CTA Volume Analysis & Market Breadth

Question 1

In technical analysis, what does 'volume precedes price' mean?

Accepted Answer

Changes in volume patterns often signal upcoming price direction shifts

Answer

Volume is considered a leading indicator because shifts in buying or selling pressure (visible through volume) often occur before they are fully reflected in price movements.

Question 2

On-Balance Volume (OBV) is calculated by:

Accepted Answer

Adding volume on up days and subtracting volume on down days cumulatively

Answer

OBV is a cumulative volume indicator developed by Joe Granville that adds the day's volume when price closes up and subtracts it when price closes down, tracking money flow.

Question 3

What does 'negative volume divergence' signal when price reaches new highs?

Accepted Answer

Weakening buying pressure, suggesting the uptrend may be losing momentum

Answer

When price makes new highs but volume fails to confirm (declining on rallies), it indicates waning conviction behind the move, often preceding a reversal or consolidation.

Question 4

The Advance-Decline Line (A/D Line) measures:

Accepted Answer

The cumulative difference between advancing and declining issues over time

Answer

The A/D Line is a breadth indicator calculated by cumulatively adding the daily difference between advancing and declining stocks, reflecting broad market participation.

Question 5

What is the significance of 'volume climax' or 'selling climax'?

Accepted Answer

Extremely high volume on a sharp decline that may signal exhaustion of sellers and a potential bottom

Answer

A selling climax features panic-level volume on a steep price decline, representing exhaustion of selling pressure and often marking a significant low or trend reversal point.

CTA - Certified Technical Analyst Practice Test

CTA - Certified Technical Analyst Practice Test

CTA Volume Analysis & Market Breadth