Day Trading Technical Indicators 2 — Questions and Answers
Question 1: VWAP stands for Volume Weighted Average Price. In day trading, it is most commonly used as:
- A long-term trend indicator spanning multiple weeks
- An intraday benchmark for institutional order flow and trade quality (Correct answer)
- A measure of after-hours trading volume
- A substitute for the opening range breakout level
Correct answer: An intraday benchmark for institutional order flow and trade quality
VWAP is an intraday indicator used by institutions as a benchmark; price above VWAP is considered bullish and below is bearish.
Question 2: The Stochastic Oscillator compares a security's closing price to its price range over a given period. A reading above 80 generally indicates:
- A strong downtrend is forming
- The asset is in overbought territory (Correct answer)
- Volume is unusually low
- A gap-up opening is likely tomorrow
Correct answer: The asset is in overbought territory
A Stochastic reading above 80 signals overbought conditions, suggesting the price may be due for a pullback.
Question 3: What is the primary difference between a Simple Moving Average (SMA) and an Exponential Moving Average (EMA)?
- SMA uses volume data; EMA uses only price data
- EMA gives more weight to recent prices, making it more responsive to new data (Correct answer)
- SMA is used only for long-term investing; EMA is for day trading only
- EMA is calculated weekly while SMA is calculated daily
Correct answer: EMA gives more weight to recent prices, making it more responsive to new data
The EMA applies a multiplier that gives more weight to recent prices, causing it to react faster to price changes than the SMA.
Question 4: In technical analysis, what does 'Average True Range' (ATR) measure?
- The average volume of shares traded over a period
- Market volatility by calculating average price range including gaps (Correct answer)
- The ratio of up-days to down-days in a period
- The percentage of stocks above their 50-day moving average
Correct answer: Market volatility by calculating average price range including gaps
ATR measures market volatility by averaging the true range (including overnight gaps) over a specified number of periods.
Question 5: A day trader uses the 9 EMA and 20 EMA. A bullish signal is triggered when:
- The 9 EMA crosses below the 20 EMA
- The 9 EMA crosses above the 20 EMA (Correct answer)
- Both EMAs are flat and horizontal
- Price closes below both EMAs
Correct answer: The 9 EMA crosses above the 20 EMA
The shorter 9 EMA crossing above the longer 20 EMA signals that short-term momentum has turned bullish.
Question 6: The On-Balance Volume (OBV) indicator is used to:
- Calculate intraday pivot points
- Measure cumulative buying and selling pressure using volume (Correct answer)
- Determine the average daily trading range
- Identify candlestick reversal patterns
Correct answer: Measure cumulative buying and selling pressure using volume
OBV adds volume on up days and subtracts it on down days to show whether volume is flowing into or out of a security.
Day Trading Technical Indicators 2
VWAP stands for Volume Weighted Average Price.
In day trading, it is most commonly used as: