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276 Cards in this Set
- Front
- Back
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Saliency |
A perception bias that gives zero or negligible probability to events that have not occurred recently. Can also occur if the same event has occurred very recently, the perceived probability of a future occurrence becomes overstated. |
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Framing |
A perception bias which leads to the tendency to answer a question in terms of the manner the question was asked. Phrasing affects answer. |
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Anchoring |
A perception bias that arises when you are attempting to make a guess at something about which you have limited information. Caused by lazy thinking. An anchor biases your guess in the direction of the anchor. |
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Sunk Cost Bias |
A perception bias involving the feeling of regret affecting the decision making process. |
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Trend following system profile (4) |
1)Low percentage of profitable trades |
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Reliability |
Percentage of profitable trades |
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Market Breadth |
Measures the imbalance between the number of advancing and declining stocks on a given day. It is the percentage of rising stocks to the the total number of stocks traded. In general, more advancing issues should add confidence to an upwards price move in the same way volume confirms price. Best if equally weighted. |
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MACD |
Based on the differences between two moving averages. |
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Market Facilitation Index |
Tick volume compared to the price range. Can measure the willingness of the market to move the price. Trading Range /Volume |
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Accumulation/Distribution |
A volume indicator that tracks the relationship between opening and closing prices, in addition to volume. Its concept is similar to that of Japanese candlesticks. More finely calibrated than OBV because it credits bulls or bears with only a fraction of each day's volume, proportionate to the degree of their win for the day. Tracks the outcomes of daily battles between amateurs and pros. |
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Confidence level |
Measure of accuracy for regression analysis. It is based on a probability distribution of errors in the fitted equation and the size of the data sample. |
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Goodness of fit |
May be measured by using the standard deviation of errors to determine the variance over the total number of data points N. |
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Coefficient of determination (r^2) |
Expresses the strength of the relationship between the data on a scale from +1 (perfect correlation) to 0 (no relationship). |
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Correlation coefficient (r) |
A measure of linear correlation between two variables X and Y, giving a value between +1 and -1 where +1 is total positive correlation, 0 is no correlation and -1 is total negative correlation. |
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Predictability studies that contradict semistrong EMH version |
1) Small capitalization effect 2) Price-to-earnings ratio effect 3) Price-to-book value effect 4) Earnings surprise with technical confirmation |
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Efficient market |
A market that cannot be beaten. In such a market, no fundamental or technical analysis strategy, formula or system can earn a risk-adjusted rate of return that beats the market defined by a benchmark index. This is so because an efficient market properly reflects all known and knowable information. |
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Capital Asset Pricing Model (CAPM) |
A risk model which explains systematic differences in the returns of securities in terms of a single risk factor, the security's relative volatility. |
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Arbitrage Pricing Theory |
A risk model which attributes risk to several independent risk factors. |
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EMH weak form |
States that stale prices and indicators derived from them are without value. |
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Profit factor |
The absolute value of gross profits divided by gross losses |
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Chi square test |
A simple correlation between actual results and the expected results. Used to compare actual price movement with random patterns to see whether there is an appreciable variation. |
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Characteristics of systems that are normally considered better (4) |
1) Larger profits rather than smaller profits because it leaves more room for execution error. |
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Shallower trend lines |
Tend to be powerhouses. From the strong moves are born. |
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Area, Common or Pattern gap |
Occurs in areas of congestion (trendless markets) and close rapidly. Volume on the day of the gap can be high, but returns to normal in a day or two. No significant highs (in uptrends) or lows (in downtrends) occur immediately after the gap. A distinctive curl as the gap closes is a key indication of this type of gap. |
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Breakaway gap |
Identifies the start of a new trend and occurs on breakout from a consolidation region. Is accompanied by high volume on the day of the gap and continuing for several days. The trend continues long enough for several new highs (for uptrends) or new lows (downtrends) to occur after the gap. |
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Continuation, Measuring or Runaway gap |
Happens in the midst of a straight-line advance or decline. Price continues making new highs or lows without filling the gap. Volume is usually high, propelling price in the direction of the trend. |
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Exhaustion gap |
Occurs at the end of a trend on high volume. The gap is not followed by new minor highs or minor lows and the gap itself may be unusually tall. After the gap, price consolidates. Commonly occurs after a continuation gap. The gap closes quickly, usually within a week. |
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Benefits of Bands and Channels |
Improve the reliability of trend signals without altering the overall trend profile. Slows down trading without sacrificing the bigger profits. |
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Moving Average Convergence-Divergence (MACD) lines/indicator |
Consists of three exponential moving averages two of which are combined into one (MACD line). The indicator consists of two lines: a solid line (MACD line) and a dashed line (Signal line). MACD line is made up of two exponential moving averages (usually 12 minus 26). It responds to changes in prices relatively quickly. The Signal line smooths the MACD line with another EMA which results in slower response times to price. |
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Moving Average |
Represents an average consensus of value for a selected period of time--it is a composite photo of mass consensus. |
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MACD Histogram |
Offers a deeper insight into the balance of power between bulls and bears than the original MACD lines. It shows not only whether bulls or bears are in control but also whether they are growing stronger or weaker. One of the best tools available to market technicians. |
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Slope of MACD Histogram |
Is defined by the relationship between any two neighboring bars. It identifies the dominant market group. A rising MACD-Histogram shows that bulls are becoming stronger. A falling MACD-Histogram shows that bears are becoming stronger. When slope is in the same direction as prices the trend is safe. Opposite direction calls the trend into question. Slope is most important rather than its position above or below the centerline. |
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Triple Screen Trading |
Allows traders to take buy signals from daily Stochastic only when the weekly trend is up and vice versa. |
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MACD divergences |
Infrequent but they give some of the most powerful signals. They often mark major turning points. Breaking of the centerline between the two indicator bottoms is an absolute must for a true divergence. It gives a signal when it ticks up or down from bottom or top it does not have to cross the centerline for the second time. Valid divergences are clearly visible. |
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Stochastic |
An oscillator popularized by the late George Lane. It tracks the relationship of each closing price to the recent high-low range. It consists of two lines: a fast line called %K and slow line called %D. Width of stochastic window is important. Shorter term oscillators more sensitive and longer term turn only at important tops and bottoms. |
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Fast Stochastic |
Consists of two lines %K and %D plotted on the same chart. It's very sensitive and leads to many whipsaws. |
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Slow stochastic |
Adds an extra layer of smoothing. The %D of the Fast Stochastic becomes the %K of Slow Stochastic and is smoothed by repeating step 2 to obtain %D of Slow Stochastic. It does a better job of filtering out market noise and lead to fewer whipsaws. |
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Characteristics of Stochastics (4) |
1) Using during a trading range is like going to a cash station. |
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Long stochastic vs. short stochastic |
If you are using Stochastic as a stand alone oscillator, a longer Stochastic is preferable. If you are using Stochastic as part of a trading system, combined with trend following indicators, thena a shorter term stochastic is preferable. |
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Weekly Stochastic vs. Weekly MACD-Histogram |
Weekly Stochastic usuallychanges its direction one week prior to weekly MACD Histogram. If weekly Stochastic turns, it warns you that MACD-Histogram is likely to turn the next week -- time to tighten stops on existing positions or start taking profits. |
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Two standard deviations confidence band in non normally distributed data |
87% confidence level |
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Characteristics of robust system testing (5) |
1) Consistent test periods. Longer the better covering a wide variety of markets (bull/bear/sideways). |
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Information ratio |
Annualized return divided by annualized risk and is the best way to distinguish one system from another. |
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Which system is best? |
Of the sample markets and methods, the moving average and n-day breakout seem to be the best choices but with two completely different profiles |
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Characteristics of moving average systems/trend system (2) |
1) Many more trades and many losses with a few larger profits. |
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Characteristics of N day breakout systems |
1) Tends to be more reliable. 2) Much larger profits per trade but does it by taking very large risk. |
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Momentum |
The difference between two prices taken over a fixed interval. It is another word for speed, the distance covered over time; however, everyone uses it to mean change. Momentum is not volatility. |
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Characteristics of Momentum |
Is a way of smoothing price movement and can serve the same purpose as a trend. Although the momentum values are not as smooth as a moving average, larger momentum periods reduce the extremes seen in the price chart. One key advantage of momentum is that it does not have the lag that exists in a moving average. |
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Momentum as the Difference between Price and Trend |
The term momentum is flexible. It is common for it to refer to the difference between today's price and a corresponding moving average value, in a manner similar to beta, which indicates the relative strength of a stock compared to an index. |
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Divergence Index |
The volatility adjusted difference between two moving averages. |
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Relative Strength Index (RSI) |
One of the most popular indicators for showing overbought or oversold. It provides added value to the concept of momentum by scaling all values between 0 and 100. It is more stable than momentum because it uses all the values in the calculation period rather than just the first and last. Wilder's favored day count is 14 with thresholds at 30 and 70. |
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Ultimate Oscillator |
Combines the original idea of the A/D Oscillator with a great deal of Wilder's RSI. He adds the unique features of three concurrent time periods in order to offset the negative qualities of the short time period used for %R, without slowing the system too much. |
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Relative Vigor Index (RVI) |
A very smoothed momentum indicator. |
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True Strength Index |
A double smoothed momentum indicator which has surprisingly little calculation lag given the amount of smoothing. By using the first differences, he has based the calculations on values more sensitive than price and then slowed them down my smoothing. The net result is that the final index value has less lag than we would normally expect, and the index line is much smoother than a standard moving average. |
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TRIX |
A triple smoothed exponential momentum indicator that is most often used as an oscillator. |
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Strength Oscillator |
Based on the idea that the trend component is stronger when price is further from fair value and the noise (sideways movement) is greater when the price is near the value. This oscillator attempts to show the strength of the trend component. |
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Herrick Payoff Index |
Uses the change in the underlying value of the futures contract rather than only the change in price. It combines volume and open interest to generate an indicator that is not bounded as in the basic momentum calculation. |
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%R Method |
It is a simple way of calculating where today's closing price fits into the recent trading range. It measures how strong the maket closed today compared to the high of the past N days. |
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Length of short term trend |
Three months |
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Length of intermediate term or secondary trend |
Between three and six months. |
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Length of long-term trend or primary trend |
Longer than six months. |
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Autoregressive Integrated Moving Average (ARIMA) |
Created by a process of repeated regression analysis over a moving time window, resulting in a forecast value based on the new fit. |
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Autoregression |
Refers to the use of the same data to self-predict. For example, using only gold prices to arrive at a gold price forecast. |
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Flags and Pennants (5) |
1) Always rest upon a flagpole 3) Volume in the pattern recedes |
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If open interest rises during an uptrend |
It shows that longs are buying while bears are shorting because they believe that the market is overvalued. |
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If open interest is rising in a downtrend
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It shows that shorts are aggressively selling, while bottom pickers are buying. |
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Indexing data |
Each new entry is based on on a percentage change from the previous value. This method works well for seasonal studies, but must use unadjusted cash data or stocks. Back adjusted futures cannot be used for this purpose. |
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Cycle or wave |
A recurring process that returns to its original state. |
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Amplitude |
The height of the wave from its horizontal midpoint. |
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Period |
The number of time units necessary to complete one wavelength (cycle). |
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Frequency |
The number of wavelengths that repeat every 360 degrees. |
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Phase |
A measurement of the starting point or offset of the cycle relative to a benchmark wave. |
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Phase angle |
Locates the position within the cycle measure as the minute hand of a clock moving clockwise, where 0 degrees is three o'clock. |
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Left and right translation |
The tendency for cycle a cycle peak to fall to the left or right of the center cycle. |
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Fourier analysis |
Is a method of complex trigonometric regression, which expresses any data series as a series of sine and cosine waves. It is not reliable unless the data is stationary, that is, it does not change in a disorderly way over time. |
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Consumer Non-Durables |
Food, Tobacco, Textiles, Apparel, Leather, Toys |
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Consumer Durables |
Cars, TV's, Furniture, Household Appliances |
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Manufacturing |
Machinery, Trucks, Planes, Chemicals, Office Furniture, Paper, Commercial Printing |
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Biggest drawback of Relative Strength Systems |
Is that the portfolio is long-only and fully invested, thus leaving the portfolio exposed to the risk of that particular asset beta. |
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Tick volume |
Represents the number of price changes that occurred during any time interval. |
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If ADX crosses above 25... |
The market is trending |
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If ADX crosses below 20.... |
The market is consolidating |
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If ADX crosses below 45 after being higher... |
The market is consolidating |
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If ADX rises above 10 on 3 of 4 days after being lower... |
The market will start to trend. Remains in effect until the 5-day difference in the ADX is less than zero. |
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McClellan Oscillator |
A breadth indicator that starts with net advances (NA) and then creates an oscillator by subtracting two smoothed trends, 19 and 39 days, based on the net advances, in a manner similar to MACD. |
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Data mining bias |
Is a process in which the profitability of many rules is compared so that one or more superior rules can be selected. This selection process causes an upward bias in the performance of the selected rules. |
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How to create a continuous data series from individual futures contracts |
Close the price gap between the old futures contract and the new one on the day of the roll and then adjust all the data backwards to reflect the gap. |
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Conservation of Capital |
Most traders are risk averse hence the popularity of of trend systems which take small losses when prices move the wrong way and hold a trade for much longer when it shows a profit. |
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Diminishing marginal utility |
A concept which indicates that as wealth becomes greater, the preference for more wealth diminishes. |
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Risk Preference |
The theory of utility which recognizes that each investor has his or her unique objectives and attitudes towards risk. |
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Risk preference (P) |
Utility of an investor for a specific venture can be found by adding the expected value of the investor's utilities or preferences for the various outcomes of that event. |
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Rational Investor |
One who wants the highest return for the lowest risk. |
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Efficient frontier |
Is a curve plotted through those investment alternatives that have the highest returns for a given risk or the lowest risk for a given return. |
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Optimal point on the efficient frontier |
Is where the return-to-risk ratio is a maximum. This is also the point where a line, dranw from the risk-free return on the left scale upwards to the right, is tangent to the curve. |
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Sharpe Ratio |
Classic measurement of of performance. SR = (E-I)/standard deviation I = the risk-free interest rate (usually 3 month rate) |
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Information Ratio |
Simplified form of Sharpe ratio without risk-free interest rate (I) and is the most common performance statistic. |
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Treynor Ratio (TR) |
An additional measure of return to risk. Equals the annualized return less the risk free return, all divided by beta, the relative volatility of the current portfolio compared to a benchmark. |
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Average Maximum Retracement |
This method finds the average equity drawdown, the difference between the current value in the account and the highest past value, by ignoring all days when equity was on new highs. |
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Semivariance |
Similar to Average Minimum Retracement and is valuable because the distribution of profitable returns compared to losing returns is not symmetric; therefore, the standard deviation does not express it correctly and may bias the results in favor or profitable days, giving you an understated picture of risk. |
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Maximum adverse excursion |
Advocates that traders should minimize the size of their largest loss. |
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Maximum drawdown |
The largest historic loss |
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Calmar Ratio |
Calculates the relationship of the drawdown to the returns. CR = AROR/Max drawdown. Drawback of timing may have avoided a particularly bad price shock. |
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Sortino Ratio |
A variation on both the Sharpe ratio and semivariance. Includes only the downside risk in the denominator and replaces the risk-free threshold with a minimum acceptable return (MAR) in the numerator. |
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Ulcer Index |
Measures the increased anxiety as current returns drop farther below the highest returns previously achieved. A form of semivariance, similar to Average Maximum retracement, that produces a statistical measure of relative declines on all days that were not new high returns. |
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Value at Risk (VAR) |
Used in most companies to assess whether the current market positions are likely to produce a loss that is unacceptably large over the next few days. It is different than volatility because it attempst to anticipate risk, even though it is done using historic risk. |
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Commodity Selection Index (CSI) |
A calculation for determining which products are most likely to make the greatest move for each dollar invested. |
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Average Directional Movment Index Rating |
Measures the distance from the zero line, a higher amplitude means higher directional movement and a stronger trend, whether up or down. The peaks are always the extremes. The distance between the ADX and ADXR is used to measure the overbought and oversold condition of the trend. The larger the value, the greater the reactions to the trend. |
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Ways to reduce the possibility of loss from price shock (2) |
1) Do not hold a position longer than necessary 2) Try to earn as much as possible while investing as little as possible. |
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Preferred risk characteristics of a Trading Model (4) |
1) Larger profits rather than smaller profits because it leaves more room for execution error. 2) Upwards equity surges (profits) over downward surges (losses). 3) A shorter time-to-recovery rather than prolonged drawdowns. 4) Less time in the market because it avoids price shocks. |
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The potential for loss can be expressed as a probability via two different measurements |
1) Probability of a drawdown (DP) |
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All else being equal, systems will have greater risk if (4): |
1) They are tested with smaller samples. 2) They have few historic equity drops (also likely to be a poor sample) 4) They compound positions |
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Stress test |
Used to find out how VAR performs under extreme cases. |
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Hindenburg Omen |
Is a price pattern that attempts to forecast a stock market crash. The basis for the calculation is Norman Fosback's High Low Logic Index (HLLI) which is the lesser of the NYSE new highs or new lows divided by the number of NYSE issues traded, then smoothed using an exponential moving average. The premise is that, under normal conditions, a large number of stocks either make new lows, but not both at the same time. The existence of both indicates a specific case of potential volatility. Once the signal has occurred, a stock market crash is expected within 30 days, but only when the McClellan Oscillator is negative. |
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Characteristics of a Mean Reverting System |
Many smaller profits and fewer larger losses. |
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Characteristics of a Breakout Trading System |
Exchanges a much larger risk for much greater reliability than moving average or exponential smoothing. |
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Systematic way of determining if your system worked better in the past but has been struggling in more recent markets. |
Find the slope through the annualized returns. If the slope is rising or sideways, then the system is performing well. If the slope is noticeably declining, then performance is decaying; it is not adjusting to current or changing markets. |
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Market trends and market shocks are caused by |
Institutions and investors moving money. When all markets move together it is not the fundamentals, it is simply panic. Under stress, investors withdraw money from every type of investment, causing them all to reverse and the correlations to go to 1. |
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Reserves |
Excess funds in the account not used for margin or committed for other purposes. They are needed to cover losses and continue to trade at the targeted level of volatility. Reserves will vary as the position sizes are adjusted in order to keep the volatility stable. |
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Risk control begins ..... |
At the moment the position is entered. There are two distinct issues at the time, the strategic element of the trade, for example, the risk and reward of a single share or contract, and the total exposure of that trade relative to the investment amount. |
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The entry point of the trade is... |
The time of the greatest uncertainty. The period of greatest uncertainty is the point at which it changes direction. |
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Trailing stops are usually constructed in one of the following ways (3): |
1) Fixed percentage 2) Volatility 3) Percentage of profits |
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Profit taking and stops are.... |
A duel with price noise |
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Stop loss orders are usually based on... |
The closing price, or, if they are triggered by intraday price moves, the actual exit is still on the close to take advantage of a pullback. Stops that are most likely to work must adapt to volatility, such as standard deviation stop, rather than a fixed dollar amount or a percentage of price. |
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With profit taking orders.... |
The opposite of stop losses as you would want to exit at the time of the intraday spike rather than waiting for the end of the day. |
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Proximity risk |
When many stop orders cluster around the the same point. |
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Other stop loss order factors to consider |
1) Percentage of initial margin 2) A percentage of the portfolio value or total account value. 3) The maximum adverse excursion determined by historic valuation. |
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Efficiency ratio (ER) |
Defines noise as the absolute value of the net price change divided by the sum of the individual price changes taken as positive values, over the same time interval. ER is not the same as volatility and indicates that noise increases as ER gets closer to zero because the divisor increases with the amount of noise. |
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Best choice for averaging ratios that can be either fractions or percentages |
Geometric average |
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Basic purpose of a price channel |
Define the volatility of the price move |
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Confidence bands help in.... |
Measuring the accuracy of price trends |
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In trend based trading systems what the the major determinant of the frequency of buy/sell signals |
Selection of trend speed |
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A system can take advantage of momentum extremes by |
Fading the price movements at extremes
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The signal line in the traditional MACD moving average is |
A simple moving average |
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Williams %R oscillator is a complement of the |
Fast Stochastic |
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Method to standardize test results for better comparisons |
Adjusting for the standard error |
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Import necessity for designing a robust trading syestem |
The system must be capable of adapting to changing market conditions. |
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Effective way to detrend price data |
Divide the closing prices by a moving average of those prices. |
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A multiple time frame system that uses only two moving averages |
Uses the longest moving average as a proxy for a trendline |
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Vividness bias |
A perception bias that gives too much weight to memorable experiences |
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Prospect theory |
That people make decisions based on the prospects available to them from a given starting point underlies the dynamics of prospect theory. Formalizes the decision process in a way that corresponds more closely to how people behave than the utility approach of traditional economics. It has a distinctly dynamic flavor to it because of its implicit path dependence.
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Loss aversion |
The fact that for the representative individual, losses hurt much more than commensurate gains help. This loss aversion ratio has been estimated at between 1.5 and 2.5 in practice.
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Traditional read of the Stochastic oscillator defines buy signals occurring when %K line |
Crosses the %D line from below |
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Some studies suggest that commonly used RSI settings of 70 and 30 are... |
Too narrow and should be set to 72 and 32
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If Technical Analysis has not predictive power, its expected rate of return will be what on detrended data assuming a larger sample size |
Zero |
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Conservatism Bias |
The tendency to give too little weight to new information. |
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Best tool to ensure objectivity of technical analysis signals and to maximize their ability to be shared and tested by all qualified practitioners |
Quantification |
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Representation bias |
People often recognize patterns where they do not actually exist. |
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ISE Sentiment Index |
A unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction. Opening long transactions are thought to best represent market sentiment because investors often buy call and put options to express their actual market view of a particular stock.
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Oscillator which would best help you trade using information from multiple time frames |
Ultimate Oscillator |
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Subtracting the value of a moving average from a series of prices is one step in what procedure |
Detrending the data |
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Which statistic-inference tests might help guard against data mining bias? |
White's Reality Check and Master's Monte Carlo Simulation |
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"Tool of Choice" for drawing conclusions from quantitative data |
Statistical inference |
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Oil prices are subject to decreased volatility during what months of the year |
April, May and June |
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Volume spikes are not as extreme in what markets
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Futures markets |
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As with most volume figures, advance and decline lines can be more useful |
If they are smoothed |
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Efficiency factor |
Net profit divided by gross profit |
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System that requires substantial capital to withstand an unexpectedly long series of losses in a row |
Martingale betting |
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Speculative stocks put on their best performance in which of the following market conditions? |
Near the final stages of bull markets |
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Strongest three month period for the US equity markets |
October, November and December |
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What type of of moving average shows minimum trends |
Cumulative moving average |
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For all types of bands used, a buy signal is always generated when price penetrates... |
Above the upper band from below |
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In a triangular filtering method, if 40 days moving average is used which data gets maximum importance |
40 days older data |
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Geometric moving average gives what weights without discrete weighing function |
Greater weighting to smaller values. |
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An order which is scheduled to buy at the best offer and sell at the best bid |
Pegged order |
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Symbology for orders that are to be executed at the opening or cancelled |
OPG |
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High wave line indicates |
Loss of sense of direction |
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A flag formation with small candles almost side by side for a few days breaking upward with a gap |
High priced gapping play |
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Implications of rising %K line in stochastic but %D is falling |
None of the trends is getting confirmation. It would be confirmed only when both are headed in the same direction. |
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Recommended action with ADX above +DI and -DI but has started coming down |
Exit long or short position, which is open, but do not take counter position. |
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Market cycles |
Have no fixed time frame. Cycles of different time frames remain appearing and disappearing again. |
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If you are using ATR for your entry and exit, what should be the minimum distance between entry ad the stop loss |
1 ATR |
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In the calculation of relative strength index, the relative strength is indicated by.... |
Ratio of number of securities increasing in price to those decreasing in price. Relative strength is different than relative strength used in the relative strength index. |
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Accumulation/Distribution is based on |
Volume |
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Stochastic indicator is based on |
Sentiment |
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When open interest rises in a trending market... |
It confirms the trend and gives a green light to add to positions in favor of the trend. |
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When open interest rises in a trading range |
It is a bearish sign. Commercial hedgers are much more likely to sell short than speculators. A sharp increase in open interest while prices are flat shows that savvy hedgers are probably shorting the market. You want to avoid trading against those who likely have better information than you. |
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If open interest falls in a trading range.... |
It identifies short covering by major commercial interests and gives a buy signal as they expect the market to rise. |
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When open interest falls during a trend... |
It shows that winners and losers alike are becoming cautious. A trend that is accepted by the majority is ready to reverse. Consider liquidating long or short positions. |
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When open interest goes flat in a rally.... |
It shows that the uptrend is getting old and the best gains have already been made. Tighten stops on long positions and avoid new buying. |
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Pivot point of a stock |
Typical price (both are given by the equation (High + Low + Close)/3 |
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A large number of public offerings indicates |
A bearish signal for stock markets. |
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Prices of assets are mainly based on (2) |
1) Known facts |
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What does option premium indicate? |
Anxiousness of the buyer |
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Rising prices but declining volume and open interest are indicative of ... |
A possible change in trend |
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Support lines are clearer then |
Resistance lines |
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Extreme turn in fast stochastic indicates.. |
Trend may exhaust in the next 2 days. |
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A relationship between two or more sets of data is measured using |
Regression analysis |
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Which method of analysis can easily determine how much a change an asset will change in price base on another asset |
Least square method |
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The use of calculation periods that are multiples of a calendar year is termed as... |
Deseasonality |
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When bulls and bears have the same opinion about the markets |
Market trends get exhausted |
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If volume shrinks while the trend continues |
There may be a reversal of trend soon |
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The stochastic calculation depends on... |
Whether the close is higher or lower compared to the recent/daily range. |
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The RSI calculation depends on.... |
Whether the close is higher or lower |
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When the market is already in a downtrend what is the least important for considering whether the trend will continue... |
Average daily volume |
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MACD vs. simple moving average |
MACD generates lesser signals with lesser whipsaws. |
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Why don't you trade in stocks with history of less than one year? |
There are no recognizable, clear patterns in their charts. |
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What is the main advantage of computerized trading? |
Objectivity |
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The tendency to stick with the default option |
Status quo bias |
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Prospect theory does not deal with |
Effect of disappointment |
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What oscillator plots the difference between advances and declines? |
McClellan Oscillator |
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In triangular moving averages the least importance is given to what data |
The oldest as well as the most recent data |
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Accumulated moving average is used for |
Long term trend |
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When the number of data point is small, for finding the standard deviation, the sum of the square of the deviations is divided by what and a square root of the whole ratio is taken. |
n-1 |
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When bulls are bullish and bears are also bullish about the markets |
Markets are likely to top out. |
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What to expect if you have MACD bullish divergence and the MACD remains above zero |
A sharp rally in the stock |
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When a buy signal is generate on a MACD oscillator where should the stop loss be kept |
Below the last minor low |
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The range between the short term and long term moving averages can be termed as the region representing .... |
Value |
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When using two different moving average what time ratio is advised |
Two to one |
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Changing the parameters of an indicator because the signals are not appearing recently |
Compromises the objectivity of the indicator |
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What advice should a technician give if ADX is at 12 and moving higher |
Market may move in any one direction soon. They should be ready to take a position in the markets. |
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Characteristics of volatility (3) |
1) Mean reverting 3) Volatility measures anxiety in market players |
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Reticence of the seller is reflected in |
Futures price |
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The slope of linear regression measure over a period of time gives an idea about |
Strength of the market |
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According to the On-Balance Volume concept, the day the market closes near lows of the day |
All volume is because of sellers. |
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Change in volume in a trading session is used to determine |
Volume momentum |
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Huge open interest compared to daily volume indicates |
Many participants are waiting to enter the market when the price is right. |
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Maximum Entropy Spectral Analysis (MESA) is a technique used for |
Filtering the noise and exposing the cycles in the system. |
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Three common methods to determine cycles |
1) Trigonometric trend fitting 2) Fourier Analysis 3) Detrending |
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%K for 10 day stochastic reaches extreme when stock closes at the highs or lows for how many consecutive days |
Seven |
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Stochastic hinge |
A reduction in the speed of either %K or %D lines shown as a flattening out, indicates a reversal on the next day. |
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How is detrending done? |
Subtracting the daily prices from the value of the regression line. |
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Which hedging technique does Mebane Faber NOT suggest for hedging a portfolio |
Selling covered call options. |
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When bears are powerful and bullish sentiment wounded the On Balance Volume (OBV) tends to |
Form a new low |
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For tradeable divergencies in MACD, the two peaks should ideally be how many bars apart |
20 to 40 |
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A trader should look at the chart of two different time frames and the ratio between the two time frames should be roughly |
Five |
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What is the importance of using volume in technical analysis? |
It gives an idea about overall sentiment in he market. |
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Which indicator does not exist in a delivery based stock market |
Open interest |
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When a volume spike takes place in a trend |
If it is in an uptrend, it is likely to continue but if it is in a downtrend it may reverse. |
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For MACD when the market is overheated |
ADX rallies above +DI and -DI lines |
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At the point of MACD crossover... |
Bull power is equal to bear power. |
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What is the shortest time permitted for a moving average to represent the trend without losing the edge moving averages offer? |
Eight days |
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What toolbox is sure to fail sooner or later |
Black Box |
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The thought process in which a person is not willing to sell thinking that the price may go up, but not ready to buy as he feels the price is too high |
Inertial efffect |
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Newcomers in the market tend to behave according to what theory |
Prospect theory |
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What is a sample statistic |
It is a measurable attribute of a sample |
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Standard error of the mean formula |
Standard deviation divided by the square root of the number of observations |
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Fungibility of assets is an absolute necessity for |
Arbitrageurs |
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Method which produces a straight line graph from which the actual data point are most symmetrically arranged. |
Least squares method |
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The sum of the standard normal variables is useful in the determination of |
Chi-square distribution |
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Don't want to sell because you are hoping the price will rise but are not buying more because of fear it is overpriced and it would be foolish to buy now |
Endowment effect |
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Decisions based on mental accounting |
Disposition effect |
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When a bull wants to buy, but bears are afraid to sell short, what is the most likely to happen after trade is maid |
Open interest remains unchanged because only sellers would be liquidating resulting in no change in open interest |
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Typically what is used as a signal line for a business cycle |
52 week EMA |
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What signal generated by sentiment indicators is less likely to be valid |
Market topping |
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Sentiment indicators can be better used for determining... |
Market bottoms |
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Least likely to be uninformed players |
Corporate insiders |
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When the crowd becomes extraordinarily bullish |
There is a dearth of deman |
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The largest quantities are funds are held by what type of player |
Uninformed players |
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Indicator that is NOT a reliable indicator for anxiousness of market players |
Put/Call Ratio |
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What is called a truncated moving average |
Simple moving average |
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A volume weighted series is a function of |
On Balance Volume |
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What happens to volume and open interest in an accumulation phase |
Volume declines but open interest rises |
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Synchronization of a moving average to represent cycles is termed |
Phasing |
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Seasonal patterns in stocks in commodities are caused by |
Consumer habits |
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Applications of regression analysis (3) |
1) Tool for trading in a single market 2) Comparing two markets 3) Decide on preferences in markets |
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If we subtract a previous day's price from the day's price for the entire set of data we get |
Detrending of data |
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The part of price data that cannot be explained using trend, seasonality and cycles is termed as |
Noise or randomness |
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Which strategy does Faber NOT suggest while investing according to his model |
Short selling worst performing sectors |
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What frequency of updating the relative strength investment model does Faber suggest while handling a portfolio? |
Monthly |
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Two positions taken in related markets, but in opposite direction is called |
Spread |
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During short covering what happens to prices and open interest |
Prices stabilize but open interest decreases |
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Advance/Decline line |
Considers the difference between the two. |
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Which tradingmethod does Professor Elder advise as a reliable way to survive and prosper in markets? |
Swing trading |
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How much volume does Professor Elder consider as substantially high? |
At least 25% higher than the last two week average |
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Which of the following does Professor Elder say is absolutely essential for the confirmation of divergence using MACD histogram? |
Indicator crossing the center line between the two bottoms or tops |
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What does the NH-NL index having decreased on a flat day indicate. |
Bearishness |
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Professor Elder suggests that a trader should study charts in two different time frames before taking trading decisions. Which time frame would make a perfect pair for the trader to take trading decisions by studying the chart for those time frames only? |
Weekly and monthly |
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Professor Elder considers computer based trading approach as superior because |
It leaves no place to human sentiment. |
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Accumulation/Distribution |
A/D = (Close - Open)/(High-Low) * Volume |
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When ADX is declining it shows |
The market is becoming less directional. There are more likely to be many whipsaws. When ADX points down it is better not to use a trend following model. |
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MACD histogram is given by the equation |
MACD Histogram = MACD line - Signal line |
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MACD oscillator is typically based on how many different moving averages |
Technically three 12 day, 26 day then find the difference and then 9 day moving average of this is difference is plotted. |
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Professor Elder advises a positional trader to study data for what time period? |
8 to 10 years |
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Inductive leap from the observed value of a sample statistice is called |
Inference |
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Statistical significance of a test method is very low. What can be said about this confidence method? |
His confidence about the method would be high. The smaller the value of statistical significance the more statistically significant the results. |
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Cycle leaders |
Economic contraction - Buy bonds, buy stocks, buy commods |
