Technical Analysis of Trendlines

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What is the primary implication of a trendline penetration?

A sideways trading range

A continuation of the previous trend

A reversal of the previous trend

Either a reversal or continuation of the previous trend, depending on the context (correct)

What is the significance of a trendline penetration in a rising market?

It is a rare event in a rising market

It may occur at the time of, or just before, the successful completion of a reversal pattern (correct)

It always signals a continuation of the upward trend

It always signals a reversal to the downside

What is the relationship between a trendline penetration and a reversal pattern?

A trendline penetration always follows a reversal pattern

A trendline penetration always precedes a reversal pattern

A trendline penetration is unrelated to a reversal pattern

A trendline penetration can occur simultaneously with, or just after, the completion of a reversal pattern (correct)

What is the potential outcome of a trendline penetration, as shown in Figure 6.8?

A consolidation in a sideways trading range followed by an advance (C) Signup and view all the answers

What is the key to drawing trendlines, according to the text?

Applying common sense to identify trends (B) Signup and view all the answers

What is the likelihood of a steep trend being broken compared to a more gradual one?

It is more likely to be broken (D) Signup and view all the answers

What does the area between the trendlines and the parallel return lines represent?

A trend channel (C) Signup and view all the answers

What does the violation of the return line signify in a rising market?

An acceleration of the price advance (D) Signup and view all the answers

What is the purpose of drawing lines parallel to the basic trendlines?

To create a trend channel (D) Signup and view all the answers

What happens when a steep trend is eventually broken?

The trend is no longer valid (A) Signup and view all the answers

What is the primary purpose of constructing a trendline in technical analysis?

To visually represent the underlying trend of a market (D) Signup and view all the answers

When is it necessary to redraw an up trendline?

When the price rallies sharply after a trendline violation (C) Signup and view all the answers

What type of trendline is constructed by joining a series of identical highs?

Horizontal trendline (B) Signup and view all the answers

What is the term for the process of connecting the final peak with the top of the first rally in a downtrend?

Down trendline construction (B) Signup and view all the answers

What is the key characteristic of a true trendline?

It is a graphic representation of the underlying trend (C) Signup and view all the answers

What happens when a trendline is violated with a sharp angle of ascent or descent?

Consolidation is more likely to occur (D) Signup and view all the answers

What is shown in Figure 6.13?

A trendline reversing its role from support to resistance (A) Signup and view all the answers

What is the main difference between arithmetic and logarithmic scales?

Arithmetic scales allocate a specific point or dollar amount to a given vertical distance, while logarithmic scales allocate a given percentage price move (C) Signup and view all the answers

What is the significance of the angle of ascent or descent in a trendline violation?

It determines the likelihood of a consolidation or reversal (C) Signup and view all the answers

What is shown in Figure 6.14?

A trendline reversing its role from support to resistance in a downtrend (B) Signup and view all the answers