CTA Market Structure & Price Theory 1

Question 1

In Dow Theory, what does a 'higher high followed by a higher low' indicate?

Accepted Answer

A confirmed uptrend

Answer

Dow Theory defines an uptrend as a series of higher highs and higher lows, confirming bullish market structure.

Question 2

Which market phase in Wyckoff theory is characterized by institutional accumulation of shares at low prices?

Accepted Answer

Accumulation phase

Answer

In Wyckoff's methodology, the accumulation phase occurs when smart money quietly builds positions at depressed price levels before a markup begins.

Question 3

What is the primary purpose of identifying support and resistance levels in technical analysis?

Accepted Answer

To identify price zones where buying or selling pressure is significant

Answer

Support and resistance levels mark price zones where historical supply and demand imbalances tend to recur, making them critical decision points for traders.

Question 4

When a former resistance level becomes support after a breakout, this phenomenon is called:

Accepted Answer

Role reversal

Answer

Role reversal describes the principle that once price decisively breaks through resistance, that level often flips to act as new support on subsequent pullbacks.

Question 5

According to Dow Theory, a primary trend must be confirmed by:

Accepted Answer

Both the Dow Jones Industrial Average and the Dow Jones Transportation Average

Answer

Dow Theory requires confirmation between the Industrial and Transportation averages, as both must signal the same trend direction for a valid primary trend.

CTA - Certified Technical Analyst Practice Test

CTA - Certified Technical Analyst Practice Test

CTA Market Structure & Price Theory 1