Questions and Answers
What does technical analysis primarily study?
Technical analysis includes fundamental analysis like balance sheets and P&L accounts.
False
What is the assumption that all possible price-sensitive information is built into the price graph?
Market efficiency
According to technical analysis, prices move in _____
Signup and view all the answers
Which of the following best describes a primary trend in Dow Theory?
Signup and view all the answers
The Dow Theory indicates that stock market movements occur randomly.
Signup and view all the answers
Who was the founder of the Dow Theory?
Signup and view all the answers
In technical analysis, _____ patterns tend to repeat themselves.
Signup and view all the answers
Match the types of trends in Dow Theory with their characteristics:
Signup and view all the answers
What basic assumption dictates that market price is determined by demand and supply?
Signup and view all the answers
Study Notes
What is Technical Analysis?
- Involves studying stock price graphs and momentum oscillators.
- Based solely on historical prices, excluding balance sheets and profit & loss accounts.
- Assumes markets are efficient, with all price-sensitive information reflected in price graphs.
Assumptions of Technical Analysis
-
Market Discounts Everything:
- Price movements are the only focus, disregarding fundamental factors.
- Assumes all fundamentals are incorporated into stock prices.
-
Prices Move in Trends:
- Price changes are believed to follow specific trends.
- Most technical strategies rely on the trend-following assumption.
-
History Tends to Repeat Itself:
- Market reactions to similar stimuli are consistent over time.
Dow Theory
-
A key component of technical analysis, based on Charles H. Dow's editorials.
-
Asserts that stock market performance is guided by specific trends rather than random movements.
-
Types of Trends in Dow Theory:
-
Primary Trend:
- Lasts from months to several years; can be bullish or bearish.
-
Secondary Trend:
- Shorter than primary trends; typically lasts from weeks to months; can also be bullish or bearish.
-
Minor Trend:
- Day-to-day price movements; very short duration—a few days.
-
Basic Assumptions
- Market prices are determined by supply and demand forces.
- Price movements tend to trend over long periods.
- Reversals or shifts in trends can occur.
- Charts and graphs can help predict changes in demand and supply.
- Price patterns have a tendency to repeat over time.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz explores the fundamentals of technical analysis, focusing on the study of stock price graphs and momentum oscillators. It emphasizes the concept that all relevant information is reflected in price movements, ignoring fundamental analysis elements like balance sheets. Test your understanding of the key assumptions and methods of this analytical approach.
