Market Structure & Price Theory Flashcards
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Read the first 6 Market Structure & Price Theory flashcards as text
In Dow Theory, what does a 'higher high followed by a higher low' indicate?
Answer: A confirmed uptrend
Dow Theory defines an uptrend as a series of higher highs and higher lows, confirming bullish market structure.
Which market phase in Wyckoff theory is characterized by institutional accumulation of shares at low prices?
Answer: Accumulation phase
In Wyckoff's methodology, the accumulation phase occurs when smart money quietly builds positions at depressed price levels before a markup begins.
What is the primary purpose of identifying support and resistance levels in technical analysis?
Answer: To identify price zones where buying or selling pressure is significant
Support and resistance levels mark price zones where historical supply and demand imbalances tend to recur, making them critical decision points for traders.
When a former resistance level becomes support after a breakout, this phenomenon is called:
Answer: Role reversal
Role reversal describes the principle that once price decisively breaks through resistance, that level often flips to act as new support on subsequent pullbacks.
According to Dow Theory, a primary trend must be confirmed by:
Answer: Both the Dow Jones Industrial Average and the Dow Jones Transportation Average
Dow Theory requires confirmation between the Industrial and Transportation averages, as both must signal the same trend direction for a valid primary trend.
Which of the following best describes a 'trading range' in market structure?
Answer: A horizontal price band where support and resistance are roughly equal
A trading range (or consolidation) occurs when price oscillates between defined horizontal support and resistance levels, indicating a balance between buyers and sellers.