Technical analysis and strategy: Evaluating your strength

Feb 11, 2023

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The primary objective of this assessment is to get you accustomed to the fundamentals of technical analysis and several of its trading strategies. This will undoubtedly inform your decision-making process and guide you on the vital steps to take when faced with real-life situations and market fluctuations. Each question is structured to present crucial lessons on technical analysis and strategy.

What stands out as the primary aim of trading with technical analysis?

To help in predicting market movements in the future

Technical analysis is based on historical market data and patterns and doesn't aim to predict future movements.

For identification of patterns and trends in past market data

The primary objective of technical analysis is to spot trends and patterns in historical market data, which can be deployed to help traders make informed trading decisions.

To set an evaluation of the financial health of a company or portfolio

No aspect of technical analysis is directly involved in evaluating financial health, either of a company or personal portfolio.

None of the above

The core responsibility of using technical analysis remains to satisfy the claims of historical market data in making better trading decisions.

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As you observe qualitative technical analysis for a trade, which of the following technical indicators would you commonly use in measuring how strong or weak a market trend is?

Moving Average (MA)

The Moving Average (MA) is a widely used technical indicator that identifies patterns and trends in past market data by calculating the average price over some time.

Relative Strength Index (RSI)

Relative Strength Index (RSI) merely compares the degree of recent gains to losses to know the underlying asset's oversold or overbought conditions.

Bollinger Bands

Bollinger Bands are useful indicators that spot market volatility.

All of the above

The above indicators have their specific role in the different market conditions.

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For what justifiable reason would you insist on using the Moving Averages as part of your technical analysis trading strategy?

When fishing out demand zones

The MA does not fish out demand zones on the price chart but rather monitors support and resistance levels to signal to buy and sell.

When you're trying to know where the nearest support and resistance levels are

The MA plays a vital role in identifying the closet support and resistance levels.

To double your portfolio

The moving average does not directly relate to your investment portfolio or how it adds up.

Because most community members use it

It is risky to take important decisions because most people in your circle are doing the same.

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To hone your technical trading skills, you're curious about which indicator to use between the Exponential Moving Average (EMA) and Simple Moving Average (SMA). Which of the following statements are true about both indicators?

SMA provides equivalent weight to all prices, while EMA gives more weight to recent prices

Simple Moving Average gives equal weight to prices.

SMA gives more weight to recent prices, while EMA provides equivalent weight to all prices

The reverse is the case in this option; for both indicators.

SMA is based on short-term analysis, while EMA is based on long-term analysis

Short-term and long-term analysis is not the case with SMA and EMA, respectively.

None of the above

There's more specialty to the answer than your general point of view.

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What is the purpose of using Bollinger Bands in technical analysis?

It is a good way to notice market trends

Bollinger band does not function to identify trends.

To know when it's time to hop on the market

The technicality of this indicator disallows it from determining entry points.

To indicate volatility levels

The Bollinger bands express the degree of market volatility.

All of the above

Bollinger bands will not determine everything but will major in rendering how volatile a market is.

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As you become more familiar with the technicality of trading, what can you say so far is the major characteristic of a Bullish divergence?

Bullish Divergence indicates a rise in the stock price as the indicator is falling

This is a distinguishing feature of a bullish divergence.

This is when the stock price is falling, and the indicator is rising

The reverse is rather the case when a bullish divergence is in play.

Bullish Divergence is a potential sell signal

This is the feature of a bearish divergence instead.

Bullish Divergence is a negative signal

This also is a feature of a bearish divergence.

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Aside from attempting to generate a buy and sell signal, for what other reason would you prefer to use the Fibonacci retracements in technical analysis?

To identify trends

Executing the function of market trend identification and historical data assessment is dedicated to specific technical indicators.

To identify potential levels of support and resistance

Fibonacci retracement proves itself worthy when it comes to identifying support and resistance levels.

For a good entry/exit strategy

A good entry and exit strategy.

To predict future prices

It is out of scope to try and predict future prices using the Fibonacci retracement.

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