Trading Strategies & Market Timing Flashcards
7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Trading Strategies & Market Timing flashcards as text
A swing trader holds a long position for 4 days and the stock forms a 'bearish engulfing' candlestick pattern on day 4. What is the most appropriate action?
Answer: Close or reduce the long position as a reversal signal appears
A bearish engulfing pattern signals a potential trend reversal, making it prudent to close or reduce a long position.
Which market condition best describes a 'range-bound' or 'sideways' market?
Answer: Price oscillates between defined support and resistance levels without a clear trend
A range-bound market is characterized by price oscillating between consistent support and resistance levels with no clear directional trend.
The 'opening range breakout' (ORB) strategy uses the high and low established during which time period as its reference?
Answer: The first 15 to 30 minutes of the current trading session
The ORB strategy uses the price range established in the first 15–30 minutes of the session as breakout levels for trade entries.
In mean reversion trading, a stock's price is considered 'statistically stretched' when it trades more than two standard deviations from its moving average. This concept is formalized in which indicator?
Answer: Bollinger Bands
Bollinger Bands plot bands two standard deviations above and below a moving average, visually identifying statistically stretched price levels.
A trader uses a 'pairs trade' by going long Stock A and short Stock B from the same sector. The primary risk being hedged is:
Answer: Broad market directional risk
Pairs trading hedges broad market (beta) risk by holding offsetting long and short positions in correlated securities, leaving exposure only to the relative performance spread.
Which of the following best describes the 'three-day rule' used by many technical traders after a significant gap down?
Answer: Wait three days before entering a long position to confirm the gap does not continue lower
The three-day rule suggests waiting three sessions after a large gap down before buying, allowing initial panic selling to exhaust itself.
An options trader sells a cash-secured put on a stock they want to own at a lower price. If the put expires worthless, the trader's effective outcome is:
Answer: They keep the premium as profit without acquiring the shares
When a short put expires worthless, the seller keeps the entire premium collected as profit without any stock assignment.