Technical Analysis: Identifying Support and Resistance Zones
26 Questions
7 Views
4.9 Stars

Technical Analysis: Identifying Support and Resistance Zones

Created by
@UnrivaledUnderstanding

Questions and Answers

In an uptrend, a downtrendline acts as a support line.

False

Support is the price level at which supply is thought to be strong enough to prevent the price from declining further.

False

A support line is established above the current price level.

False

Demand is synonymous with bearish and selling.

<p>False</p> Signup and view all the answers

When an uptrendline is violated, it acts as a support.

<p>False</p> Signup and view all the answers

Support always holds and prevents the price from falling below it.

<p>False</p> Signup and view all the answers

A break above resistance signals that the bears have won out over the bulls.

<p>False</p> Signup and view all the answers

Support breaks and new lows signal that buyers have increased their expectations and are willing to buy at even higher prices.

<p>False</p> Signup and view all the answers

Resistance lines/levels are below the current price.

<p>False</p> Signup and view all the answers

A break below support signals that the bulls have won out over the bears.

<p>False</p> Signup and view all the answers

Support turning into resistance means that the forces of demand have overcome the forces of supply.

<p>False</p> Signup and view all the answers

Trendlines are used to identify the direction of the movement of the stock prices.

<p>True</p> Signup and view all the answers

A downtrend is represented by a line connecting the high points of a security as its price continues to rise.

<p>False</p> Signup and view all the answers

When price breaks above resistance, then that resistance level becomes the new support level.

<p>True</p> Signup and view all the answers

Technical analysis is built on the assumption that prices are random and unpredictable.

<p>False</p> Signup and view all the answers

Once support is broken, another resistance level will have to be established at a higher level.

<p>False</p> Signup and view all the answers

A down trendline is drawn by connecting the low points of the security as it continues to fall.

<p>False</p> Signup and view all the answers

A sideways trend is a period of consolidation before the price moves in the opposite direction of the previous trend.

<p>False</p> Signup and view all the answers

The more times a trendline has been tested, the less significant it is.

<p>False</p> Signup and view all the answers

A steep trendline always indicates a strong trend.

<p>False</p> Signup and view all the answers

When price and volume patterns are in agreement, it indicates a strong trend reversal.

<p>False</p> Signup and view all the answers

Volume normally leads price during a bear move.

<p>False</p> Signup and view all the answers

A new high in price that is confirmed by volume is a warning of underlying technical weakness.

<p>False</p> Signup and view all the answers

Price increase and volume decrease is a bullish signal.

<p>False</p> Signup and view all the answers

Volume is always dependent on price.

<p>False</p> Signup and view all the answers

When volume trends are moving in the same direction as price, it is abnormal.

<p>False</p> Signup and view all the answers

Study Notes

Support and Resistance

  • Support is the price level at which demand is thought to be strong enough to prevent the price from declining further.
  • A break below support signals that sellers have reduced their expectations and are willing to sell at even lower prices.
  • Once support is broken, another support level will have to be established at a lower level.

Resistance

  • Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
  • A break above resistance signals that buyers have increased their expectations and are willing to buy at even higher prices.
  • Once resistance is broken, another resistance level will have to be established at a higher level.

Role of Reversal: Support and Resistance

  • Support can turn into resistance and vice versa.
  • A break below a support level can turn that broken support level into resistance.
  • A break above a resistance level can turn that broken resistance level into support.

Trendlines

  • Trendlines are a straight line drawn on a chart through or across the significant limits of any price range to define the trend of market movement.
  • Trendlines are one of the first technical aspects of the market to be discovered.

Uptrend

  • An uptrend is when a line is drawn on the chart by connecting the low points of the security as its price continues to rise.
  • Each low point is successively higher than the previous low, giving the trendline its upward slope.

Downtrend

  • A downtrend is when a line is drawn on the chart connecting the high points of the security as it continues to fall.
  • Each high point is successively lower than the previous high, giving the trendline its downward slope.

Sideways Trend

  • A sideways trend is a horizontal price movement that occurs when the forces of supply and demand are nearly equal.
  • A sideways trend is often regarded as a period of consolidation before the price continues in the direction of the previous move.

Factors that Determine the Significance of a Trendline

  • The longer the period, the more significant the consequences.
  • The more times a trendline has been tested, the greater its significance.
  • The steepness or slope of the trendline helps identify if the trend is significant or unstable.

Volume Studies

  • Volume studies offer three major benefits:
    • When price and volume patterns are in agreement, it favours an extension of the trend.
    • If price and volume disagree, it tells us that the underlying trend is not as strong as it looks on the surface.
    • Volume can throw up characteristics of its own that literally shout a warning or opportunity.

Price and Volume Relationship

  • Volume typically goes with the trend, expanding in a rising market and contracting in a declining one.
  • A combination of rising volume and rising price is normal, but a new high in price that is not confirmed by volume should be regarded as a red flag, warning of underlying technical weakness.
  • Volume normally leads price during a bull move.
  • A bullish signal is given when price and volume both increase, or when price and volume both decrease.
  • A bearish signal is given when price increases but volume decreases, or when price decreases but volume increases.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Description

Test your understanding of technical analysis by identifying support and resistance zones, trendlines, and volume characteristics in financial markets. Learn how to recognize key junctures where supply and demand meet and how to apply this knowledge to make informed trading decisions.

More Quizzes Like This

Technical Analysis Quiz
9 questions
Technical Analysis: Trends and Time Frames
29 questions
Support and Resistance in Trading
16 questions
Use Quizgecko on...
Browser
Browser