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NCFM Technical Analysis study materials
NCFM Technical Analysis study resources

NCFM Technical Analysis practice questions

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Question 1Basics of Technical Analysis

In technical analysis, a price chart that plots only the closing price of each period, connected by a line, is known as which of the following?

  1. Point and figure chart
  2. Line chart Correct answer.
  3. Candlestick chart
  4. Bar chart

Explanation

A line chart connects successive closing prices with a single continuous line and discards intraperiod highs, lows, and opens. It is the simplest chart type and is used mainly to visualize the overall trend rather than intrabar price action.

Question 2Basics of Technical Analysis

On a standard candlestick chart, what does a long upper shadow (wick) with a small real body near the low of the range typically indicate?

  1. The candle's open and close were identical, showing indecision
  2. Buyers pushed price up but sellers rejected higher levels and drove price back down Correct answer.
  3. Sellers dominated from the open and closed at the low
  4. The market traded in an extremely narrow range

Explanation

The upper shadow records how far price advanced above the real body before being pushed back. A long upper shadow with a small body near the low shows that buying pressure was overcome by selling pressure within the period, a rejection of higher prices.

Question 3Basics of Technical Analysis

Which statement best describes the role of volume in confirming a price trend?

  1. Falling volume during an uptrend proves the trend will reverse
  2. Volume should always be ignored because it lags price
  3. Rising price accompanied by expanding volume supports the trend's validity Correct answer.
  4. Volume and price move in fixed inverse proportion

Explanation

Volume measures participation and conviction behind a price move. Expanding volume as price advances suggests broad participation, reinforcing the trend, while shrinking volume can warn of weakening conviction.

Question 4Basics of Technical Analysis

A trendline drawn along the rising lows of an uptrend is most useful for which purpose?

  1. Setting dividend policy
  2. Guaranteeing the exact reversal price
  3. Measuring earnings growth
  4. Identifying dynamic support and potential trend-failure points Correct answer.

Explanation

An uptrend line connects successive higher lows and acts as dynamic support; a decisive break below it signals possible trend deterioration. It is a visual guide, not a precise predictor of a reversal price.

Question 5Basics of Technical Analysis

In Dow Theory, which of the following is considered the primary trend?

  1. The broad, long-term movement lasting from many months to several years Correct answer.
  2. Short swings lasting a few weeks
  3. Intraday noise that traders ignore
  4. Daily price fluctuations that reverse within hours

Explanation

Dow Theory classifies trends into primary, secondary, and minor. The primary trend is the broad long-term movement, typically lasting a year or more, which investors use to define the market's main direction.

Question 6Basics of Technical Analysis

Which of the following is the primary purpose of a support level on a price chart?

  1. A measure of a company's intrinsic value
  2. A price zone where buying interest has historically halted declines Correct answer.
  3. A price zone where selling pressure has historically halted rallies
  4. A regulatory price floor set by the exchange

Explanation

Support is a price area where demand has previously been strong enough to stop or slow a decline. It is identified from prior reaction lows and is a market-behavior concept, not a valuation or regulatory floor.

Question 7Basics of Technical Analysis

Which of the following best defines a moving average in technical analysis?

  1. An average of closing prices over a rolling window that smooths price data Correct answer.
  2. The highest price reached over a chosen period
  3. A ratio of volume to price change
  4. The difference between the day's open and close

Explanation

A moving average computes the mean of prices (usually closes) over a fixed rolling window and updates as new data arrives. It smooths short-term fluctuations to reveal the underlying trend direction.

Question 8Basics of Technical Analysis

In technical analysis, a market is described as being in a 'range-bound' or sideways phase when which condition holds?

  1. Price gaps up on every session open
  2. Price oscillates between a defined support and resistance zone without a clear directional trend Correct answer.
  3. Price makes consistently higher highs and higher lows
  4. Price falls continuously with expanding volume

Explanation

A sideways or range-bound market has no clear directional bias; price bounces between an upper resistance and lower support. Traders treat range boundaries as reaction levels until a decisive breakout occurs.

Question 9Basics of Technical Analysis

A stock trades at 100 and forms a resistance level at 110. Which event would most clearly signal a bullish breakout confirmation?

  1. A touch of 110 followed by an immediate reversal
  2. A close at 105 on declining volume
  3. A close above 110 with above-average volume Correct answer.
  4. A gap down below 95

Explanation

Breakout confirmation typically requires price to close beyond the resistance level, and expanding volume strengthens the signal by showing conviction. A mere touch or an intraday spike without a close above the level is weaker evidence.

Question 10Basics of Technical Analysis

If the 50-day simple moving average of a stock is above its 200-day simple moving average, this configuration is commonly described as which of the following?

  1. A death cross, often read as bearish
  2. A bearish divergence
  3. An oversold signal
  4. A golden cross, often read as bullish Correct answer.

Explanation

When a shorter moving average (50-day) rises above a longer one (200-day), the crossover is called a golden cross and is widely interpreted as a bullish trend signal. The opposite arrangement, the death cross, is bearish.

Question 11Basics of Technical Analysis

An RSI (14-period) reading of 78 on a stock that has risen sharply for several weeks is most commonly interpreted as which of the following?

  1. The stock is oversold and likely to rally
  2. Volume is declining
  3. The stock is overbought and may be due for a pause or pullback Correct answer.
  4. The stock is in a confirmed downtrend

Explanation

RSI oscillates between 0 and 100, and readings above the typical 70 threshold are labeled overbought. An overbought reading warns that the advance may be extended, though in strong trends it can persist, so it is not a standalone sell signal.

Question 12Basics of Technical Analysis

A head-and-shoulders top pattern is completed when price does which of the following?

  1. Rises above the left shoulder high
  2. Forms the head with the highest volume
  3. Touches the right shoulder a second time
  4. Closes below the neckline connecting the two intervening lows Correct answer.

Explanation

A head-and-shoulders top consists of a left shoulder, a higher head, and a lower right shoulder, with a neckline drawn through the two reaction lows. The pattern is confirmed when price breaks below that neckline, often with rising volume.

Question 13Basics of Technical Analysis

A doji candlestick, where the open and close are nearly equal, most directly signals which of the following?

  1. A confirmed long-term downtrend
  2. A guaranteed reversal on the next bar
  3. Strong bullish continuation
  4. Indecision as buyers and sellers reach equilibrium for the period Correct answer.

Explanation

A doji forms when price ends the period near where it opened, showing that neither side gained control. It signals indecision and gains meaning only in context, such as after an extended trend where it may precede a turn.

Question 14Basics of Technical Analysis

When a prior resistance level at 200 is broken and price later pulls back to approximately 200, technical analysts often expect which behavior?

  1. Volume becomes irrelevant at that level
  2. Price must fall immediately to zero
  3. The former resistance acts as new support Correct answer.
  4. The level loses all significance

Explanation

A common technical principle is that broken resistance tends to become support, because traders who missed the breakout may buy on the retest. This role reversal is watched for confirmation of the breakout's validity.

Question 15Basics of Technical Analysis

On-balance volume (OBV) is constructed by doing which of the following?

  1. Adding volume on up-closing periods and subtracting volume on down-closing periods Correct answer.
  2. Dividing price by volume each period
  3. Averaging the volume of the last 14 periods
  4. Multiplying price change by open interest

Explanation

OBV is a cumulative volume line that adds the period's volume when the close is higher than the prior close and subtracts it when lower. Divergence between OBV and price can hint at weakening participation behind a move.

Question 16Basics of Technical Analysis

A stock in an established uptrend makes a higher high while the MACD histogram shrinks and the MACD line begins to fall. This condition is best described as which of the following?

  1. A confirmed reversal already completed
  2. Bearish divergence, warning that momentum is weakening Correct answer.
  3. Bullish confirmation of accelerating momentum
  4. An oversold condition

Explanation

Divergence occurs when price makes a higher high but a momentum indicator fails to confirm it, suggesting the advance lacks force. It is a warning rather than a completed reversal, and traders typically wait for price confirmation before acting.

Question 17Basics of Technical Analysis

A symmetrical triangle pattern is characterized by which of the following?

  1. Two parallel trendlines sloping upward
  2. A single sharp gap followed by a flat consolidation
  3. Converging trendlines of lower highs and higher lows, with a breakout expected in either direction Correct answer.
  4. A horizontal resistance line and a rising support line

Explanation

A symmetrical triangle forms as highs make lower peaks and lows make higher troughs, causing the range to narrow. Because the pattern is neutral, the eventual breakout direction, ideally confirmed by volume, determines the trade.

Question 18Basics of Technical Analysis

The relative strength index (RSI) is best classified as which type of technical tool?

  1. A momentum oscillator bounded between 0 and 100 Correct answer.
  2. A volatility band overlay
  3. A volume-based cumulative line
  4. A trend-following moving average

Explanation

RSI compares average gains with average losses over a lookback period to produce a bounded oscillator from 0 to 100. It is used to gauge momentum and overbought or oversold conditions rather than to smooth price like a moving average.

Question 19Basics of Technical Analysis

Which of the following best explains why analysts require a confirming signal before acting on a chart pattern breakout?

  1. Patterns are always reliable, so confirmation is only a formality
  2. Confirmation guarantees the predicted price target is reached
  3. Patterns can produce false breakouts, so added evidence such as a close beyond the level and rising volume reduces noise Correct answer.
  4. Confirmation removes all risk from the trade

Explanation

Breakouts frequently fail when price briefly pierces a level and then retreats, so confirmation filters out noise. A decisive close beyond the boundary and expanding volume increase confidence, though no signal eliminates risk or guarantees a target.

Question 20Basics of Technical Analysis

A price gap that appears within an established trend, between two areas of heavy trading, is often called which of the following?

  1. A common gap
  2. An exhaustion gap
  3. A breakaway gap
  4. A runaway (measuring) gap Correct answer.

Explanation

Runaway or measuring gaps occur mid-trend and signal strong continuation, often used to estimate the remaining move. Breakaway gaps start a trend, common gaps occur in quiet ranges, and exhaustion gaps appear near a trend's end.

Question 21Basics of Technical Analysis

A trader observes that a stock has made three successive higher lows but the closing price is still capped by a flat resistance line. Which interpretation is most consistent with technical principles?

  1. The stock is in a confirmed downtrend
  2. Demand is strengthening beneath resistance, raising the odds of an upward breakout Correct answer.
  3. The rising lows have no analytical meaning
  4. The pattern guarantees a subsequent decline

Explanation

Higher lows indicate that buyers are stepping in at progressively higher prices, pressuring a fixed resistance. This ascending-triangle-like structure suggests building demand, and a breakout above resistance would confirm it, though no outcome is guaranteed.

Question 22Basics of Technical Analysis

In Elliott Wave theory, a complete motive (impulse) sequence moving in the direction of the larger trend consists of how many waves?

  1. Five Correct answer.
  2. Two
  3. Seven
  4. Three

Explanation

Elliott Wave theory describes a five-wave motive sequence in the trend direction, followed by a three-wave corrective sequence against it. The five waves are commonly labeled 1 through 5.

Question 23Basics of Technical Analysis

A stock breaks below a major support level with a wide-range candle and heavy volume, then immediately recovers above the same level. This behavior is most accurately described as which of the following?

  1. A valid head-and-shoulders completion
  2. A bullish divergence in volume
  3. A confirmed downtrend continuation
  4. A false breakdown, which can trap sellers and often precedes an upward move Correct answer.

Explanation

When price pierces support but quickly reclaims it, the breakdown failed to attract sustained selling, trapping short sellers and creating potential fuel for a rally. Analysts treat the reclaimed level as evidence the breakdown was false.

Question 24Basics of Technical Analysis

When comparing a simple moving average and an exponential moving average of the same period during a sustained uptrend, which statement is correct?

  1. Both averages always produce identical values
  2. The exponential moving average responds faster to recent price changes and typically sits closer to current price Correct answer.
  3. The exponential moving average ignores the most recent prices
  4. The simple moving average responds faster because it weights all data equally

Explanation

An exponential moving average weights recent prices more heavily, so it reacts more quickly to new data and hugs price more closely in a trend. The simple moving average smooths more evenly because every observation carries equal weight.

Question 25Basics of Technical Analysis

A trader notes that price has formed a descending triangle with a flat support line and lower highs, while volume has been declining throughout the formation. Which reading is most consistent with classical technical analysis?

  1. Volume has no bearing on triangle resolution
  2. Declining volume guarantees an upward breakout
  3. The flat support line makes the pattern bullish
  4. Declining volume suggests fading participation, and a breakdown below support would be the pattern's typical resolution Correct answer.

Explanation

A descending triangle has a horizontal support and descending highs, giving it a bearish bias, with a downside break as the usual resolution. Shrinking volume during the formation reflects waning participation, and a breakdown ideally comes with expanding volume.

Question 26Basics of Technical Analysis

In candlestick charting, a long lower shadow (tail) on a bullish reversal candle such as a hammer indicates which of the following?

  1. The security traded in an unusually narrow range with little intraday volatility.
  2. The opening price was exactly equal to the closing price, producing a doji.
  3. Buyers pushed price sharply higher during the session but sellers forced a close near the low.
  4. Sellers pushed price sharply lower during the session but buyers recovered most of the decline by the close. Correct answer.

Explanation

A long lower shadow shows that price traded well below the open but closed near the top of the range, meaning sellers initially dominated and buyers then absorbed the selling. This rejection of lower prices is what gives reversal candles such as the hammer their bullish connotation. The length of the shadow relative to the real body is the key visual cue.

Question 27Basics of Technical Analysis

A volume bar chart shows that volume on an up day is significantly larger than volume on the preceding down days. In technical analysis, this pattern most directly supports which interpretation?

  1. Volume is irrelevant to the durability of a price move.
  2. The advance is a low-conviction move that should be faded.
  3. The security is entering a prolonged sideways range.
  4. The advance is backed by strong participation and is more likely to continue. Correct answer.

Explanation

Rising volume on up days indicates that buyers are willing to transact at higher prices, which is a hallmark of a healthy advance. Technical analysts treat volume as a measure of conviction, so expanding volume in the direction of the trend supports continuation. Divergence between price and volume would instead raise caution.

Question 28Basics of Technical Analysis

Which of the following best describes the construction of a simple moving average (SMA)?

  1. The cumulative sum of closing prices over a fixed number of periods.
  2. The median closing price over a fixed number of periods, recalculated each period.
  3. The arithmetic mean of the closing prices over a fixed number of periods, recalculated each period. Correct answer.
  4. A weighted average that gives greater weight to the most recent closing prices.

Explanation

A simple moving average is the unweighted arithmetic mean of the closing prices for a specified number of periods, and it is updated by dropping the oldest price and adding the newest. This equal weighting distinguishes it from exponential or weighted averages. The result is a smoothed line that trails price.

Question 29Basics of Technical Analysis

A stock has been trending higher, but its 14-period RSI has fallen from 70 to 55 while price made a new high. This divergence is most commonly interpreted as which of the following?

  1. The stock has entered a confirmed downtrend.
  2. RSI is overbought and a reversal is guaranteed.
  3. Momentum is weakening even though price is still rising, which warns of a possible pullback. Correct answer.
  4. Momentum is strengthening, which confirms the new price high.

Explanation

A lower RSI reading at a higher price high is a bearish divergence: the speed of the advance is slowing even as price sets a new peak. Technical analysts view this as a warning that the trend may be losing momentum, not as a confirmed reversal. Additional signals such as a support break are usually required before acting.

Question 30Basics of Technical Analysis

A stock has been oscillating between 50 and 60 for several weeks. Price then closes at 61 on volume that is double its 20-day average. Which of the following is the most appropriate technical interpretation?

  1. A breakout above resistance has occurred with volume confirmation, suggesting a possible trend change. Correct answer.
  2. The stock remains in its range because the prior high was only 60.
  3. The high volume indicates distribution and a likely decline.
  4. A false breakout is likely because the move is too small to matter.

Explanation

A close above the upper boundary of a trading range, accompanied by above-average volume, is the classic definition of a confirmed breakout. The volume expansion shows that the move is backed by broad participation rather than a thin, unreliable thrust. Analysts would then watch whether the old resistance near 60 acts as new support.

Question 31Basics of Technical Analysis

In point-and-figure charting, which of the following best describes the purpose of the box size and reversal amount settings?

  1. They set the time interval between each plotted mark.
  2. They determine the color of each column based on closing price.
  3. They filter out small price fluctuations so that only significant directional moves are plotted. Correct answer.
  4. They control the number of shares used in the volume calculation.

Explanation

Point-and-figure charts ignore time and plot only price changes that exceed a defined box size, with a new column drawn only after a specified reversal amount. These settings filter minor noise and make supply and demand imbalances easier to see. The chart therefore emphasizes significant moves rather than every tick.

Question 32Basics of Technical Analysis

A technical analyst observes that a stock's 20-day moving average has crossed below its 50-day moving average after an extended rally. This event is most commonly referred to as which of the following?

  1. A death cross, which is a bearish moving-average crossover signal. Correct answer.
  2. An island reversal, which is a gap-based reversal pattern.
  3. A bullish engulfing pattern, which is a candlestick reversal signal.
  4. A golden cross, which is a bullish moving-average crossover signal.

Explanation

When a shorter-term moving average crosses below a longer-term moving average, the configuration is called a death cross and is interpreted as a bearish shift in trend. The opposite crossover, a shorter average rising above a longer one, is a golden cross. Moving-average crossovers are lagging signals and are usually combined with other evidence.

Question 33Basics of Technical Analysis

A stock has been in a strong uptrend, and its ADX (14-period) reading has risen from 20 to 35. Which of the following is the most appropriate interpretation?

  1. The market is range-bound with no directional bias.
  2. The ADX reading indicates an overbought condition that requires a sell signal.
  3. The trend has weakened and a reversal is imminent.
  4. The trend has strengthened and is now more firmly established. Correct answer.

Explanation

The ADX measures the strength of a trend regardless of direction, and readings above 25 generally indicate a trending market. A rise from 20 to 35 therefore signals that the existing uptrend has gained strength. ADX does not by itself indicate overbought or oversold conditions.

Question 34Basics of Technical Analysis

Which of the following best explains why technical analysts consider a rising wedge pattern to be bearish?

  1. The pattern is defined by a flat upper boundary and a rising lower boundary.
  2. The pattern always appears at market bottoms and signals a new uptrend.
  3. Price makes higher highs and higher lows, but the converging boundaries and declining volume suggest fading upward momentum. Correct answer.
  4. Price makes lower highs and lower lows within converging boundaries, indicating accelerating selling pressure.

Explanation

A rising wedge is formed by two upward-sloping converging lines, with price making higher highs and higher lows in a narrowing range. The compression, often accompanied by declining volume, shows that buyers are losing power, so a downside break is the typical resolution. The pattern is therefore classified as a bearish reversal formation.

Question 35Basics of Technical Analysis

A trader is comparing a 10-period SMA with a 10-period EMA on the same price series. Which statement about their relative behavior is most accurate?

  1. Both averages will be identical because they cover the same number of periods.
  2. The EMA will respond more quickly to recent price changes and typically sits closer to current price in a fast trend. Correct answer.
  3. The EMA will always be smoother and lag price more than the SMA.
  4. The SMA will respond more quickly because it weights all periods equally.

Explanation

An exponential moving average applies greater weight to the most recent prices, so it turns faster and stays closer to price during a strong trend. A simple moving average spreads weight equally and therefore reacts more slowly. The trade-off is that the EMA is more prone to whipsaws in choppy markets.

Question 36Basics of Technical Analysis

A stock has formed a symmetrical triangle over several weeks, with volume declining as the pattern developed. Which of the following is the most appropriate technical expectation?

  1. The pattern guarantees a breakout to the upside.
  2. A breakout is likely to occur, and the direction should be confirmed by an expansion in volume. Correct answer.
  3. The pattern guarantees a breakout to the downside.
  4. The pattern indicates that the stock will remain in a range indefinitely.

Explanation

A symmetrical triangle reflects a contraction in volatility as buyers and sellers reach equilibrium, and it is typically resolved by a breakout in either direction. Because the pattern itself has no directional bias, analysts wait for the breakout and look for expanding volume as confirmation. A breakout on weak volume is more suspect.

Question 37Basics of Technical Analysis

A stock trading at 80 breaks below a support level at 75 on heavy volume, then closes back at 78 the next day. Which of the following is the most appropriate interpretation of this price action?

  1. The support level was never valid because it was broken.
  2. The heavy volume guarantees that the breakdown will hold.
  3. A false breakdown or bear trap may have occurred, which can be a bullish signal. Correct answer.
  4. The breakdown is confirmed and the downtrend is likely to continue.

Explanation

When price breaks below support but quickly recovers back above it, the breakdown is considered false and trapped sellers may be forced to cover, which can fuel a rally. This pattern is often called a bear trap or spring. The recovery above the broken level is the key confirming event.

Question 38Basics of Technical Analysis

In Dow theory, which of the following best describes the role of confirmation between the industrial and transportation averages?

  1. The transportation average is used solely to measure volatility.
  2. Confirmation is required only during bear markets, not bull markets.
  3. A primary trend signal is considered valid only when both averages confirm the same direction. Correct answer.
  4. A signal from the industrial average alone is sufficient to confirm a primary trend.

Explanation

Dow theory holds that the industrial and transportation averages must confirm each other before a primary trend change is accepted. A move in one average that is not matched by the other is treated as suspect. This mutual confirmation principle is a foundational concept in classical technical analysis.

Question 39Basics of Technical Analysis

A technical analyst classifies a chart pattern as a continuation pattern rather than a reversal pattern. Which characteristic most directly supports that classification?

  1. The pattern forms while price consolidates and then resolves in the same direction as the prior trend Correct answer.
  2. The pattern appears only after the price has reached an all-time high
  3. The pattern is confirmed solely by an increase in trading volume during its formation
  4. The pattern always develops over fewer bars than a reversal formation

Explanation

Continuation patterns are pauses in an existing trend: price consolidates, then breaks out in the direction of the trend that preceded the pattern. Reversal patterns, by contrast, mark a change in trend direction. The duration of the pattern or an all-time-high context does not define the classification, and volume alone cannot distinguish continuation from reversal.

Question 40Basics of Technical Analysis

A stock trades in a range between 40 and 50 for several weeks. Price then breaks above 50, retests the 50 level from above, and resumes higher without closing back below 50. Which interpretation is most consistent with technical analysis principles?

  1. The retest confirms that former resistance has become support, strengthening the bullish breakout case Correct answer.
  2. The retest is irrelevant because only the closing price on the breakout day matters
  3. The retest invalidates the breakout because price returned to the breakout level
  4. The retest signals a false breakout that should be traded as a reversal

Explanation

When price breaks above a resistance level and then pulls back to that level without closing beneath it, the former resistance often acts as new support, which is a classic confirmation of the breakout. A close back below the level would instead raise doubts about the breakout. The successful retest therefore reinforces, rather than invalidates, the bullish case.

Question 41Charting and Chart Patterns

In classical Dow theory, which statement best describes how a primary trend is confirmed?

  1. Two major averages must confirm each other by moving in the same direction Correct answer.
  2. A single index making a new high is enough to confirm the trend
  3. The trend is confirmed once a trendline is broken on the weekly chart
  4. Volume must expand for three consecutive sessions before confirmation

Explanation

Dow theory holds that the industrial and railroad (now transport) averages must corroborate each other; a signal in one average alone is not accepted. Volume is treated as a secondary confirming factor, not a three-session rule, and trendline breaks are not part of the original doctrine.

Question 42Charting and Chart Patterns

A stock has traded in a horizontal range for several weeks, with several highs near 240 and several lows near 220. Which term describes the 240 level?

  1. Trendline
  2. Gap
  3. Support
  4. Resistance Correct answer.

Explanation

Resistance is a price ceiling where selling interest has repeatedly overcome buying, producing clustered highs. Support would be the floor at 220, where buying has repeatedly absorbed selling.

Question 43Charting and Chart Patterns

A daily candlestick has a small real body near the top of its range and a long lower shadow roughly three times the body length. Which pattern is this?

  1. Marubozu
  2. Doji
  3. Shooting star
  4. Hammer Correct answer.

Explanation

A hammer has a small body near the top of the range with a long lower shadow, showing sellers pushed price down but buyers reclaimed it. A shooting star has the long shadow above the body, a doji has a nearly nonexistent body, and a marubozu has no shadows.

Question 44Charting and Chart Patterns

On a standard point-and-figure chart, what does a column of X symbols represent?

  1. A period of unchanged volume
  2. A rising price column Correct answer.
  3. A falling price column
  4. A completed head-and-shoulders pattern

Explanation

Point-and-figure charts use X columns for rising prices and O columns for falling prices, with box size and reversal amount defining when a new column starts. Volume is not plotted in the classic construction.

Question 45Charting and Chart Patterns

Which volume behavior most typically accompanies a valid upside breakout above a well-defined resistance level?

  1. Volume stays exactly at its average with no change
  2. Volume contracts sharply as price crosses the level
  3. Volume is irrelevant to breakout validity
  4. Volume expands noticeably above its recent average Correct answer.

Explanation

A breakout gains credibility when volume expands, indicating broad participation behind the move through resistance. A breakout on light volume is more prone to failure and a return into the range.

Question 46Charting and Chart Patterns

Which chart type plots only the closing price for each period and connects those closes with a line?

  1. Line chart Correct answer.
  2. Point-and-figure chart
  3. Candlestick chart
  4. Bar chart

Explanation

A line chart typically plots a single value per period, most often the close, joined by a continuous line. Bar and candlestick charts show open, high, low, and close, while point-and-figure charts use X and O columns.

Question 47Charting and Chart Patterns

A gap occurs between the close of one session and the open of the next. Which gap type appears after a prolonged trend and signals its likely exhaustion?

  1. Runaway gap
  2. Common gap
  3. Breakaway gap
  4. Exhaustion gap Correct answer.

Explanation

An exhaustion gap appears late in an extended move and often marks the final burst of buying or selling before a reversal. Breakaway gaps start a new move, runaway gaps occur mid-trend, and common gaps appear in quiet ranges.

Question 48Charting and Chart Patterns

What does a moving average crossover of a shorter-period average above a longer-period average typically signal?

  1. A neutral consolidation
  2. An increase in trading volume
  3. A bearish trend reversal
  4. A bullish trend signal Correct answer.

Explanation

When a faster moving average crosses above a slower one, recent prices are rising relative to the longer baseline, which is read as a bullish trend signal. The reverse crossover is read as bearish.

Question 49Charting and Chart Patterns

A stock breaks above resistance at 80 on strong volume, then pulls back to 80 and rebounds. What is the 80 level now acting as?

  1. A trend channel line
  2. New support Correct answer.
  3. New resistance
  4. A gap zone

Explanation

When resistance is broken and price later returns to that level and holds, the former ceiling becomes support, a common polarity reversal. The successful retest strengthens the breakout's validity.

Question 50Charting and Chart Patterns

A head-and-shoulders top has a neckline at 50, a head at 65, and shoulders near 58. Using the measured-move rule, what is the downside target after the neckline breaks?

  1. 42 Correct answer.
  2. 35
  3. 58
  4. 45

Explanation

The measured move projects the head-to-neckline distance downward from the neckline. Here the distance is 65 minus 50, or 15 points, giving a target of 50 minus 15, which equals 35.