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62 Cards in this Set

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  • Back
"Technical Analysis" is the study of ______
Price. NOT Fundamentals
What is the general definition of "support" and "resistance"?
Areas stock has bounced up or down from @ least twice
Up, Down, Sideways are examples of _____.

What technical indicator is commonly used for this?

Moving Average.
"The ____ is our Friend"
In a "short term" trend what do the price bars represent?

In general, how long is this?
DAILY price bars

Few days to a few weeks
In an "intermediate term" trend what do the price bars represent?

In general, how long is this?
DAILY price bars

6 Weeks - 9 Months
In a "long term" trend what do the price bars represent?

In general, how long is this?
WEEKLY price bars

>= 1 year
What is the best chart to view a "long term" trend?
5 year chart
Explain how "Trend" and "Support and Resistance" are "Tied Together"?
TREND helps you determine WHERE support and resistance are
What is an important indicator, but is more important in some situations over others?
In an upward trending stock, how important is it to focus on volume?
Not so much
What is needed for a "breakout"?
ABOVE average volume
Why is volume important in a sideways trending stock?
If a stock is trending sideways for a period of time, VOLUME is what "breaks it out" of that trend and helps it start a new trend in an upwards direction
You want to trade in the direction of the dominant trend ans stay away from "what" when t he trend is clearly down?
Stay away from buying stocks OR

Call options when the trend is trending down
What does the "stochastics" indicator measure?

What does it help you determine?
-Measures a stocks bullish or bearish SENTIMENT

-Whether buyers (bulls) or sellers (bears) are dictating current trading in the stock
What does MACD measure?

2 reasons why special

1. Tends to be the first of the indicators to give a buy or sell signal
2. Gives an early warning as to when a trend is losing momentum
What does VOLUME show?

What is it a combination of?
# of shares that trade each day

Combination of both buy orders and sell orders
What is high volume relative to?

What does this show?

What tends to begin with large volume surges?
-Average Volume

-Shows when institutional money is buying heavily (if stock is going up) or selling heavily (stock is going down)

-Significant Uptrends and Downtrends
Knowing how to read support and resistance indicators can help protect you from what?

-Support and resistance areas help you so what?
-Buying just before the stock hits a peak and comes back down

-Trading ranges more clearly and forecast stock movement accurately
True or False...
Blindly following buy and sell indicators is considered following the rules?
In general, why do you want to avoid buying stocks with very low average volume?
(2 reasons)
1. These stocks are more prone to manipulation

2. Have a higher failure rate on buy signals
In general, before entering a stock on buy signals, we want to look for average volume to be above ______?
On the 1m, 3m and 6m and 1y charts, each bar represents what?
the open, high, low and closing price for one trading day
On the 5y and 10y charts, what does each bar represent?
The open, high, low and closing price of an entire week of trading.
Who are the one day, 5 day and 10 day charts for?

-What do they represent?

-Just a few minutes of time
What are the buy signal rules for an upward trending stock that grades well in phase 2?
Uptrending stock = 3 green arrows

When the most recent arrow on each individual indicator is green on an uptrending stock
What are the buy signal rules for an sidewards trending stock that grades well in phase 2?
sideways = 3 green arrows AND a volume surge.
Why does a sideways moving stock need a volume surge in addition to the 3 green arrows needed for an uptrending stock?
Needs confirmation of big money coming into the stock, which is shown by a volume surge.

This MUST happen before the signal can be considered valid
What is the definition of a "solid" phase 2 score?
1. F/E score >= 3.25

2. Price Pattern >= 2.5
what is the definition of a "strong industry group?"
1. Stable or increasing group rank of >=70
2. Group chart not in a downtrend during the past 2 to 3 months
Strong Institutional Support is indicated by what? 2
1. Volume surge >= 1.5
Accumulation/Distribution (Acc. Dist Current) score of >=60
How do you make money when the market is going down?
Learn to trade PUT OPTIONS!
Good money management involves what 4 factors?
1. Buying the correct nuumber of stock shares/option contracts

2. Diversifying your capital across the number of stocks in different industry groups

3. Letting your winners run

4. Keeping your losers small
Poor money management involves what 4 factors?
1. Sizing portions incorrectly

2. Putting too much money into one trade

3. Selling strong buy signals too quickly

4. Sitting on your losers "hoping" they will rally back upward
____ + ____ =
Consistent Performance

____ + ____ =
Poor Performance
Great System, GOOD Money Management

Great System, POOR money mangement
What is a STOP ORDER?
A protective order placed below the current stock price that automatically sells the stock if the price of the stock falls to or below the price you have specified
When placing a stop order with most brokers, are you charged initially?

How about when you cancel or modify the order?

Usually without cost
When are you charged on a STOP ORDER?
You are only charged a regular commission if the stock falls below the specified price and the system actually executes your order
Every now and then, bad news comes out on a stock, and the stock falls very rapidly or gaps below the price, for a loss

With a STOP ORDER, you can get out at the best available price once the stock penetrates taht sell stop price.

Usually, this type of fast, downward move is the kick-off to a much larger downward thrust, and you want to be out of the stock - even if it is at a lower price than what you specified
How do you create a STOP ORDER?
In the ORDER section in TOS, you will see market, limit, stop, stop limit, trailstop, MOC, LOC.

Select STOP from the drop down menu
Why should you use a REGULAR STOP ORDER rather than a STOP LIMIT?

What type of situations?
A REGULAR STOP ORDER becomes a market order as soon as th stock falls to or through the price you've specified.

A STOP LIMIT ORDER turns into a limit order and sells ONLY at the specified price or higher when the stop level is hit.

Thus, a limit order will keep you in the stock even if really bad news occurs and the price rapidly falls through teh sell stop price specified or gaps below it.

You want to be out of the stock in these situations, so use regular stop orders
= the SAME thing!
Where you place the sell stop determines what?
-How many shares you should buy AND
-Ultimately determines the risk of your trade
Where should you consider placing your stop sell orders?
3% below recent support
What are the 2 methods you can use to determine where to place your stop order?
1. Place your stop order 3% below the lowest price at which your stock traded during the 2 weeks prior to the buy signal

2. Place your stop order 3% below other support you have identified on the chart
What's a quick tip to compute approx stop order prices?

So, for a stock near $50, the stop order is going to be where?
-For every $10 in stock price, the stop order is going to be 30 cents BELOW the recent low.

-About $1.50 below the recent low.
What 2 things must you Know BEFORE determining the appropriate number of shares to buy?
1. The buy signal price

2. The price at which you'll be placing your stop order
How many shares should you buy?
Buy only enough shares so that if the stock hits yoru initial stop order, yoiu can live with the loss----
the amount you can handle losing every now and then without losing sleep over it.
When it comes to determining how many shares to buy, what's a good rule to follow?
Never lose more than 1% to 2% of your TOTAL ACCOUNT VALUE on any one trade.

This DOES NOT meanput only 1% to 2% of your account into each play.

It means buy only enough shares so that if the stock hits your stop order, you lose only 1%-2% of your total account value
When can you be more liberal with the 2% rule?

When should you use it?

When should you use the 1% rule?
LIBERAL when you have an account with < $10,000

Start using the 2% rule when your account grows to $20K to $30K.

When you get a much larger account, start using the 1% rule.
When do all buy signals appear?
1. After a stock has PULLED BACK- stopped going down, and then started to RALLY.
In Method One, of where to place your stop loss, what are you identifying?
SHORT TERM SUPPORT - the low price JUST PRIOR to the buy signal
Explain a scenario in which you should place your initial stop order, 3% below the lowest price the stock dropped to during the 2 weeks prior to the buy signal.
If the stock fits all the criteria for a strong buy signal, has just made a low, and is now showing 3 green arrows, the stock will most likely NOT drop below its recent low in the near future.
Most recent low before the buy signal $17. easiest way to calculat ethe stop order price?
LOW * .97

17* .97 = 16.49 stop price
On more volatile stocks, explain how method 1 (for calculating stop loss) compensates for additional risk.

-However, with ________, your risk profile is essentially the same, regardless of how volatile the stock iss
-By forcing you to buy fewer shares than you would in non-volatile stocks.

Which method of determining where you put your stop loss, gives you more "wiggle room"? Why?

Because you are placing your stop order 3% below other support you have identified on the chart, instead of below the price at which the stock traded in the last 2 weeks.

For a sideways moving stock, an a buy signal breaks out above the resistance level, a higher support level is likely present in the trade. Remember, resistance, once broken commonly acts as support.
How do you determine your ACCEPTABLE LOSS?
Once you know the buy price and the stop order price, how do you determine correct position size?
1. Determine your ACCEPTABLE LOSS =


What is another alternative to determining your correct position size if you don't want to buy the stock?
BUY THE CALL OPTION on the stock
If you buy the "$20 call option" on a stock that's trading on a price of $19.50 per share, what does this mean?

To do this, what do you have to do?
You have the right to buy the stock at $20 per share at any time on or before the expiration day.

You only have to pay the price, which is a fraction of the actual stock.
Let's say a $20 call option is on URBN that expires in 3 months is selling for $1.35 per share. The stock is priced at $19.50 per share. Why would you do this?
You only have to pay the price, which is a fraction of the actual stock price
What is the “Dow”
Overall gauge of the market