One-Day Patterns Gaps: Common and Breakaway Types
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Questions and Answers

What is done to past prices of a stock when a stock splits?

  • They are divided by the stock's current price.
  • They are left unchanged.
  • They are adjusted proportionately based on the split ratio. (correct)
  • They are multiplied by the split ratio.

    • How would the price chart appear if no adjustment was made after a 2:1 stock split?

  • It would show no change in price.
  • It would show a price drop from $50 to $25. (correct)
  • It would not display any past prices.
  • It would show a price increase from $25 to $50.

    • How does adjusting stock prices for stock splits help in maintaining accurate price moves in the series?

  • It causes a distortion and exaggerates price moves.
  • It eliminates all past prices from the chart.
  • It prevents distortion and reflects true price moves. (correct)
  • It leads to absurdity in price movements.

    • In the scenario of three 2:1 stock splits, what is done to prices before the splits occur?

    <p>They are divided by 8.</p> Signup and view all the answers

    What problem may arise if adjustments for stock splits are not taken into account in analyzing past price changes?

    <p>Actual changes may be dramatically understated.</p> Signup and view all the answers

    Why is it important to adjust stock price series for stock splits despite potential underestimation of price changes?

    <p>To reflect only true price moves and avoid distortion.</p> Signup and view all the answers

    In trading systems testing, what is a suggested method to mitigate distortions caused by price rises due to splits?

    <p>Assuming a fixed-dollar position of shares in each trade</p> Signup and view all the answers

    What would a price rise from $5 to $8 represent prior to three splits, based on the text?

    <p>$24 per share gain</p> Signup and view all the answers

    How can assuming a fixed-dollar position in trading systems help with split-adjusted price distortions?

    <p>Mitigates the distortions caused by price rises due to splits</p> Signup and view all the answers

    What is the suggested trade size when the split-adjusted price is $50?

    <p>20 shares</p> Signup and view all the answers

    Why is it mentioned that standard split-adjusted price data can significantly distort trading system results?

    <p>Due to the changes in share sizes after each split</p> Signup and view all the answers

    How do stock charts differ from futures contracts in terms of data series representation?

    <p>Stock charts represent constant and unbroken data series while futures contracts do not</p> Signup and view all the answers

    What is a common gap?

    <p>A gap that occurs within a trading range and is not particularly significant</p> Signup and view all the answers

    What is a breakaway gap?

    <p>A gap that occurs when prices surge beyond the extreme of a trading range</p> Signup and view all the answers

    What is a runaway gap known for?

    <p>Characterizes strong bull and bear markets when a trend accelerates</p> Signup and view all the answers

    What distinguishes an exhaustion gap from a runaway gap?

    <p>Exhaustion gaps are soon followed by a trend reversal, unlike runaway gaps</p> Signup and view all the answers

    What is the significance of a breakaway gap that is not filled within a few days?

    <p>It represents one of the most significant and reliable chart signals</p> Signup and view all the answers

    In what type of market can a series of runaway gaps occur on consecutive days?

    <p>Strong bull or bear markets with accelerating trends</p> Signup and view all the answers

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