Advanced Topics Flashcards
7 cards from real Day Trading practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Advanced Topics flashcards as text
What is the 'opening range breakout' (ORB) strategy based on?
Answer: Using the high and low established in the first period as breakout levels for the rest of the day
The ORB strategy defines a price range established in the first 5, 15, or 30 minutes and then trades breakouts above or below that range with the expectation of continuation.
In the context of order flow analysis, what does a 'footprint chart' reveal that standard candlestick charts do not?
Answer: The volume transacted at each individual price level within a candle, split by buy and sell aggression
Footprint charts display the actual volume of buy-initiated vs. sell-initiated trades at each price level inside a candle, revealing where buyers and sellers were most aggressive.
What characterizes a 'liquidity vacuum' in day trading, and why is it dangerous?
Answer: A price zone with very few resting orders, allowing price to move rapidly through it
A liquidity vacuum is an area in the order book with few limit orders, so when price enters this zone it can move very quickly, creating significant slippage for traders with stop orders.
Which concept describes how the bid-ask spread widens around major economic news releases, and what risk does it create?
Answer: Spread expansion; it increases transaction costs and execution risk during volatile periods
Around major economic releases, market makers widen spreads to protect themselves from directional risk, which can dramatically increase entry and exit costs for day traders.
What is 'spoofing' in electronic markets, and why is it illegal under the Dodd-Frank Act?
Answer: Placing and quickly canceling large orders to create a false impression of supply or demand
Spoofing involves placing large fake orders with no intention of filling them to manipulate other traders' perceptions of supply and demand, which distorts price discovery and is explicitly prohibited.
In algorithmic day trading, what is 'latency arbitrage' and why is it controversial?
Answer: Exploiting tiny time advantages to trade ahead of slower participants by co-locating servers near exchanges
Latency arbitrage involves high-frequency traders using faster connections and co-location to react to market data milliseconds before slower participants, which critics argue disadvantages retail traders.
What does 'tape reading' refer to in modern day trading, and which tool best facilitates it?
Answer: Analyzing the real-time stream of time and sales data to gauge buying and selling pressure
Modern tape reading involves analyzing the time and sales (T&S) window to interpret the pace, size, and direction of transactions to infer whether buyers or sellers are in control.