Chapter 1: Overview of the Introduction to Technical Analysis

Which of the following is NOT a fundamental assumption of technical analysis?

• Markets are efficient
• Historical price patterns repeat
• Markets are entirely random
• Historical price patterns provide insights

Answer explanation

Correct! Technical analysis assumes that markets are not entirely random and can be analyzed.

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Comprehension

Why do technical analysts use moving averages?

• To predict market crashes
• To identify support and resistance levels
• To analyze investor sentiment
• To determine fundamental value

Answer explanation

Correct! Moving averages help identify trends and potential support and resistance levels.

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Comprehension

Which type of analysis involves analyzing company financials and economic indicators?

• Technical analysis
• Fundamental analysis
• Sentiment analysis
• Psychological analysis

Answer explanation

Correct! Fundamental analysis examines financials and economic indicators.

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Application

Which assumption of technical analysis suggests that historical price patterns tend to repeat?

• Market efficiency
• Trend analysis
• Fundamental analysis
• Historical repetition

Answer explanation

Correct! One of the assumptions of technical analysis is that historical patterns repeat.

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Application

Why do traders use trendlines in technical analysis?

• To predict company earnings
• To identify potential reversals or continuations
• To calculate moving averages
• To analyze market sentiment

Answer explanation

Correct! Trendlines help identify potential trend changes or continuations.

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Comprehension

Why might technical analysis struggle to predict sudden market movements caused by unexpected news events?

• It solely focuses on chart patterns
• It is overly complex
• It relies on historical data
• It predicts market sentiment

Answer explanation

Correct! Technical analysis primarily uses historical price data which may not account for sudden news events.

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Analysis

What assumption of technical analysis suggests that markets are influenced by various factors but not entirely random?

• Markets are efficient
• Markets are entirely random
• Markets are inefficient
• Markets are unpredictable

Answer explanation

Correct! Technical analysis assumes that markets are not entirely random.

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Knowledge

Why do traders often combine technical, fundamental and sentiment analysis?

• To make analysis more complicated
• To increase trading costs
• To gain a comprehensive understanding of the market
• To confuse other traders

Answer explanation

Correct! Combining analyses provides a well-rounded view.

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Comprehension

What does a trend refer to in technical analysis?

• The current market price

• A specific price level

• The general price direction over time

• A sudden price spike

Answer explanation

Correct! A trend represents the overall direction of prices over a period of time

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Analyse

What is the main objective of technical analysis?

• Exploring historical price patterns

• Analyzing company financials

• Predicting economic indicators

• Examining geopolitical events

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Knowledge