Stock Trading Stock Trading Technical Analysis & Chart Patterns 2 — Questions and Answers
Question 1: What does the MACD indicator stand for?
- Moving Average Convergence Divergence (Correct answer)
- Momentum And Crossover Direction
- Market Average Correction Difference
- Moving Adjusted Close Deviation
Correct answer: Moving Average Convergence Divergence
MACD (Moving Average Convergence Divergence) is a trend-following momentum indicator showing the relationship between two exponential moving averages.
Question 2: What is a 'double bottom' chart pattern?
- Two consecutive gaps down in price
- A W-shaped pattern signaling a potential bullish reversal (Correct answer)
- Two consecutive distribution days
- A bearish reversal after two highs
Correct answer: A W-shaped pattern signaling a potential bullish reversal
A double bottom forms when price hits a low, bounces up, returns to the same low, and then rises again, forming a 'W' shape that signals a bullish reversal.
Question 3: What is the purpose of Bollinger Bands?
- To show the 52-week trading range
- To measure price volatility and identify overbought/oversold conditions (Correct answer)
- To calculate average daily volume
- To compare a stock's performance to an index
Correct answer: To measure price volatility and identify overbought/oversold conditions
Bollinger Bands plot standard deviation bands above and below a moving average, expanding in high volatility and contracting in low volatility periods.
Question 4: What does a 'doji' candlestick pattern indicate?
- A strong upward move with heavy volume
- Indecision between buyers and sellers, with open and close nearly equal (Correct answer)
- A gap up from the previous close
- A bearish engulfing signal
Correct answer: Indecision between buyers and sellers, with open and close nearly equal
A doji forms when a stock's open and close prices are nearly equal, creating a cross shape that indicates market indecision and potential trend reversal.
Question 5: What is the 'resistance level' in technical analysis?
- A price floor that prevents stocks from falling
- A price ceiling where selling pressure tends to stall upward movement (Correct answer)
- The average analyst price target
- The highest price a stock ever reached
Correct answer: A price ceiling where selling pressure tends to stall upward movement
Resistance is a price level where supply (sellers) overwhelms demand (buyers), preventing the stock from moving higher.
Question 6: What does the Stochastic Oscillator measure?
- The ratio of advancing to declining stocks
- A security's closing price relative to its price range over a specific period (Correct answer)
- The difference between a 12 and 26-day EMA
- Average true range of daily price movements
Correct answer: A security's closing price relative to its price range over a specific period
The Stochastic Oscillator compares a closing price to the high-low range over a set period, on a 0-100 scale, to identify momentum and overbought/oversold levels.
Stock Trading Stock Trading Technical Analysis & Chart Patterns 2
What does the MACD indicator stand for?