Forex Trading Technical Analysis 3

Question 1

What is the primary purpose of Bollinger Bands in forex analysis?

Accepted Answer

Measure market volatility and identify overbought/oversold conditions

Answer

Bollinger Bands use a middle SMA and two standard deviation bands to visualize volatility — wide bands indicate high volatility, narrow bands indicate low volatility.

Question 2

In Elliott Wave Theory, how many waves make up a complete bull market cycle (impulse + corrective)?

Accepted Answer

8

Answer

A complete Elliott Wave cycle consists of 5 impulse waves in the trend direction followed by 3 corrective waves, totaling 8 waves.

Question 3

A trader notices the RSI on EUR/USD has been above 70 for three consecutive days. What does this suggest?

Accepted Answer

The pair may be overbought and due for a pullback

Answer

An RSI above 70 indicates overbought conditions, suggesting the price may be due for a correction, though it is not a guaranteed reversal signal.

Question 4

What is 'bearish divergence' in the context of RSI and price action?

Accepted Answer

Price makes higher highs while RSI makes lower highs

Answer

Bearish divergence occurs when price achieves higher highs but the RSI fails to confirm with higher highs, suggesting weakening momentum and a potential reversal.

Question 5

Which moving average type reacts fastest to recent price changes?

Accepted Answer

Exponential Moving Average (EMA)

Answer

The EMA applies greater weight to recent prices, making it more responsive to current market conditions than the SMA, which weights all periods equally.

Forex Trading Practice Test

Forex Trading Practice Test

Forex Trading Technical Analysis 3