Multi-Asset Technical Analysis Framework Quiz

What does technical analysis primarily study?

• Market psychology

• Economic indicators

• Company fundamentals

• Global news

Answer explanation

Technical analysis primarily studies market psychology, focusing on price movements and trading volumes to understand investor behavior and market trends.

Which of the following is a common myth about technical analysis?

• TA is used only by day traders

• TA helps manage risk

• TA predicts exact outcomes

• TA is based on historical data

Answer explanation

A common myth is that TA predicts exact outcomes. In reality, technical analysis provides probabilities and insights based on historical data, but it cannot guarantee specific future results.

What is the recommended maximum risk per trade according to the text?

• 1%

• 10%

• 2%

• 5%

Answer explanation

The recommended maximum risk per trade is 1%. This conservative approach helps to protect your capital and manage losses effectively, making it the safest choice among the options provided.

In a downtrend, what pattern is typically observed?

• Lower highs and lower lows

• Sideways movement

• Consolidation

• Higher highs and higher lows

Answer explanation

In a downtrend, the market typically shows lower highs and lower lows, indicating a consistent decline in price. This pattern reflects bearish sentiment, distinguishing it from sideways movement or uptrends.

What is the purpose of using stop-loss orders?

• To maximize profits

• To predict market movements

• To ensure trades are executed

• To prevent large losses

Answer explanation

Stop-loss orders are designed to limit potential losses by automatically selling a security when it reaches a certain price. This helps investors prevent large losses in volatile markets.

Which of the following best describes a bullish engulfing pattern?

• A candle with a long upper wick

• Two candles of equal size

• A larger candle completely covering a smaller one in the same direction

• A small candle followed by a larger one in the opposite direction

Answer explanation

A bullish engulfing pattern occurs when a larger candle completely covers a smaller one in the same direction, indicating a potential reversal to bullish sentiment. This is why the correct choice is the third option.

What does the term 'confluence' refer to in trading strategies?

• Aligning multiple signals to support a trade

• Trading against the trend

• Combining different timeframes

• Using multiple indicators

Answer explanation

In trading, 'confluence' refers to aligning multiple signals to support a trade, increasing the likelihood of success. This is the correct choice, as it emphasizes the importance of combining various indicators or signals.

What is the primary focus of risk management in trading?

• Diversifying investments

• Increasing trade frequency

• Minimizing losses

• Maximizing profits

Answer explanation

The primary focus of risk management in trading is minimizing losses. This approach helps traders protect their capital and manage potential risks, ensuring long-term sustainability in their trading activities.

What should a trader do if they experience a string of losses?

• Take a break and reassess

• Change their trading strategy

• Ignore the losses

• Increase their position size

Answer explanation

Taking a break allows traders to clear their minds and reassess their strategies. This reflection can help identify mistakes and improve future decision-making, rather than compounding losses by ignoring them or increasing risk.

Which of the following is NOT a key component of technical analysis?

• Market sentiment

• Volume

• Company earnings

• Support and resistance

Answer explanation

Company earnings are a fundamental analysis component, focusing on a company's financial health, while technical analysis relies on market sentiment, volume, and support and resistance to predict price movements.