Mixed Deck — All Day Trading Topics Flashcards

What does the 'neckline' represent in a head and shoulders pattern?

Answer: The support level connecting the lows between the shoulders and head

The neckline connects the two reaction lows between the left shoulder, head, and right shoulder, and its break confirms the bearish reversal.

Which habit best helps a day trader build long-term psychological resilience?

Answer: Reviewing performance weekly, celebrating disciplined execution, and adjusting rules based on data

Systematic review tied to process metrics rather than P&L builds resilience by separating self-worth from individual trade outcomes.

What is volume in day trading?

Answer: The number of shares or contracts traded in a given time period, indicating market activity and liquidity

Volume measures trading activity. High volume indicates strong interest and liquidity, making it easier to enter and exit positions at desired prices.

What is it? What does it indicate?

Answer: It signals the reversal and the beginning of a potential downtrend.

The question refers to a Double Top pattern (resembling the letter 'M'), which is a bearish reversal pattern. It forms when the price reaches a high, pulls back, then rises to a similar high again, failing to break above it. This pattern signals that buying pressure is exhausted and a reversal to a downtrend is likely, especially once the price breaks below the support level (neckline) established between the two peaks.

In day trading, 'leverage' amplifies both gains and losses. If a broker offers 4:1 intraday leverage and a trader uses it fully, a 1% adverse move results in a:

Answer: 4% loss

At 4:1 leverage, a 1% adverse price move results in a 4% loss on the trader's actual capital.

What is paper trading?

Answer: Practicing trading with simulated money to test strategies without financial risk

Paper trading simulates real trading conditions with virtual money, allowing beginners to practice and experienced traders to test new strategies without risk.

What is the typical volume behavior WITHIN a rectangle consolidation pattern?

Answer: Volume contracts as the pattern develops, then expands on breakout

Volume typically contracts during rectangle consolidation as interest wanes, then expands significantly on the breakout candle to confirm direction.

What is the purpose of the 'Commitment of Traders' (COT) report for a day trader focusing on futures?

Answer: It reveals the net positioning of commercial hedgers, large speculators, and small traders on a weekly basis

The COT report, published by the CFTC weekly, shows how different categories of futures market participants are positioned, which can reveal when speculative positioning is extreme.

A 'Day' order designation means the order:

Answer: Expires at the end of the current trading session if not filled

A day order automatically expires at the end of the current trading session (4:00 PM ET for US stocks) if it has not been executed.

How does a candlestick chart show the daily high price?

Answer: trendline

While the upper shadow (or wick) of a candlestick directly indicates the daily high price, a trendline can be drawn to connect a series of these daily high points over multiple periods. This trendline then visually represents the upper boundary or resistance level that the price has reached. Therefore, in a broader sense, a trendline can be used to depict the pattern or progression of daily high prices, showing the overall trend of highs rather than a single day's high.

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.

After a string of five winning trades, a day trader doubles their position size without adjusting their risk parameters. This is most likely caused by:

Answer: Overconfidence bias

Overconfidence bias leads traders to overestimate their skill after a winning streak, causing excessive risk-taking.

What is a 'gap' in stock charts?

Answer: A space between the close of one candle and the open of the next, where no trading occurred

Gaps occur when price opens significantly higher or lower than the previous close, often due to overnight news or events, creating a visible space on the chart.

An Electronic Communication Network (ECN) in day trading is:

Answer: An automated system that electronically matches buy and sell orders

ECNs are automated trading systems that directly match buy and sell orders from various market participants, often providing faster execution and tighter bid-ask spreads.

The candle is modest in size near the top of the trading range, has little to no upper wick, and has a lower wick that is at least twice as large as the candle's body.

Answer: hanging man

The 'hanging man' is a bearish reversal candlestick pattern that typically appears at the top of an uptrend. It is characterized by a small body near the top of the trading range, little to no upper wick, and a long lower wick that is at least twice the length of the body. This pattern signals that sellers are beginning to exert control, suggesting a potential shift in market direction.

A 'squeeze' on the TTM Squeeze indicator signals that:

Answer: Bollinger Bands have contracted inside Keltner Channels, indicating a pending volatility breakout

A TTM Squeeze fires when Bollinger Bands compress inside Keltner Channels, showing low volatility that typically precedes a large directional move.

A trader keeps adding to a losing position because their analysis 'must be right eventually.' This is best described as:

Answer: Ego-driven averaging down without a pre-set exit

Ego-driven averaging down in an unplanned way protects the trader's sense of being right at the expense of capital, often leading to devastating losses.

What is the Pattern Day Trader (PDT) rule in the US?

Answer: A FINRA rule requiring $25,000 minimum equity for accounts making 4+ day trades in 5 business days

FINRA's PDT rule classifies traders who execute 4 or more day trades within 5 business days as pattern day traders, requiring a $25,000 minimum account balance.

In day trading, a 'three black crows' pattern signals what?

Answer: A strong bearish reversal or continuation of a downtrend

Three black crows consist of three consecutive long bearish candles, each opening within the prior body and closing lower, signaling strong bearish momentum.

What does an 'evening star' pattern signal in a candlestick chart?

Answer: A bearish reversal at the top of an uptrend

An evening star is a three-candle bearish reversal pattern appearing at the top of an uptrend, signaling a transition from buyers to sellers.