Day Trading Technical Indicators 1 — Questions and Answers
Question 1: What does the Relative Strength Index (RSI) primarily measure?
- The volume of shares traded relative to average
- The speed and magnitude of recent price changes to evaluate overbought or oversold conditions (Correct answer)
- The distance between two moving averages
- The number of advancing versus declining stocks
Correct answer: The speed and magnitude of recent price changes to evaluate overbought or oversold conditions
RSI measures the velocity of recent price movements on a scale of 0–100, signaling overbought (>70) or oversold (<30) conditions.
Question 2: When a stock's price makes a new high but the RSI fails to confirm with a new high, this is called:
- A golden cross
- Bearish divergence (Correct answer)
- A Doji signal
- Volume confirmation
Correct answer: Bearish divergence
Bearish divergence occurs when price reaches a new high while RSI makes a lower high, warning of potential trend reversal.
Question 3: The MACD indicator is calculated by subtracting which two exponential moving averages?
- 5-period EMA from 10-period EMA
- 12-period EMA from 26-period EMA (Correct answer)
- 20-period EMA from 50-period EMA
- 50-period EMA from 200-period EMA
Correct answer: 12-period EMA from 26-period EMA
MACD is the 12-period EMA minus the 26-period EMA, with a 9-period signal line plotted on top.
Question 4: In day trading, a 'MACD crossover' buy signal occurs when:
- The MACD line crosses above the signal line (Correct answer)
- The MACD histogram turns negative
- The 50-day moving average crosses above the 200-day
- Price closes above the upper Bollinger Band
Correct answer: The MACD line crosses above the signal line
A bullish MACD crossover happens when the MACD line crosses above the signal line, indicating growing upward momentum.
Question 5: Bollinger Bands consist of which three components?
- High, Low, and Close lines
- A simple moving average, an upper band, and a lower band set at standard deviations (Correct answer)
- RSI, MACD, and volume overlay
- Opening range, VWAP, and pivot points
Correct answer: A simple moving average, an upper band, and a lower band set at standard deviations
Bollinger Bands use a 20-period SMA as the middle band, with upper and lower bands plotted two standard deviations away.
Question 6: What does it mean when a stock's price 'walks the band' along the upper Bollinger Band?
- The stock is about to reverse sharply lower
- The stock is in a strong uptrend with sustained momentum (Correct answer)
- The bands are too narrow to be useful
- Volume is declining relative to recent average
Correct answer: The stock is in a strong uptrend with sustained momentum
Price hugging the upper Bollinger Band consistently indicates strong bullish momentum rather than an immediate reversal.
Day Trading Technical Indicators 1
What does the Relative Strength Index (RSI) primarily measure?