosses above the 50-day moving average

Explanation

The golden cross is the upward crossover of a shorter-term moving average through a longer-term one, most commonly 50-day over 200-day. It is a trend-following signal that lags price and reflects a shift in intermediate momentum.

Question 6Technical analysis of financial markets

Bollinger Bands narrow sharply into a tight 'squeeze'. Technicians would most likely expect:

  1. the middle band to stop tracking price
  2. an immediate reversal to the downside
  3. a volatility expansion with no directional bias Correct answer.
  4. a lasting regime of low volatility

Explanation

Band width reflects recent volatility, and a squeeze marks an unusually compressed range that historically resolves into an expansion. The squeeze says nothing about which way price will break, so the direction must come from other tools.

Question 7Technical analysis of financial markets

A candlestick with a very small real body and long upper and lower shadows is called a doji, and it most directly signals:

  1. strong directional conviction
  2. indecision between buyers and sellers Correct answer.
  3. a completed reversal
  4. a limit-up session

Explanation

A doji forms when price opens and closes at nearly the same level despite a wide intraday range, showing that neither side won the session. Its meaning depends on context; on its own it flags indecision rather than a confirmed turn.

Question 8Technical analysis of financial markets

A stock clears a long-standing resistance level on volume far below its average. Technicians would most likely treat the breakout as:

  1. suspect until volume expands Correct answer.
  2. highly reliable
  3. a bullish sign because sellers are absent
  4. confirmed by the closing price alone

Explanation

Breakouts are expected to be accompanied by an expansion in volume that confirms fresh demand at the new price level. A breakout on thin volume lacks that participation and is more prone to failure or being reversed.

Question 9Technical analysis of financial markets

Within an Elliott Wave impulse sequence, which statement is a valid rule?

  1. Wave 3 is always the shortest of the impulse waves
  2. Wave 2 never retraces more than 100% of wave 1 Correct answer.
  3. Wave 5 must exceed the end of wave 3 in every case
  4. Wave 4 must overlap the price territory of wave 1

Explanation

Elliott's three inviolable impulse rules are: wave 2 cannot exceed the origin of wave 1, wave 3 cannot be the shortest of waves 1, 3, and 5, and wave 4 cannot overlap the price territory of wave 1. A violation invalidates the impulse count.

Question 10Technical analysis of financial markets

Which set of ratios is most commonly used to define Fibonacci retracement support and resistance?

  1. 25%, 50%, 75%
  2. 66.7%, 83.3%, 100%
  3. 38.2%, 50%, 61.8% Correct answer.
  4. 10%, 20%, 30%

Explanation

Fibonacci retracements are derived from ratios of the sequence, chiefly 0.382 and 0.618, with 0.500 added as a convention carried over from Dow Theory. The 0.236 and 0.786 levels are also used as secondary reference points.

Question 11Technical analysis of financial markets

A gap appears as price leaves a lengthy trading range, accompanied by unusually heavy volume. This gap is best described as:

  1. a measuring gap
  2. a common gap
  3. a breakaway gap Correct answer.
  4. an exhaustion gap

Explanation

A breakaway gap forms at the completion of a consolidation or reversal pattern and marks the start of a new move, typically on high volume. Exhaustion gaps occur at the end of a move, and measuring gaps occur midway through it.

Question 12Technical analysis of financial markets

The ADX line has climbed from 12 to 31 over the past six weeks. The most reasonable reading is:

  1. a trend is established, but its direction is not shown Correct answer.
  2. the existing trend is weakening
  3. volatility is contracting
  4. the trend must be upward

Explanation

The ADX measures the strength of directional movement regardless of sign; readings above roughly 25 indicate a trend while readings below 20 suggest a range. Direction comes from the +DI and -DI lines, which the ADX level itself does not reveal.

Question 13Technical analysis of financial markets

The advance–decline line is best described as:

  1. a running cumulative total of advancing minus declining issues Correct answer.
  2. the percentage of stocks above their 200-day averages
  3. the average price change of all listed issues
  4. the ratio of advancing volume to total volume

Explanation

The A-D line cumulates the daily difference between the number of advancing and declining issues, giving a running measure of how broadly the market is participating. Divergence between the A-D line and a cap-weighted index warns of narrowing breadth.

Question 14Technical analysis of financial markets

On a point-and-figure chart, a rising column of X's represents:

  1. declining prices
  2. advancing prices Correct answer.
  3. the passage of time
  4. expanding volume

Explanation

Point-and-figure charts use X columns for rising prices and O columns for falling prices, with each symbol marking a completed box move. The chart plots price change only and ignores time and volume entirely.

Question 15Technical analysis of financial markets

An upward trendline is generally considered more reliable when it:

  1. is steep, with an angle above 60 degrees
  2. has been touched and respected at least three times Correct answer.
  3. is drawn through only two intraday lows
  4. has never been tested since it was drawn

Explanation

A trendline gains validity each time it is tested and holds, so a third touch that produces a reaction confirms that buyers are defending the line. Steep lines tend to break quickly, and a line drawn from only two points remains unverified.

Question 16Technical analysis of financial markets

A symmetrical triangle that forms during an established uptrend is most often classified as:

  1. a distribution pattern
  2. a broadening formation
  3. a reversal pattern
  4. a continuation pattern Correct answer.

Explanation

Symmetrical triangles represent a contraction of range in which neither side gains ground, and they usually resolve in the direction of the prior trend. They are therefore treated as continuation patterns, with the breakout projected using the height of the triangle's base.

Question 17Technical analysis of financial markets

The %K line of the stochastic oscillator is computed as:

  1. (close - moving average) ÷ moving average × 100
  2. (high + low + close) ÷ 3
  3. (highest high - close) ÷ (highest high - lowest low) × 100
  4. (close - lowest low) ÷ (highest high - lowest low) × 100 Correct answer.

Explanation

The stochastic measures where the close sits within the high-low range of the lookback period, scaled from 0 to 100. %D is then a moving average of %K, and the oscillator is typically read with 80 and 20 reference lines.

Question 18Technical analysis of financial markets

Average True Range (ATR) is used primarily to measure:

  1. the strength of volume
  2. the direction of the trend
  3. market volatility Correct answer.
  4. the momentum of earnings

Explanation

ATR averages the true range, which is the largest of the high-low range, the high-to-previous-close gap, and the previous-close-to-low gap. It quantifies volatility and is commonly used to size stops and positions rather than to call direction.

Question 19Technical analysis of financial markets

A stock's relative strength line versus a broad index is rising while the index itself is falling. This indicates that:

  1. the stock has a beta below one
  2. the index is about to reverse upward
  3. the stock is outperforming the index Correct answer.
  4. the stock is falling faster than the index

Explanation

A relative strength line is the ratio of the stock's price to the index, so a rising ratio means the stock is gaining on the benchmark regardless of absolute direction. A stock that falls less than the index will still show a rising relative strength line.

Question 20Technical analysis of financial markets

The equity put/call ratio drops to a multi-year low. A contrarian technician would most likely read this as:

  1. a bullish confirmation of the rally
  2. evidence of complacency and a cautionary sign Correct answer.
  3. a sign that put options are expensive
  4. neutral, since ratios are not used in sentiment work

Explanation

A low put/call ratio shows that relatively few investors are buying protective puts, a sign of optimism or complacency that contrarians treat as a warning. Sentiment extremes are read opposite to the crowd because bullish consensus leaves little fuel for further gains.

Question 21Technical analysis of financial markets

A stock trades between 40 and 50 in a rectangle for several months and then breaks out above 50. The conventional measured-move target is:

  1. 60 Correct answer.
  2. 65
  3. 55
  4. 90

Explanation

For a rectangle breakout, the height of the range (50 - 40 = 10) is projected from the breakout point. Adding 10 to the 50 breakout level gives a target of 60.

Question 22Technical analysis of financial markets

A double top is generally only considered confirmed when:

  1. the second peak is slightly higher than the first
  2. volume is heavier on the second peak than on the first
  3. price closes below the low between the two peaks Correct answer.
  4. the two peaks are formed at exactly the same price

Explanation

The pattern is completed by a decisive close below the intervening reaction low, which acts as the neckline. Until that break occurs, the two peaks merely define a range and no reversal is confirmed.

Question 23Technical analysis of financial markets

The MACD line is calculated as the difference between:

  1. price and its 200-day moving average
  2. the 12-period and 26-period exponential moving averages Correct answer.
  3. the 9-period signal line and the zero line
  4. a 12-day and a 26-day RSI

Explanation

MACD subtracts a slower exponential moving average from a faster one, traditionally the 26-period from the 12-period. A 9-period EMA of that line forms the signal line, and the gap between the two is plotted as the histogram.

Question 24Technical analysis of financial markets

A logarithmic price scale is preferred over an arithmetic scale when:

  1. prices have stayed in a narrow range
  2. the chart covers only a few weeks
  3. the chart spans years of large percentage moves Correct answer.
  4. absolute point moves matter most

Explanation

On a logarithmic scale, equal vertical distances represent equal percentage changes, so a move from 10 to 20 looks the same size as a move from 100 to 200. This keeps long-term charts of large price ranges proportionally meaningful.

Question 25Technical analysis of financial markets

In a futures market, price is rising while open interest is also rising. Most technicians interpret this as:

  1. new longs entering; the uptrend is well supported Correct answer.
  2. no change in conviction among participants
  3. liquidation of existing long positions
  4. short covering driving a weak rally

Explanation

Rising open interest alongside rising prices means new contracts are being created with buyers taking the initiative, which reflects fresh money flowing into the uptrend. Rising price with falling open interest, by contrast, typically indicates short covering.

Question 26Technical analysis of financial markets

In classical technical analysis, an uptrend is most precisely defined as:

  1. a series of closes that exceed the prior session's high
  2. a sequence of successively higher peaks and higher troughs Correct answer.
  3. any advance of more than twenty percent from a prior low
  4. a price series that trades above its 200-day moving average

Explanation

An uptrend is defined structurally by the sequence of peaks and troughs, each higher than the one before, and it remains intact until a prior significant trough is broken. Moving-average position or a percentage gain from a low are useful filters but not definitions of trend.

Question 27Technical analysis of financial markets

A 'golden cross' refers to:

  1. a close above the highest high of the previous session
  2. the convergence of two moving averages of equal length
  3. the 200-day moving average crossing above the 50-day moving average
  4. the 50-day moving average crossing above the 200-day moving average Correct answer.

Explanation

A golden cross occurs when the shorter-term 50-day average rises through the longer-term 200-day average, signaling that recent average prices have moved above longer-run average prices. The opposite crossing is known as a death cross.

Question 28Technical analysis of financial markets

A bullish engulfing pattern is characterized by:

  1. a white real body that fully overlaps the prior black real body Correct answer.
  2. a small body contained entirely within the prior session's body
  3. three consecutive sessions with progressively lower closes
  4. a gap higher followed by a close near the session low

Explanation

A bullish engulfing consists of a smaller black real body followed by a larger white real body that completely covers the prior session's body. The pattern reflects a decisive intraday shift from sellers to buyers and is most meaningful after a decline.

Question 29Technical analysis of financial markets

For the 14-period RSI, the conventional overbought and oversold thresholds are:

  1. 80 and 20
  2. 60 and 40
  3. 70 and 30 Correct answer.
  4. plus 100 and minus 100

Explanation

Wilder's original RSI work uses 70 as the overbought threshold and 30 as the oversold threshold on the bounded 0-to-100 scale. Readings beyond those levels indicate stretched momentum rather than an automatic reversal signal.

Question 30Technical analysis of financial markets

A stock breaks above resistance at 62 and then pulls back to 62 before resuming higher. Technicians would most likely describe the 62 level as:

  1. a failed breakout that voids the pattern
  2. a measured move objective now achieved
  3. an exhaustion gap that must be filled
  4. former resistance now acting as support Correct answer.

Explanation

The polarity principle holds that a broken resistance level frequently becomes support, because buyers who missed the breakout often enter on the retest. A decisive close well back below the level would instead cast doubt on the breakout.

Question 31Technical analysis of financial markets

On-Balance Volume (OBV) is constructed by:

  1. adding volume on up closes and subtracting volume on down closes Correct answer.
  2. cumulating volume only on sessions that make new yearly highs
  3. dividing average up volume by average down volume
  4. multiplying price change by volume and cumulating the result

Explanation

OBV cumulates each session's total volume with a positive sign when the close is higher and a negative sign when the close is lower, producing a running total that is compared with price. The aim is to judge whether volume is confirming the price trend.

Question 32Technical analysis of financial markets

In a head-and-shoulders top, the pattern is completed and a reversal signaled when:

  1. the 50-day moving average turns flat
  2. the right shoulder exceeds the head
  3. price closes below the neckline Correct answer.
  4. volume expands on the left shoulder

Explanation

The neckline break is the completion signal, ideally accompanied by expanding volume. Until the neckline is decisively broken, the formation is only a potential top rather than a confirmed reversal.

Question 33Technical analysis of financial markets

The VIX is trading at 14 and then jumps to 26 while the S&P 500 falls sharply. This move in the VIX most directly reflects:

  1. a rise in expected 30-day volatility Correct answer.
  2. a narrowing of the index's trading range
  3. a decline in demand for index options
  4. improving market breadth

Explanation

The VIX measures annualized implied volatility of 30-day S&P 500 index options, so a jump from 14 to 26 means the options market is pricing much larger expected swings. VIX spikes typically accompany sharp equity declines.

Question 34Technical analysis of financial markets

A head-and-shoulders top has a head at 88 and a neckline at 76. The conventional minimum downside objective is:

  1. 76
  2. 64 Correct answer.
  3. 82
  4. 70

Explanation

The measured objective equals the height from the head to the neckline, here 88 minus 76, or 12 points, projected downward from the neckline break. That gives 76 minus 12, or 64.

Question 35Technical analysis of financial markets

Price makes a higher high while the 14-period RSI makes a lower high. A technician would most likely interpret this as:

  1. bearish divergence warning of weakening momentum Correct answer.
  2. a confirmed upside breakout in momentum
  3. a distortion caused by the smoothing period
  4. an oversold reading requiring immediate selling

Explanation

Divergence occurs when price reaches a higher high but momentum reaches a lower high, suggesting the advance is losing internal strength. It is a warning of possible trend change rather than a precise timing signal on its own.

Question 36Technical analysis of financial markets

The TRIN (Arms Index) falls to 0.55. This reading most likely indicates:

  1. an invalid reading, because TRIN cannot fall below 1.0
  2. heavy volume concentrated in declining issues
  3. volume concentrated in advancing issues, a bullish tilt Correct answer.
  4. an unusually balanced advance-decline volume mix

Explanation

TRIN divides the ratio of advancing to declining issues by the ratio of advancing to declining volume, so a value below 1.0 means volume is heavier in advancing issues than the issue counts alone would imply. This is a bullish breadth tilt, although extremely low readings also warn of short-term overbought conditions.

Question 37Technical analysis of financial markets

A stock's short interest ratio rises to twelve days of average volume, a multi-year high. A contrarian technician would most likely view this as:

  1. potentially bullish, as covering could fuel a rally Correct answer.
  2. a signal to sell because informed traders are shorting
  3. irrelevant, since short interest is not publicly reported
  4. confirmation that the downtrend will persist

Explanation

A high short interest ratio means a large portion of the float is sold short relative to typical trading volume, and short sellers must eventually buy back the shares. That potential buying can accelerate an advance, so the indicator is read contrarianly rather than as trend confirmation.

Question 38Technical analysis of financial markets

On a daily chart the Parabolic SAR dots, which had been plotted above the price bars, now appear below them. This change most likely indicates:

  1. that the security has entered a trading range
  2. an increase in the trend's acceleration factor only
  3. a shift to an upward trend bias in the indicator Correct answer.
  4. confirmation of a completed head-and-shoulders top

Explanation

When the SAR flips from above the bars to below them, the indicator has reversed to an uptrend bias and then trails beneath price as a rising stop reference. A flip back above the bars would end that uptrend.

Question 39Technical analysis of financial markets

To draw a trend channel around an uptrend, the technician draws:

  1. a vertical line through the highest high in the pattern
  2. a horizontal line at the highest close of the period
  3. a line parallel to the trendline through the first prominent peak Correct answer.
  4. a line connecting the two lowest lows of the entire series

Explanation

The channel line is drawn parallel to the basic trendline through the first prominent reaction high in an uptrend, or through the first prominent reaction low in a downtrend. Together the two lines bound the channel within which price tends to oscillate.

Question 40Technical analysis of financial markets

Late in an extended advance, price gaps up on very heavy volume, then stalls and fills the gap within a week. The gap is best classified as:

  1. a common gap inside a range
  2. a measuring gap
  3. an exhaustion gap Correct answer.
  4. a breakaway gap

Explanation

An exhaustion gap appears at the end of a mature move, often on climactic volume, and is typically filled quickly as the trend stalls. Breakaway and measuring gaps occur early or midway in a move and frequently remain unfilled.

Question 41Technical analysis of financial markets

A stock forms an ascending triangle: flat resistance at 45 with steadily rising lows. The conventional resolution bias is:

  1. downside, because rising lows indicate distribution
  2. downside, because the resistance line is flat
  3. upside, as buyers absorb supply at a fixed price Correct answer.
  4. neutral, since the pattern carries no directional bias

Explanation

In an ascending triangle, buyers repeatedly absorb supply at the flat resistance while demand lifts the lows, so an upside resolution is the more common outcome. The breakout should ideally be accompanied by expanding volume.

Question 42Technical analysis of financial markets

After a long advance, volume expands to triple its average while price swings widely and closes near the session low. This most likely signals:

  1. accumulation by long-term investors
  2. climactic selling and possible trend exhaustion Correct answer.
  3. reduced volatility in the coming sessions
  4. a healthy consolidation before continuation

Explanation

Very heavy volume combined with a wide range and a close near the low after an extended advance often marks a selling climax or distribution, warning that the trend is exhausting. Healthy consolidations, by contrast, show quiet and orderly pullbacks.

Question 43Technical analysis of financial markets

Under Dow Theory, the three phases of a primary bull market are:

  1. optimism, excitement, and then a final capitulation phase
  2. markup, markdown, and a sustained distribution phase
  3. accumulation, markup, and liquidation of positions
  4. accumulation, public participation, and distribution Correct answer.

Explanation

Dow Theory divides a primary bull market into accumulation, when informed buyers absorb supply; public participation, when the trend becomes widely recognized; and distribution, when informed sellers unload into strength.

Question 44Technical analysis of financial markets

Renko charts are distinguished by the fact that they:

  1. display every time period whether or not price changes
  2. plot volume against price for each session
  3. plot only price changes of a fixed size, ignoring time Correct answer.
  4. use a fixed number of reversals per column

Explanation

Renko bricks are drawn only when price moves by a predetermined amount, so time is not represented and minor fluctuations are filtered out. Point-and-figure charts share the time-independence but use columns of X's and O's and a reversal count instead.

Question 45Technical analysis of financial markets

Two simple moving averages are applied to the same price series. Compared with the 20-day average, the 200-day average will:

  1. plot exactly the same values, only smoother
  2. be more sensitive to short-term price swings
  3. turn sooner at market turning points
  4. lag price more and smooth the data more heavily Correct answer.

Explanation

A longer moving average incorporates more history, so it responds later to turning points and produces a smoother line. The shorter average turns sooner and reacts more strongly to recent price changes.

Question 46Technical analysis of financial markets

A stock gaps up to 50, trades between 50 and 53 for two weeks, then gaps down to 47. The pattern formed is best described as:

  1. an island reversal, a topping signal Correct answer.
  2. a measuring gap marking the midpoint of the advance
  3. a symmetrical triangle that resolves downward
  4. a breakaway gap that confirms the prior uptrend

Explanation

Gapping up, trading in a small range, and then gapping down at roughly the same level isolates a block of prices from the surrounding action, which is an island reversal. It usually signals that the prior advance has failed and that the trend may reverse.

Question 47Technical analysis of financial markets

In Wyckoff accumulation analysis, a 'spring' is best described as:

  1. volume rising while price stalls at resistance
  2. the final markup phase of the trend
  3. a dip below support that quickly recovers Correct answer.
  4. a heavy-volume advance out of the range

Explanation

A spring is a false breakdown below the support of a trading range that quickly recovers back into the range, shaking out weak holders while larger operators absorb supply. Markup typically follows once that supply has been accumulated.

Question 48Technical analysis of financial markets

On an Ichimoku chart, price is well above the Kumo and the cloud is thick and rising. This configuration most likely indicates:

  1. an imminent bearish cloud twist
  2. a market in a balanced range with no trend
  3. a signal that the lagging span has turned down
  4. a strong uptrend with the cloud as support Correct answer.

Explanation

Price above a thick, rising cloud reflects an established uptrend in which the Kumo serves as a support zone on pullbacks. A flat cloud implies balance, while a twist warns that the balance may be shifting.

Question 49Technical analysis of financial markets

The McClellan Oscillator is calculated as:

  1. a 19-day EMA minus a 39-day EMA of net advances Correct answer.
  2. a 10-day sum of new highs minus new lows
  3. the ratio of advancing issues to declining issues
  4. the percentage of stocks above their 200-day average

Explanation

The McClellan Oscillator is the difference between the 19-day and 39-day exponential moving averages of net advances, that is, advancing issues minus declining issues. It is a measure of breadth momentum rather than of price itself.

Question 50Technical analysis of financial markets

On a Kagi chart, a yin (thin) line is switched to a yang (thick) line when:

  1. price breaks above the prior shoulder high Correct answer.
  2. volume exceeds its 50-day average
  3. the column's reversal amount is doubled
  4. a gap appears between two consecutive sessions

Explanation

In Kagi charting the line is drawn thin during declines and becomes thick when price breaks above the previous shoulder, shifting the chart to a bullish posture. The reverse happens when price breaks below the prior waist.