Technical analysis is a method used to determine the value of equity securities by examining historical price and volume data to identify patterns and trends. This approach is based on the belief that past market behavior can help predict future price movements. Technical analysts use various tools and techniques, such as chart patterns, indicators, and oscillators, to analyze the market and make investment decisions.
Which of the following is NOT a component of technical analysis?
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Select an option above to see an explanation here.
A) Chart patterns are a component of technical analysis. B) Economic factors are considered in fundamental analysis, not technical analysis. C) Indicators are a component of technical analysis. D) Oscillators are a component of technical analysis.
What is the primary purpose of using moving averages in technical analysis?
A) Overbought or oversold conditions are typically identified using oscillators, such as the RSI. B) Determining a company's intrinsic value is a component of fundamental analysis, not technical analysis. C) Moving averages identify trends and potential support and resistance levels in technical analysis. D) Predicting future economic conditions is not a primary purpose of technical analysis.
Which of the following is a key difference between technical analysis and fundamental analysis?
A) Technical analysis focuses on historical price and volume data, while fundamental analysis focuses on financial statements, economic factors, and industry trends. B) Both technical and fundamental analysis can predict short-term or long-term price movements, depending on the specific techniques and timeframes used. C) Technical analysis is not based on the efficient market hypothesis, and technical and fundamental analysis can involve market timing. D) Both technical and fundamental analysis can be applied to various types of securities, including stocks and bonds.
In the early 1900s, a trader named W.D. Gann developed a series of technical analysis tools, such as the Gann angles and the Gann square, which are still used today. Gann's methods were based on geometry, astronomy, and ancient mathematics, and he claimed to have a success rate of over 85% in predicting market movements.
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Example Series 65 Example Practice Question
A technical analyst might notice that a stock's price has been consistently bouncing off a support level and rising to a resistance level. They may decide to buy the stock when it approaches the support level, anticipating the price will rise again, and sell when it reaches the resistance level, expecting the price to fall.
Technical analysis, a method quite fine, uses patterns and trends to predict the next line. With charts and indicators, we analyze the scene, to make investment decisions and keep our portfolios green.
- *Support*: Support is a price level at which a stock or the market as a whole tends to stop falling and may start to rebound. It represents a level where buying interest is strong enough to overcome selling pressure. - *Resistance*: Resistance is a price level at which a stock or the market as a whole tends to stop rising and may start to decline. It represents a level where selling interest is strong enough to overcome buying pressure.
- *Support example*: If a stock consistently bounces back after dropping to $50, this level can be considered support. - *Resistance example*: If a stock consistently fails to rise above $70, this level can be considered resistance.