CPT Technical Analysis & Chart Patterns 3

Question 1

What does a 'negative divergence' between price and RSI indicate?

Accepted Answer

Price makes a higher high but RSI makes a lower high

Answer

Negative (bearish) divergence occurs when price achieves a higher high while RSI forms a lower high, warning of weakening momentum.

Question 2

In the context of Bollinger Bands, a 'Bollinger squeeze' refers to:

Accepted Answer

Bands narrowing significantly, signaling a potential volatility expansion

Answer

A Bollinger squeeze occurs when bands contract to unusually narrow widths, often preceding a large directional price move.

Question 3

The 'neckline' in an inverse head and shoulders pattern is defined as:

Accepted Answer

The line connecting the highs of the two shoulders

Answer

The neckline connects the reaction highs (peaks) between the left shoulder, head, and right shoulder of an inverse head and shoulders.

Question 4

On-Balance Volume (OBV) is used primarily to:

Accepted Answer

Confirm price trends using cumulative volume flow

Answer

OBV accumulates volume on up days and subtracts it on down days, helping confirm whether volume supports the prevailing price trend.

Question 5

A 'pennant' continuation pattern is most similar in structure to which other pattern?

Accepted Answer

Symmetrical triangle

Answer

A pennant resembles a small symmetrical triangle but forms on a steep flagpole and resolves as a continuation, not a reversal.

(CPT) Certified Pro Trader Practice Test