Technical Analysis Of The

Financial Markets PDF

John J. Murphy

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Technical Analysis Of The Financial
Markets
Mastering Market Trends Through Comprehensive
Technical Analysis Techniques.
Written by Bookey
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Markets Summary
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Audiobook

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About the book
In this updated edition of his acclaimed bestseller, John J.
Murphy expands the scope of "Technical Analysis of the
Financial Markets" to encompass all financial markets,
providing a comprehensive reference that has educated
thousands of traders. This essential guide explores the
fundamental concepts of technical analysis and their practical
applications in futures and stock markets. Featuring the latest
advancements in computer technology, technical tools, and
indicators, the second edition introduces new insights into
candlestick charting, intermarket relationships, and stock
rotation, complemented by contemporary examples and
visuals. Readers will learn not only how to interpret charts and
analyze indicators but also appreciate the pivotal role of
technical analysis in investment strategies. Revised for the
complexities of today's financial landscape, this book is
indispensable for anyone committed to understanding and
navigating market dynamics.

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About the author
John J. Murphy is a prominent American financial market
analyst renowned as the pioneer of inter-market analysis. His
influential work has earned him recognition, including an
award for outstanding contributions to global technical
analysis from the International Federation of Technical
Analysts.

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Summary Content List
Chapter 1 : Lesson One: Technical Analysis and the Dow

Theory

Chapter 2 : Lesson Two: Chart Construction

Chapter 3 : Lesson Three: Basic Concepts of Trend

Chapter 4 : Lesson Four: Major Reversal Patterns and

Continuation Patterns

Chapter 5 : Lesson Five: Volume and Open Interest

Chapter 6 : Lesson Six: Long-Term Charts and Commodity

Indices

Chapter 7 : Lesson Seven: Moving Averages

Chapter 8 : Lesson Eight: Oscillators and Contrary Opinion

Chapter 9 : Lesson Nine: Point and Figure Charting and

Japanese Candlesticks

Chapter 10 : Final Assessment

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Chapter 1 Summary : Lesson One:
Technical Analysis and the Dow Theory

LESSON ONE Technical Analysis and the Dow

Theory

OBJECTIVES

- Define the basic terms, concepts, and premises of technical

analysis.
- Distinguish fundamental from technical analysis.
- Compare and contrast the Random Walk and Dow Theories.

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READING ORIENTATION

Chapters 1 and 2 provide the foundational background of

technical analysis. Review the key terms before reading for
better comprehension. After completing the reading, refer to
page 3 for further activities.

KEY TERMS

- accumulation
- chartist
- confirmation
- correction
- day trading
- descriptive statistics
- distribution
- divergence
- Dow Theory
- efficient market hypothesis
- failure swing
- flow of fund analysis
- fundamental forecasting
- inductive statistics
- lines

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- market action
- minor trend
- price action
- primary trend
- public participation
- Random Walk Theory
- secondary trend
- sentiment indicators
- statistical (quantitative) analyst
- technical forecasting
- technician
- timing
- traditional chartist
- trends
- trend trading
- volume

CHALLENGE

MATCHING QUIZ

Match the key terms with their definitions.

1. A. 8 - accumulation: Informed buying by astute investors.

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2. B. 17 - chartist: One who makes subjective judgments in
analyzing market action.
3. C. 1 - confirmation: Either the industrial or the Rail
average gives the signal, not both.
4. D. 2 - correction: Usually retraces 33% to 50%.
5. E. 3 - day trading: Trading intraday changes, tic by tic.
6. F. 12 - descriptive statistics: Presentation of data.
7. G. 10 - distribution: Informed selling.
8. H. 1 - divergence: A secondary indicator that should
expand in the direction of the trend.
9. I. 20 - Dow Theory: Averages discount everything.
10. J. 11 - efficient market hypoth.: Price behavior is
“serially independent” and unpredictable.
11. K. 2 - failure swing: A reversal pattern.
12. L. 13 - flow of funds analysis: Study of cash positions.
13. M. 6 - fundamentalist approach: Study of supply and
demand.
14. N. 16 - inductive statistics: Generalizing and predicting
based on collected data.
15. O. 5 - market action: Price, volume, open interest.
16. P. 11 - Random Walk Theory: Price changes cannot be
predicted.
17. Q. 5 - raw data for chartist: The pricing structure of
commodities.

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18. R. 18 - technical analysis: Study of market action through
charting to forecast trends.
19. S. 21 - technician: Makes use of computers for analysis.
20. T. 15 - trend: A pattern of rising or dropping peaks and
troughs.
21. U. 14 - trend trading: Intermediate term trading.
22. V. 9 - volume: Market action discounts everything.

MULTIPLE CHOICE QUESTIONS

1. b - History is repetitive.
2. d - Fundamental analysis studies market action.
3. d - None of the above.
4. b - Price changes cannot be predicted.
5. c - Averages discount everything.
6. a - Less than 3 weeks.
7. c - Market action discounts everything.
8. d - A trend is likely to reverse at any time.
9. c - Its signals usually miss a trend's start.
10. b - II only.

ANSWER SHEET

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MATCHING QUIZ
:
A. 8, B. 17, C. 1, D. 2, E. 3, F. 12, G. 10, H. 1, I. 20, J. 11, K.
2, L. 13, M. 6, N. 16, O. 5, P. 11, Q. 5, R. 18, S. 21, T. 15, U.
14, V. 9

MULTIPLE CHOICE
:
1. b, 2. d, 3. d, 4. b, 5. c, 6. a, 7. c, 8. d, 9. c, 10. b

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Chapter 2 Summary : Lesson Two:
Chart Construction

LESSON TWO: Chart Construction

READING ASSIGNMENT

Chapter 3 of the text.

OBJECTIVES

After completing this lesson, you should be able to:

- Identify bar, line, and point and figure charts.
- Read and identify elements in a bar chart.

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- Explain basic elements of the candlestick chart.
- Distinguish between volume and open interest.

READING ORIENTATION

This chapter introduces fundamental charts in traditional

technical analysis: bar, line, and point and figure charts,
alongside an introduction to candlestick charts.

KEY TERMS

- Arithmetic scale
- Candlestick chart
- Daily bar chart
- Intraday chart
- Line chart
- Logarithmic scale
- Monthly bar chart
- Open interest
- Point and figure chart
- Real body
- Shadow
- Volume
- Weekly bar chart

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CHALLENGE MATCHING QUIZ

- A. Daily bar chart = 2

- B. Intraday chart = 7
- C. Line chart = 5
- D. Open interest = 1
- E. Point and figure chart = 3
- F. Volume = 6

MULTIPLE CHOICE

1. Which chart is most used in futures technical analysis?

- d. Daily bar chart.
2-5: Refer to provided charts.
6. The horizontal tic to the right represents:
- b. Closing price.
7. Best definition of volume:
- b. Total trading activity in that commodity for the day.
8. Best definition of open interest:
- a. Total number of outstanding contracts at the close.
9. True statements:
- d. I, II, and III.

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ANSWER SHEET

- Matching Quiz: A-2, B-7, C-5, D-1, E-3, F-6

- Multiple Choice: 1-d, 2-b, 3-a or d, 4-c, 5-d, 6-b, 7-b, 8-a,
9-c, 10-b, 11-a, 12-c, 13-a, 14-a, 15-b, 16-b, 17-a, 18-c.

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Chapter 3 Summary : Lesson Three:
Basic Concepts of Trend

LESSON THREE: Basic Concepts of Trend

READING ASSIGNMENT

- Chapter 4 of the text.

OBJECTIVES

After completing this lesson, you should be able to:

- Identify trend directions and classifications.
- Recognize support, resistance, and significant penetrations.
- Understand trendlines and channel lines.
- Perceive and interpret retracement and speedlines.
- Identify reversal days and price action gaps.

READING ORIENTATION

The challenge section tests your understanding and

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application of the concepts. You will be asked to interpret
patterns in several charts.

KEY TERMS

- bottom reversal day

- breakaway gap
- channel (return) line
- climax
- correction
- downtrend
- exhaustion gap
- intermediate trend
- internal trendlines
- island reversal
- major trend
- measuring (runaway) gap
- near-term trend
- outside day
- price filter
- resistance
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- retracement Full Text and
- reversal Audio
- reversal day

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Chapter 4 Summary : Lesson Four:
Major Reversal Patterns and
Continuation Patterns

LESSON FOUR Major Reversal Patterns and

Continuation Patterns

READING ASSIGNMENT

Chapters 5 and 6 of the text.

OBJECTIVES

- Identify five common major reversal patterns.

- Distinguish between reversal and continuation patterns.
- Recognize continuation patterns: triangles, flags, pennants,
and wedges.
- Understand the importance of volume patterns and
measuring implications.
- Read charts using price information.

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READING ORIENTATION

Chapters 5 and 6 focus on chart patterns that build on prior

concepts. These patterns are crucial for forecasting
transitional periods in the markets, providing predictive value
when seen on commodities or stock price charts.

KEY TERMS

- apex, ascending triangle, base, broadening formation, bull

trap, complex head and shoulders pattern, confirmation,
continuation head and shoulders, continuation pattern,
descending triangle, divergence, double top or bottom, flag,
flagpole, head and shoulders top, height, inverse head and
shoulders, maximum objective, measured move, measuring
technique, neckline, pennant, price objective, price patterns,
rectangle formation, return move, saucer top or bottom, spike
top, symmetrical triangle, triangles, triple tops and bottoms,
volume pattern, wedge.

CHALLENGE MATCHING QUIZ

Match key terms with their definitions.

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FILL-INS

Complete sentences related to key concepts of measurement

in technical analysis and reversal patterns.

MULTIPLE CHOICE

Answer questions that test knowledge on reversal patterns,

maximum objectives, characteristics of patterns, and more.
This lesson emphasizes the understanding and identification
of various reversal and continuation patterns in technical
analysis, crucial for making informed trading decisions.

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Example
Key Point:Identifying Major Reversal Patterns is
crucial for forecasting market shifts.
Example:Imagine you are facing a potential stock
investment. As you analyze the chart, you might notice
a 'double top' formation, signaling a reversal.
Recognizing this pattern can prompt you to reconsider
your buy decision, allowing you to avoid losses as the
price begins to drop, showcasing the importance of
pattern recognition in trading.

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Critical Thinking
Key Point:Understanding major reversal and
continuation patterns is key for traders in making
informed decisions.
Critical Interpretation:While the identification of major
reversal and continuation patterns as outlined by
Murphy may serve as useful tools in technical analysis,
readers should approach this perspective with caution,
recognizing that market behavior can be influenced by a
variety of unpredictable factors. The efficacy of these
patterns may vary, and reliance solely on them could
lead to erroneous conclusions about market movements.
Scholars like Brett Steenbarger in "The Psychology of
Trading" argue that psychological factors often
outweigh technical signals, suggesting a more holistic
approach. Thus, while Murphy’s frameworks provide
foundational insights, traders are encouraged to
corroborate their findings with broader market analysis
and not dismiss other influencing variables.

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 Chapter 5 Summary : Lesson Five:
Volume and Open Interest
Section Content

Objectives

Understand the role of volume and open interest as secondary indicators in technical analysis.
Learn how to use On Balance Volume (OBV) as an analytical tool.
Interpret open interest figures in the Commitments of Traders Report (COT).
Identify how volume and open interest signal trend changes.

Key Terms

Volume: The total number of entities being traded.

Open Interest: The total number of outstanding long or short contracts.
On Balance Volume (OBV): An indicator measuring volume pressure direction.

Importance of This chapter emphasizes the critical function of volume and open interest in recognizing trends. Mastery
Volume and Open of this content will enrich comprehension of technical analysis.
Interest

Challenge A matching exercise linking terms related to volume and open interest to their definitions.
Matching Quiz

Fill-ins A series of statements with blank spaces to complete using key concepts from the text, such as:

__________ is the most important of the three indicators.

In a downtrend, declining open interest is __________.

Multiple Choice A set of questions testing knowledge on volume and open interest concepts, including:
Questions
What does an increase in volume and open interest generally signify?
How is OBV best described?

Conclusion This chapter covers foundational aspects of volume and open interest, crucial for analyzing market trends
and making informed trading decisions. Mastery of these concepts is essential for further study in
technical analysis.

Volume and Open Interest

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Objectives

- Understand the role of volume and open interest as

secondary indicators in technical analysis.
- Learn how to use On Balance Volume (OBV) as an
analytical tool.
- Interpret open interest figures in the Commitments of
Traders Report (COT).
- Identify how volume and open interest signal trend
changes.

Key Terms

-
Volume
: The total number of entities being traded.
-
Open Interest
: The total number of outstanding long or short contracts.
-
On Balance Volume (OBV)
: An indicator measuring volume pressure direction.

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Importance of Volume and Open Interest

This chapter emphasizes the critical function of volume and

open interest in recognizing trends. Mastery of this content
will enrich comprehension of technical analysis.

Challenge Matching Quiz

A matching exercise linking terms related to volume and

open interest to their definitions.

Fill-ins

A series of statements with blank spaces to complete using

key concepts from the text, such as:
1. __________ is the most important of the three indicators.
2. In a downtrend, declining open interest is __________.

Multiple Choice Questions

A set of questions testing knowledge on volume and open

interest concepts, including:
1. What does an increase in volume and open interest

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generally signify?
2. How is OBV best described?

Conclusion

This chapter covers foundational aspects of volume and open

interest, crucial for analyzing market trends and making
informed trading decisions. Mastery of these concepts is
essential for further study in technical analysis.

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Example
Key Point:Understanding volume and open interest
is vital for trend analysis.
Example:Imagine you are analyzing a stock's upward
trend. You notice that as the price increases, the volume
also rises significantly, indicating strong interest and
support from traders. Simultaneously, open interest in
futures contracts is also increasing, suggesting that new
positions are being created rather than existing ones
being closed. This combination signifies that the upward
momentum may be sustainable, allowing you to make
an informed decision to enter a trade.

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Critical Thinking
Key Point:The impact of volume and open interest
on market trends is significant but interpretive
variance exists.
Critical Interpretation:While Murphy asserts that
volume and open interest are vital secondary indicators
in technical analysis, it's crucial to approach this
viewpoint with skepticism, as reliance solely on these
metrics might lead to overconfidence in trend
predictions. Various studies have shown that other
factors, such as macroeconomic indicators or market
sentiment, can equally or more significantly impact
market movements (see, for example: "A Survey of
Trading Signals and Performance" by Neely and
Weller). Therefore, while these concepts are important,
they should not be considered in isolation.

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Chapter 6 Summary : Lesson Six:
Long-Term Charts and Commodity
Indices

LESSON SIX: Long-Term Charts

READING ASSIGNMENT

Chapter 8 of the text.

OBJECTIVES

After completing this lesson, you should be able to:

- Explain the usefulness of long-term charting.
- Review long-term charts critically and grasp the importance
of their historical data.

READING ORIENTATION

Chapter 8 discusses the importance of long-term charts for

analysis and forecasting purposes, featuring examples of

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weekly and monthly charts. These charts recap concepts and
price patterns from earlier chapters.

MIDTERM REVIEW

At the lesson's end, you can assess your understanding of

topics from Lessons 1–6. A quick review of key terms will
assist in preparation for the Midterm Assessment.

KEY TERMS

- Longer-range charts
- Perpetual Contract
Upon completing the reading assignment for Lesson 6,
proceed to the Midterm Examination, which includes
questions covering this material.

MIDTERM ASSESSMENT

MATCHING QUIZ
Install Bookey App to Unlock Full Text and
Audio
Participants will match terms with their definitions.

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Chapter 7 Summary : Lesson Seven:
Moving Averages

LESSON SEVEN: Moving Averages

READING ASSIGNMENT

- Chapter 9 of the text.

OBJECTIVES

- Understand the importance of moving averages as a

technical indicator.
- Identify the three types of moving averages.
- Learn how moving averages are applied in trading.
- Grasp the concept of the weekly rule technique.

READING ORIENTATION

- Moving averages are crucial in technical analysis for

trend-following.

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- They are precise and can be programmed easily, making
familiarity with their application essential for technicians.

KEY TERMS

- Arithmetic Mean (Simple Moving Average)

- Bollinger Bands
- Centering
- Closing Price
- Double Crossover Method
- Fibonacci Numbers
- Four-Week Rule
- Harmonics
- Linearly Weighted Moving Average
- Moving Average
- Percentage Envelopes
- Standard Deviation
- Time Cycles
- Triple Crossover Method

CHALLENGE MATCHING QUIZ

- A matching quiz section connects specific terms to their

definitions or applications related to moving averages.

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FILL-INS

1. The
moving average
is used primarily as a trend-following device.
2.
Long-range
averages tend to be less sensitive to price action.
3. This type of indicator gives equal weight to each day’s
price:
simple moving average
.
4. The
short-term
moving average is mostly used in non-trending periods.
5. The
shorter
moving average is for timing; the
longer
one identifies a trend.

MULTIPLE CHOICE

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- Questions assessing knowledge on the application,
characteristics, and calculations of moving averages.

ANSWER SHEET

- Answers provided for the matching quiz, fill-ins, and

multiple-choice questions to aid in the understanding and
retention of concepts related to moving averages.
This chapter emphasizes the significance of moving averages
in technical analysis, the different types and their
applications, along with practical exercises to reinforce the
learned concepts.

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Chapter 8 Summary : Lesson Eight:
Oscillators and Contrary Opinion

LESSON EIGHT Oscillators and Contrary Opinion

READING ASSIGNMENT

Refer to Chapter 10 of the text.

OBJECTIVES

Upon completing this lesson, you should be able to:

- Explain how oscillators are utilized.
- Identify divergence patterns.
- Apply the Contrary Opinion method.
- Recognize characteristics of overbought and oversold
market conditions.

READING ORIENTATION

This chapter focuses on oscillators, a technique that

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technicians employ to assess overbought and oversold market
conditions, enhancing their responses to market trends.

KEY TERMS

- Bullish consensus numbers

- Commodity Channel Index
- Contrary Opinion
- Danger zones
- Divergence
- Failure swings
- K%D
- MACD
- Momentum
- Oscillator
- %R
- Rate of change (ROC)
- Relative Strength Index (RSI)
- Zero line

CHALLENGE MATCHING QUIZ

Match terms with their descriptions accordingly.

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FILL-INS

Complete the sentences based on key concepts discussed

about oscillators and market analysis.

MULTIPLE CHOICE

Answer a series of questions about oscillators, their

indicators, and their implications in trading strategies.

ANSWER SHEET

Provide correct answers for the matching quiz, fill-ins, and

multiple-choice questions for self-assessment.
This lesson emphasizes the importance of oscillators in
identifying market dynamics and how they contribute to
making informed trading decisions.

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Critical Thinking
Key Point:The use of oscillators in technical analysis
can be misleading if not understood properly.
Critical Interpretation:While oscillators are designed to
indicate overbought or oversold conditions effectively,
traders should remember that reliance solely on these
indicators can lead to significant misjudgments.
Oscillators like the Relative Strength Index (RSI) and
Moving Average Convergence Divergence (MACD)
often generate false signals during trending markets,
leading to premature trade entries or exits. Additionally,
contrary opinion analysis, which suggests trading
against popular sentiment, can also produce distorted
perspectives if one does not account for the prevailing
market context. Thus, while Murphy emphasizes
oscillators and their application to market trends, it is
vital for traders to corroborate these signals with broader
market analysis and other indicators, acknowledging the
potential for error inherent in technical analysis
methodologies. Sources such as 'Technical Analysis
Explained' by Martin J. Pring provide alternative views
that urge skepticism regarding sole reliance on technical
indicators.

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 Chapter 9 Summary : Lesson Nine: Point
and Figure Charting and Japanese
Candlesticks
Section Content

Lesson Point and Figure Charting and Japanese Candlesticks

Title

Reading Chapters 11 and 12

Assignment

Objectives

Read, plot, and explain the uses of point and figure charts.
Read, plot, and explain the uses of Japanese candlesticks.

Reading
Orientation This lesson introduces point and figure charts emphasizing simplicity and effectiveness in trading, and
discusses Japanese candlestick charts which provide insights for Western investors.

Key Terms

black body
body
box size
buy signal
catapult
channel lines
congestion area
Dark Cloud Cover
Doji candlesticks
Evening Star
Falling Three Methods
45-degree line
fulcrum
horizontal count
intraday point and figure chart
Long Day
Morning Star
o column
Piercing Line
point and figure chart
pole
reversal candle patterns
reversal criterion
Rising Three Methods
sell signal
shadow (wick or hair)
Short Day
Spinning Tops

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Section Content

three-point reversal chart

vertical measurement
Victor de Villiers
white body
x column

Challenge A matching exercise for key terms and definitions to reinforce understanding of essential concepts.
Matching
Quiz

Fill-Ins An exercise to complete sentences related to point and figure charting and candlestick formations for better
insight.

Multiple A quiz format to test comprehension of charts and candlestick patterns, applying knowledge practically.
Choice

Summary
This chapter emphasizes two crucial charting techniques in technical analysis: point and figure charts
for price movement without time and Japanese candlesticks for visualizing price action through distinct
patterns.

LESSON NINE: Point and Figure Charting and

Japanese Candlesticks

READING ASSIGNMENT

Chapters 11 and 12.

OBJECTIVES

After completing this lesson, you should be able to:

- Read, plot, and explain the uses of point and figure charts.

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- Read, plot, and explain the uses of Japanese candlesticks.

READING ORIENTATION

This lesson introduces point and figure charts as an

alternative technical analysis tool apart from bar charts,
emphasizing its simplicity and effectiveness in trading
decisions. Japanese candlestick charts, although historically
used in Japan, offer essential insights for Western investors.

KEY TERMS

- black body
- body
- box size
- buy signal
- catapult
- channel lines
- congestion area
- Dark Cloud Cover
- Doji candlesticks
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- Evening Bookey App to Unlock Full Text and
- Falling Three Methods Audio
- 45-degree line

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Chapter 10 Summary : Final Assessment

Final Assessment

The following assessment is designed to evaluate

comprehension of technical analysis concepts and
techniques. It consists of a series of questions that require
students to apply their knowledge to specific chart figures.

Questions Overview

FIGURE 1:

1. Identify a resistance line.

2. Draw an up trendline.
3. Draw a down trendline.
4. Identify a support line.
5. Locate the breakout point.

FIGURE 2:

6. Determine the type of chart.

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7. List three divergent trendlines.
8. Identify the line signaling a reversal and buy signal.
9. Describe each line as support or resistance.
10. Explain the transformation of lines post-break.

FIGURE 3:

11. Identify the type of chart as daily or weekly.

12. Specify the major trendline number.
13. Indicate the short-term advance trendline.
14. Identify the intermediate trendline number.
15. Discuss the sustainability of steep trendlines.

FIGURE 4:

16. Classify the chart as weekly/monthly.

17. Name the two parallel lines.
18. Predict trend weakening or strengthening.
19. Describe what occurs with a breakthrough of the upper
line.
20. Expectation of price travel distance post-breakout.

FIGURE 5:

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21. Identify the chart type.
22. Explain what the horizontal lines represent.
23. Describe each line as a percentage of price range.
24. Recognize the breakdown of price trends.

FIGURE 6:

25. Identify the chart duration.

26. Determine what the vertical lines represent.
27. Mark the selling climax point.
28. Differentiate the climax from other points based on
volume.

FIGURES 7a and b:

29-34. Identify various types of gaps and what combinations

signal.

FIGURE 8:

35-39. Describe the pattern and signal points.

FIGURE 9:

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40-43. Identify pattern types and their implications.

FIGURE 10:

44-45. Analyze the bullish or bearish nature of a pattern.

FIGURE 11:

46-50. Identify the pattern type and movements.

FIGURE 12:

51-53. Assess the pattern and retracement expectations.

FIGURE 13:

54-57. Determine pattern type and expected movement.

FIGURE 14:

58-60. Analyze vertical lines and time frame.

FIGURE 15:

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61-63. Identify the pattern type and volume implications.

FIGURE 16:

64. Discuss the confirmation or divergence of bottom lines.

FIGURE 17:

65-67. Analyze buyer and seller behavior at specific points.

FIGURE 18:

68-71. Identify patterns at market bottoms.

FIGURE 19:

72-75. Explore long-term support levels.

FIGURE 20:

76-79. Describe moving average lines and trends.

FIGURE 21:

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80-82. Identify crossover points and signals.

FIGURE 22:

83-85. Analyze overbought and oversold market ranges.

FIGURE 23:

86-88. Discuss oscillator signals.

FIGURE 24:

89-91. Examine the RSI line and its implications.

FIGURE 25:

92-96. Analyze box value and sensitivity to price

movements.

FIGURE 26:

97-101. Define candlestick structure and signals.

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Best Quotes from Technical Analysis Of
The Financial Markets by John J.
Murphy with Page Numbers
View on Bookey Website and Generate Beautiful Quote Images

Chapter 1 | Quotes From Pages 14-20

1.Market action discounts everything.
2.History tends to repeat itself in the market.
3.Prices move in trends.
4.The trend is your friend until the end.
5.Averages need not confirm one another.
6.Technical analysis is the study of market action through
charting in order to forecast future trends.
Chapter 2 | Quotes From Pages 21-27
1.The daily bar chart is by far the most commonly
employed.
2.High open interest reflects high liquidity.
3.On a candlestick chart, the real body shows which of the
following? The distance between the opening and closing
prices.

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4.The vertical bars at the base of the chart reflect volume.
Chapter 3 | Quotes From Pages 28-41
1.'Look at the overall trend of the market; this will
give you the context in which to interpret the
movements of smaller time frames.'
2.'Trends are not just simple lines; they are the inherent
behavior of the market, revealing the collective sentiment
of all participants.'
3.'Support levels are created by the buying interest at a
certain price, reflecting a perceived value that attracts
traders back into the market.'
4.'Resistance is simply the market's way of signaling that
prices may be too high and that sellers are willing to step
in.'
5.'Understanding retracements can provide valuable insights
into potential continuation of trends rather than the
assumption of reversals.'

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Chapter 4 | Quotes From Pages 42-52
1.Price patterns can have predictive value when they
appear on the price charts of commodities or
stocks.
2.Volume is important; as it is in all price patterns.
3.In a reversal pattern, confirmation is more important on the
upside price breakout.
4.Common to all reversal trends is a need for a prior trend,
the breaking of important trendlines, topping and bottom
patterns—of which bottoms take longer to build, and the
larger the price pattern the greater the subsequent move.
5.The maximum objective is a 100% retracement of a
previous bull market.
Chapter 5 | Quotes From Pages 53-62
1.Volume precedes price.
2.The total number of outstanding contracts is referred to as
open interest.
3.In a downtrend, declining open interest is bullish.
4.Rising open interest in a downtrend is bearish.

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5.Open interest can be affected in three ways: it can increase,
decrease, or not change.
Chapter 6 | Quotes From Pages 63-77
1.Long-term charts not only reveal the overall trend,
but they also provide critical information about
the direction of future price movements.
2.The power of long-term charts lies in their ability to
highlight significant price patterns that can lead to
prediction of future movements.
3.In reviewing long-term charts, one must maintain a focus
on historical context to gain insights into future market
movements.
4.Long-term charts serve as both a map of the market's path
and a tool for identifying potential points of reversal.

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Chapter 7 | Quotes From Pages 78-88
1.A well-rounded background in this area will prove
beneficial to the exacting technician.
2.Moving averages work best as indicators when the market
is in a trending period.
3.When employing two moving averages, the shorter one is
used for timing and the longer one for identifying a trend.
4.One of the best known commodity market cycles is the
monthly cycle.
5.The moving average is a trend-following technical
indicator that is quite precise and widely used by
technicians.
6.The basic premise behind the four-week rule is to liquidate
long positions and sell short positions when prices fall.
Chapter 8 | Quotes From Pages 89-99
1.Oscillators are especially valuable toward the end
of market moves.
2.A true contrarian will act in the opposite direction of the
majority.

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3.The measurement of momentum requires the taking of
price differences for a fixed time interval.
4.When two declining peaks are formed as prices continue to
move higher, a bearish divergence occurs.
5.Oscillator interpretation can override basic trend analysis
early in a breakout.
Chapter 9 | Quotes From Pages 100-110
1.Trading signals are more/less precise on point and
figure charts than on bar charts.
2.Point and figure charts provide the technician with specific
entry and exit points.
3.The candlestick is a Short Day if the difference between the
close and open prices is small.
4.If the closing price is higher than the opening price, the
body of the candlestick is white.
5.The most important value of point and figure charts is the
ability of the technician to identify support and resistance
zones.

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Chapter 10 | Quotes From Pages 111-119
1.The breakout is taking place at point
_________________.
2.Each line can be described as a support/resistance line.
3.Given a breakout, prices usually travel a distance equal to
the width of the channel.
4.The pattern is considered decisive at point
____________________.
5.Once broken, each line can become a support/resistance
line.

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Technical Analysis Of The Financial
Markets Questions
View on Bookey Website

Chapter 1 | Lesson One: Technical Analysis and the

Dow Theory| Q&A
1.Question
What is the main focus of technical analysis, according to
Chapter 1?
Answer:Technical analysis primarily focuses on
analyzing market action and price movements
through charting techniques to forecast future
trends.

2.Question
How does technical analysis differ from fundamental
analysis?
Answer:Technical analysis is centered on market action and
price data, while fundamental analysis looks at economic
indicators, company performance, and other factors that drive
market conditions.

3.Question

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What is the essence of the Dow Theory as discussed in this
chapter?
Answer:The Dow Theory emphasizes that market trends can
be identified through averages and that these averages should
confirm each other to validate a trend's direction.

4.Question
What are the three types of trends identified in Dow
Theory?
Answer:According to Dow Theory, the three types of trends
are primary, intermediate, and minor trends. Each has its
distinct characteristics and timeframes.

5.Question
What does the Random Walk Theory suggest about price
movements?
Answer:The Random Walk Theory suggests that price
changes are unpredictable and that past price movements do
not provide reliable indicators for predicting future
movements.

6.Question
Can you explain the importance of confirmation in

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technical analysis?
Answer:Confirmation is significant in technical analysis as it
strengthens the reliability of signals generated by price
movements. For instance, if both stock averages rise
simultaneously, it confirms a bullish trend.

7.Question
What role does volume play in technical analysis?
Answer:Volume serves as an important indicator in technical
analysis, as it reflects the strength or weakness of a price
movement. Higher volume often confirms the validity of a
price trend.

8.Question
What is a 'failure swing' and why is it relevant in
trading?
Answer:A 'failure swing' is a reversal pattern that indicates
when price action fails to meet a previous high or low,
suggesting potential trend reversal. It's relevant for traders to
identify entry and exit points.

9.Question
How can traders use concepts from technical analysis to

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improve their trading strategies?
Answer:Traders can utilize technical analysis concepts such
as trend identification and confirmation signals to time their
entries and exits more effectively, potentially increasing their
profitability.

10.Question
Why is it important for a trader to understand the key
terms in technical analysis?
Answer:Understanding key terms is crucial as it provides a
foundational knowledge that helps traders interpret market
movements and apply various techniques effectively in their
trading strategies.
Chapter 2 | Lesson Two: Chart Construction| Q&A
1.Question
What are the key differences between the various types of
charts used in technical analysis?
Answer:There are several types of charts used in
technical analysis, including bar charts, line charts,
and point and figure charts, each with its unique

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representation of market data:

- **Bar Chart**: Displays open, high, low, and close

prices for a specific time period. It contains vertical
lines where the top indicates the high price and the
bottom indicates the low price, while horizontal ticks
show the opening and closing prices.

- **Line Chart**: Simplifies data by connecting

closing prices over a period, offering a clear view of
the trend but lacking additional information like
open and low prices.

- **Point and Figure Chart**: Focuses solely on

price movements by using Xs and Os to indicate
price rises and falls, ignoring time and volume,
which can help in identifying patterns without
distraction from smaller price fluctuations.
Chapter 3 | Lesson Three: Basic Concepts of Trend|

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Q&A
1.Question
What is the significance of understanding trends in
technical analysis?
Answer:Understanding trends is vital in technical
analysis as it helps traders and investors identify the
direction of price movements, maximizing their
chances for profitable trades. By recognizing
whether a market is in an uptrend, downtrend, or
sideways trend, one can make informed decisions
about when to enter or exit positions.

2.Question
How can recognizing support and resistance levels benefit
a trader?
Answer:Recognizing support and resistance levels enables
traders to anticipate price reversals and continuation. A
support level indicates where buying pressure is strong
enough to prevent prices from falling further, while a
resistance level indicates where selling pressure is adequate

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to prevent prices from rising. Understanding these concepts
can help traders set strategic entry and exit points.

3.Question
What role do trendlines play in technical analysis?
Answer:Trendlines are crucial as they help visually represent
the direction and strength of a trend. They provide a
framework for interpreting price movements and identifying
potential reversal points. By connecting significant highs or
lows during price action, traders can gauge market sentiment
and projected future movements.

4.Question
What does the term 'retracement' signify in trading
contexts?
Answer:Retracement refers to the temporary price
movements against the prevailing trend, indicating a pause
rather than a reversal. Traders often look for retracements to
identify potential buying or selling opportunities, particularly
at key support or resistance levels, in order to capitalize on
the resumption of the trend.

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5.Question
Can you explain what reversal days indicate and why
they matter?
Answer:Reversal days are significant indicators of potential
shifts in price trends. They occur when the market closes
significantly above or below previous high or low prices on
high volume, suggesting a change in market sentiment.
Recognizing these patterns allows traders to mitigate risks
associated with continuation of existing trends.

6.Question
What should a trader consider when viewing price gaps
in charts?
Answer:Traders should analyze price gaps, as they can
indicate strong market movements or changes in trend.
Different types of gaps, such as breakaway gaps, exhaustion
gaps, and measuring gaps, have unique implications for
market behavior. Understanding these can aid in identifying
entry points and setting stop-loss orders effectively.

7.Question
How does volume play a role in confirming trends and

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reversals?
Answer:Volume serves as a critical confirmation tool in
technical analysis. High trading volume during price trend
movements signals strength in that trend, while low volume
may suggest weakness or uncertain market sentiment. When
combined with price action, volume can help validate a
trend’s strength or the likelihood of a reversal.

8.Question
Why might a trader prefer to use a sell stop order when
market prices approach a significant support level?
Answer:A sell stop order allows a trader to mitigate losses by
automatically selling a position if prices drop below a
designated support level. This strategic approach helps
manage risk by ensuring that the trader only executes the sale
if the market confirms a trend reversal, thus limiting potential
losses from further declines.

9.Question
What does it mean when a market is described as being
'trendless'?

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Answer:A trendless market signifies a situation where prices
move sideways without any clear upward or downward
direction. This may indicate indecision among traders,
making it more challenging to predict future price
movements. In this case, establishing ranges for buying and
selling becomes essential.

10.Question
How can traders utilize the two-day rule in analyzing
trends?
Answer:The two-day rule states that to validate a trend
breakout, prices must close above or below a trendline for
two successive days. This concept reinforces trend strength
and helps traders avoid false signals, improving
decision-making regarding potential trend continuations or
reversals.

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Chapter 4 | Lesson Four: Major Reversal Patterns
and Continuation Patterns| Q&A
1.Question
What are the five most commonly used major reversal
patterns?
Answer:The five most commonly used major
reversal patterns are: 1. Head and Shoulders Top, 2.
Head and Shoulders Bottom (Inverse Head and
Shoulders), 3. Double Top, 4. Double Bottom, and 5.
'V' Reversal.

2.Question
How can we distinguish between reversal and
continuation patterns?
Answer:Reversal patterns indicate a change in the trend
direction after a prior trend, while continuation patterns
suggest the existing trend will continue after a brief pause or
consolidation period. Reversal patterns often form at market
peaks or troughs, whereas continuation patterns usually
appear during a trend's duration.

3.Question

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What is a symmetrical triangle, and what does it
represent?
Answer:A symmetrical triangle is a chart pattern formed by
converging trendlines, also known as a coil, where the price
action moves within two converging lines. It typically
represents a period of consolidation before a breakout, either
upwards or downwards, depending on market conditions.

4.Question
Why is volume important in analyzing price patterns?
Answer:Volume is crucial because it confirms the legitimacy
of price movements. Increased volume during a breakout
from a pattern suggests strong interest and commitment to
the new direction, while low volume can indicate a lack of
conviction, leading to potential false signals.

5.Question
What does a double top pattern signify, and how is it
characterized?
Answer:A double top is a bearish reversal pattern that
typically forms after an uptrend, characterized by two peaks

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at approximately the same price level. The pattern signals a
potential market reversal, often confirmed when the price
breaks below the neckline.

6.Question
What is meant by 'confirmation' in trading patterns?
Answer:In trading, 'confirmation' refers to supporting
evidence, such as volume or additional technical indicators
that align with the predicted movement from a chart pattern.
It reassures traders that the breakout or reversal is valid and
increases the likelihood of success.

7.Question
How can traders use price patterns to forecast market
movements?
Answer:Traders can use price patterns to forecast movements
by analyzing historical price behavior, looking for
identifiable patterns that recur, assessing the implications of
these patterns in conjunction with volume, and applying
measurement techniques to set price targets for potential
trades.

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8.Question
What role does measuring techniques play in technical
analysis?
Answer:Measuring techniques help traders determine the
potential price movement associated with various patterns,
such as setting minimum price objectives based on the height
of the pattern, allowing for informed decision-making
regarding entry and exit points.

9.Question
What are the characteristics of a head and shoulders top?
Answer:A head and shoulders top pattern consists of three
peaks—the highest peak (the head) flanked by two lower
peaks (the shoulders). It indicates a reversal in trend and is
often characterized by increasing volume at the left peak and
diminishing volume at the right peak.

10.Question
What is the significance of the 'bull trap' in the context of
trading patterns?
Answer:A 'bull trap' occurs when the price action
misleadingly signals a continued uptrend, enticing traders to

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enter long positions before a sharp reversal downwards.
Recognizing a bull trap is essential to avoid potential losses,
especially when patterns like the head and shoulders form.
Chapter 5 | Lesson Five: Volume and Open Interest|
Q&A
1.Question
What is the significance of volume and open interest in
technical analysis?
Answer:Volume and open interest serve as crucial
secondary indicators in technical analysis, helping
traders identify the strength of price trends and
potential reversals. Higher volume often confirms a
trend's strength, while changes in open interest can
indicate the market's conviction regarding the
prevailing direction of the price.

2.Question
How does the On Balance Volume (OBV) help traders?
Answer:OBV is a volume indicator that uses cumulative
volume to show buying and selling pressure. A rising OBV
suggests that volume is heavy on days when prices close

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higher, indicating bullish sentiment. Conversely, a declining
OBV indicates heavy volume on down days, suggesting
bearish sentiment. It helps traders identify potential trend
changes before they appear in price.

3.Question
What can declining open interest during a downtrend
indicate?
Answer:Declining open interest in a downtrend can signal a
bullish sign, as it may indicate that sellers are closing their
positions, which can lead to a price reversal. This is contrary
to rising open interest in a downtrend, which might suggest
continued selling pressure.

4.Question
What does it mean when volume increases while open
interest decreases?
Answer:When volume increases while open interest
decreases, it may signal a potential market turn or a selling
climax. This generally implies that existing positions are
being closed out, often indicating that the trend may be

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coming to an end.

5.Question
How does the Commitments of Traders Report (COT) aid
in market analysis?
Answer:The COT report categorizes open interest by
different participant types, such as commercial hedgers and
speculators. Analyzing this data helps traders understand
market sentiment and positioning, allowing them to make
informed trading decisions based on the actions of various
market participants.

6.Question
What does the phrase 'volume precedes price' mean?
Answer:The phrase 'volume precedes price' suggests that
changes in trading volume can often indicate forthcoming
price movements. Increased volume typically occurs before
significant price changes, alerting traders to potential price
trends before they fully manifest.

7.Question
Why are blowoffs important to recognize in trading?
Answer:Blowoffs, which happen at major market tops,

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involve sharp price increases followed by a significant
decline in open interest. Recognizing this pattern is vital as it
may indicate a weakening market, allowing traders to exit
positions before larger losses occur.

8.Question
In what scenario would rising open interest be considered
bearish?
Answer:Rising open interest would be considered bearish in
a downtrend, as it suggests that new short positions are being
established, making it likely that prices will continue to fall.

9.Question
How can understanding trader categories in the COT
report enhance trading strategies?
Answer:By understanding the composition of traders (large
hedgers, large speculators, and small traders) in the COT
report, traders can gauge market sentiment and the potential
direction of future price movements, tailoring their strategies
accordingly.

10.Question
What vital role does volume play in confirming price

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trends?
Answer:Volume acts as a confirming indicator in price
trends; if price moves are accompanied by corresponding
increases in volume, it signifies strength in the price
movement, while low volume on price movements suggests
potential weakness or lack of conviction.
Chapter 6 | Lesson Six: Long-Term Charts and
Commodity Indices| Q&A
1.Question
Why are long-term charts important in technical
analysis?
Answer:Long-term charts are essential because they
provide a historical context for price movements
and trends, which helps analysts to identify major
trends and potential reversals over extended
periods. They allow traders to assess long-term
objectives and determine whether a security is
undervalued or overvalued based on its historical
performance.

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2.Question
How do long-term charts aid in forecasting future market
movements?
Answer:Long-term charts reveal significant price patterns
and trends that can be indicative of future movements. By
analyzing historical data, traders can spot recurring patterns
and use them to predict how similar conditions may affect
prices in the future.

3.Question
What is the significance of reviewing historical data in
long-term charts?
Answer:Historical data acts as a reference point allowing
traders to understand the context behind current market
behavior, identify recurring patterns, and validate the
efficacy of certain trading strategies over the long term.

4.Question
Can long-term charts impact short-term trading
decisions?
Answer:Yes, understanding the long-term trends can
significantly enhance short-term trading strategies. Traders

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can make more informed decisions by aligning their
short-term trades with the prevailing long-term trend, thereby
increasing their chances of success.

5.Question
What do patterns like the head and shoulders signify on
long-term charts?
Answer:Patterns like the head and shoulders are strong
indicators of potential trend reversals. A head and shoulders
pattern, for instance, suggests that after a bullish trend, a
bearish movement is likely to follow, offering crucial
insights for traders aiming to adjust their strategies.

6.Question
How does the concept of 'market action discounting
everything' apply to long-term charts?
Answer:The concept means that all public information,
emotions, and market sentiments are reflected in the price
movements on the charts. This perspective reinforces that
traders should base their decisions on observed price patterns
rather than external news or speculation.

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7.Question
What role does volume play when interpreting long-term
charts?
Answer:Volume is a critical component in validating price
trends observed in long-term charts. Increasing volume
during price increases indicates strong buyer support, while
declining volume may suggest weakening momentum,
helping traders to confirm or question the reliability of
observed trends.

8.Question
How can one use long-term charts to identify support and
resistance levels?
Answer:Support and resistance levels on long-term charts
can be identified by observing previous highs and lows
where prices have struggled to surpass. These levels are key
to forecasting potential reversals and price targets in future
trading.

9.Question
What are some common reversal patterns identified in
long-term charts?

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Answer:Common reversal patterns include the head and
shoulders, double tops and bottoms, and saucers. Identifying
these patterns helps traders anticipate major shifts in market
trends.

10.Question
Why is it necessary to match an understanding of
long-term trends with near-term trading strategies?
Answer:By syncing long-term trend analysis with near-term
strategies, traders can create a more holistic view of the
market, allowing them to navigate potential short-term
volatility while adhering to the overarching market
trajectory.

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Chapter 7 | Lesson Seven: Moving Averages| Q&A
1.Question
Why are moving averages considered a crucial tool in
technical analysis?
Answer:Moving averages serve as trend-following
indicators, providing clear insights into market
direction. They help technicians identify the strength
and sustainability of a trend, smoothing out price
fluctuations to reveal underlying patterns that might
not be visible through raw price data. Their precise,
programmable nature makes them indispensable for
both novice and experienced traders.

2.Question
What are the three different types of moving averages
mentioned in this chapter?
Answer:The chapter refers to the simple moving average
(SMA), the linearly weighted moving average (LWMA), and
the exponentially smoothed moving average (EMA). Each
serves different purposes in trading, with SMAs providing a

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basic view, LWMA giving more recent data higher weight,
and EMAs smoothing out price action more effectively.

3.Question
How do moving averages signal trading actions?
Answer:Moving averages can provide buy or sell signals
based on the relationship between short-term and long-term
averages. For instance, when a short-term average crosses
above a long-term average, it may indicate a buy signal,
whereas a crossover below may suggest a sell signal. This
method allows traders to make informed decisions based on
trend changes.

4.Question
What role does the 'four-week rule' play in trading
decisions?
Answer:The 'four-week rule' is a strategy that advises traders
to liquidate long positions and sell short when prices fall
below the highs of the previous four weeks. Conversely,
traders are advised to cover short positions and buy long if
prices exceed these highs. This method capitalizes on cycles

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and recent price movements, aiming to improve trading
outcomes.

5.Question
How effective are moving averages during different
market conditions?
Answer:Moving averages are most effective in trending
markets, providing reliable signals. However, they perform
poorly in sideways or choppy markets, where they may give
false signals due to lack of a clear direction. It's essential for
technicians to recognize the prevailing market condition to
appropriately use moving averages.

6.Question
What is a 'triple crossover method' and how does it
function?
Answer:The triple crossover method involves using three
moving averages of different durations to confirm market
trends. Typically, a short average (like a 4-day) is combined
with longer ones (like 11-day and 28-day). This approach
helps traders identify buy signals when the short-term

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average crosses above the other two, indicating a strong
uptrend.

7.Question
In what ways can Bollinger Bands enhance the use of
moving averages?
Answer:Bollinger Bands provide a visual way to assess
market volatility, using bands placed around a moving
average. Traders can look for overbought or oversold
conditions, helping to confirm the signals from moving
averages. When bands diverge, it may indicate a new trend,
while convergence often suggests that the current trend will
continue.

8.Question
What is meant by the term 'lead time' in the context of
moving averages?
Answer:Lead time refers to the way moving averages are
plotted in relation to actual price data. Specifically, it can
mean anticipating market movements by positioning
averages ahead of the data to offer early signals about

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potential price changes, thus helping traders act before the
broader market response.

9.Question
Why is understanding the core concepts of moving
averages beneficial for technicians?
Answer:A solid grasp of moving averages allows technicians
to effectively navigate financial markets, using these
indicators to make informed trading decisions.
Understanding their properties, such as sensitivity to price
changes and application in varying market conditions,
enhances a trader's ability to forecast price movements and
manage risk.
Chapter 8 | Lesson Eight: Oscillators and Contrary
Opinion| Q&A
1.Question
How can oscillators help in identifying market extremes?
Answer:Oscillators, when used in conjunction with
price charts, provide key insights into short-term
market extremes by measuring momentum. They
oscillate within fixed boundaries, signaling

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overbought and oversold conditions which can
indicate potential reversal points.

2.Question
What does a divergence in price and oscillator signals
indicate?
Answer:A divergence occurs when the price makes a new
high or low, but the oscillator fails to confirm this movement.
This could suggest a potential reversal in trend, making it an
essential signal for technicians to watch out for.

3.Question
What is the importance of the zero line in oscillator
analysis?
Answer:The zero line serves as a crucial reference point for
signals in oscillator momentum charts. Crossing this line can
indicate shifts in market momentum; for instance, moving
above the zero line often signals a buy opportunity, while
crossing below suggests a sell signal.

4.Question
How do we identify overbought and oversold conditions
using the RSI?

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Answer:The RSI uses a vertical scale ranging from 0 to 100.
Generally, when the RSI rises above 70, the market is
considered overbought, indicating a potential reversal,
whereas a dip below 30 suggests an oversold condition,
potentially signaling an upward correction.

5.Question
What role does the Contrary Opinion method play in
market analysis?
Answer:The Contrary Opinion method helps assess market
sentiment by analyzing the degree of bullishness or
bearishness among speculators. High bullish consensus
readings (above 75%) may signal a nearing market top,
prompting contrarian traders to take positions opposite to
prevailing sentiment.

6.Question
Why are oscillators especially valuable towards the end of
market moves?
Answer:Oscillators provide critical insights into potential
market reversals or corrections at the end of trends. Because

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they highlight extreme conditions and divergences, they can
warn traders of impending changes in price direction, making
them valuable tools as trends mature.

7.Question
What is a ‘failure swing’ in the context of oscillators?
Answer:A failure swing occurs when an oscillator creates a
higher high or lower low but fails to follow through with a
corresponding price movement, suggesting that the
prevailing trend may be weakening and indicating a possible
reversal.

8.Question
Why might technicians give greater attention to
oscillators in the early stages of a market move?
Answer:In early stages of a market move, oscillators can
provide early signals of momentum changes, enabling traders
to capitalize on emerging trends before they mature.
Recognizing divergences and momentum shifts early can
offer substantial trading opportunities.

9.Question
Can oscillators lose significance as a market movement

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matures? If so, how?
Answer:Yes, as a market movement matures, oscillators may
provide more frequent false signals. This happens because
they can reflect accumulated momentum rather than genuine
price action, making it vital for traders to consider the
oscillator's context in conjunction with other analytical tools.

10.Question
What do peaks and troughs on a price chart reveal when
analyzed against an oscillator's readings?
Answer:Peaks and troughs on a price chart should ideally
align with those on the oscillator. Discrepancies, such as
price making new highs while the oscillator fails to confirm
with a new high, can signal potential reversals or trend
weaknesses, alerting traders to watch for market adjustments.
Chapter 9 | Lesson Nine: Point and Figure Charting
and Japanese Candlesticks| Q&A
1.Question
What are the primary advantages of using point and
figure charts in trading?
Answer:Point and figure charts provide substantial

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advantages including the ability to focus solely on
price movement without the influence of time,
leading to more precise buying and selling signals.
They help traders identify clear entry and exit
points, allowing for better risk management and
decision making in fast-paced markets.

2.Question
How do Japanese candlestick charts differ from
traditional bar charts?
Answer:Japanese candlestick charts are more visually
informative than traditional bar charts, as they provide more
detailed information about price action within a specific time
frame. They offer the ability to quickly visualize bullish or
bearish trends through the color and length of the body and
shadows, which enhances emotional cues of market
sentiment.

3.Question
What role do reversal patterns play in point and figure
and candlestick charting?

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Answer:Reversal patterns, such as the Dark Cloud Cover or
the Morning Star in candlestick charting, signal potential
changes in price trend direction. In point and figure charting,
patterns like the three-box reversal help traders identify pivot
points where price movements may change, allowing for
strategic entry or exit maneuvers.

4.Question
Why is understanding support and resistance levels
important in chart analysis?
Answer:Support and resistance levels help traders anticipate
price behavior around those zones. Identifying these levels
allows traders to make more informed decisions about
entering or exiting trades, as prices often tend to bounce off
support or resistance, indicating potential turning points in
the market.

5.Question
What is the significance of a 'congestion area' in trading?
Answer:A congestion area represents a price range where
trading activity is high, indicating indecision among market

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participants. Recognizing such patterns helps traders identify
potential breakout points, as prices often consolidate before
making a significant move up or down.

6.Question
What are the visual components of a candlestick, and why
are they important?
Answer:A candlestick consists of a body and shadows (or
wicks). The body indicates the difference between the
opening and closing prices, while the shadows show the
highest and lowest prices during that period. These
components are vital for interpreting market sentiment and
determining potential price reversals.

7.Question
What is the impact of box size in point and figure charts?
Answer:Box size significantly affects the sensitivity of point
and figure charts. A smaller box size will lead to a more
detailed and responsive chart, capturing more price changes,
while a larger box size simplifies the chart by reducing
fluctuations, potentially overlooking crucial price

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movements.

8.Question
How do traders utilize candlestick patterns to enhance
trading strategies?
Answer:Traders employ candlestick patterns to decipher
market psychology and predict future price movements.
Patterns like the Evening Star or Spinning Tops indicate
potential market reversals and can signal optimal entry or
exit points, thus enhancing overall trading strategies.

9.Question
Why is it essential for traders to learn both point and
figure charts and candlesticks?
Answer:Learning both chart types equips traders with a
diverse toolkit for market analysis. It helps them interpret
price movements more effectively, balancing the strengths of
each method: point and figure charts for clarity of price
action and candlesticks for nuanced insights into market
emotions.

10.Question
What principles govern the 'reversal criterion' in point

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and figure charts?
Answer:The reversal criterion defines the specific conditions
necessary for confirming a reversal on point and figure
charts, such as a number of boxes needing to be crossed
before a trend change is acknowledged. Understanding this
helps traders avoid false signals and make more reliable trade
decisions.

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Chapter 10 | Final Assessment| Q&A
1.Question
What purpose does the final assessment serve in the book
'Technical Analysis of the Financial Markets'?
Answer:The final assessment is designed to evaluate
the reader's understanding of the basic concepts and
techniques of technical analysis, pushing them
beyond theoretical knowledge to apply what they've
learned to actual charts.

2.Question
How can resistance lines be identified in a chart?
Answer:Resistance lines connect high points on a chart,
indicating price levels that are difficult for the market to
surpass.

3.Question
What does it mean when a breakout occurs at a specific
point in a chart?
Answer:A breakout indicates a price movement that exceeds
a resistance line or falls below a support line, suggesting a
potential change in the trend.

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4.Question
How do we differentiate between support and resistance
lines?
Answer:Support lines indicate the price level where
downtrends may pause due to buying interest, while
resistance lines indicate the price level where uptrends may
pause due to selling interest.

5.Question
Why is understanding trendlines important in technical
analysis?
Answer:Trendlines help traders identify the general direction
of market movement, whether it's upward, downward, or
sideways, and assist in predicting future price movements.

6.Question
What are gaps in price movements, and why are they
significant?
Answer:Gaps occur when the price jumps from one level to
another without any trading in between, signaling strong
buying or selling activity and can signal potential reversals.

7.Question

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What is the significance of volume in analyzing chart
patterns?
Answer:Volume indicates the strength of a price move; high
volume during a breakout suggests strong buying interest,
while low volume might indicate weakness.

8.Question
How do the concepts of 'bullish' and 'bearish' relate to
chart patterns?
Answer:'Bullish' patterns suggest upward price movement,
while 'bearish' patterns indicate potential downward
movement, helping traders make informed decisions.

9.Question
What does a double crossover mean in the context of
moving averages?
Answer:A double crossover signals potential buy or sell
opportunities based on the movement of two moving
averages crossing each other, indicating changes in
momentum.

10.Question
How can traders use oscillators to identify overbought or

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oversold conditions?
Answer:Oscillators help traders recognize price extremes; for
instance, when the oscillator indicates that the market is in an
overbought or oversold condition, it can signal potential
reversals.

11.Question
What does it indicate when a price moves above or below
the baseline in an oscillator?
Answer:Crossing above the baseline is typically seen as a
buy signal, while crossing below is a sell signal, indicating a
shift in market sentiment.

12.Question
What does the term 'long days' refer to in candlestick
analysis?
Answer:'Long days' refer to candlesticks with long bodies,
indicating significant price movement over the trading
period, which can reflect strong buying or selling pressure.

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Technical Analysis Of The Financial
Markets Quiz and Test
Check the Correct Answer on Bookey Website

Chapter 1 | Lesson One: Technical Analysis and the

Dow Theory| Quiz and Test
1.Technical analysis studies market action through
charting to forecast trends.
2.Fundamental analysis studies market action.
3.The Random Walk Theory posits that price changes cannot
be predicted.
Chapter 2 | Lesson Two: Chart Construction| Quiz
and Test
1.Bar charts are a type of chart that illustrates price
movements over time by using vertical bars.
2.Open interest refers to the total number of outstanding
contracts at the close of the day.
3.Candlestick charts provide information about a security's
open, high, low, and close prices in a specific time frame.
Chapter 3 | Lesson Three: Basic Concepts of Trend|
Quiz and Test

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1.Trend directions can be classified into three main
types: uptrend, downtrend, and sideways trend.
2.Support and resistance levels are irrelevant to
understanding price action in trend analysis.
3.Retracement and speedlines are concepts used to analyze
trends and price movements.

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Chapter 4 | Lesson Four: Major Reversal Patterns
and Continuation Patterns| Quiz and Test
1.There are five common major reversal patterns
identified in technical analysis.
2.Continuation patterns include aspects like double tops and
bottom formations.
3.Volume patterns are unimportant in measuring implications
of price movements in technical analysis.
Chapter 5 | Lesson Five: Volume and Open Interest|
Quiz and Test
1.Volume and open interest are considered primary
indicators in technical analysis.
2.On Balance Volume (OBV) is used to measure volume
pressure direction.
3.In a downtrend, increasing open interest is typically a
bearish sign.
Chapter 6 | Lesson Six: Long-Term Charts and
Commodity Indices| Quiz and Test
1.Long-term charts are crucial for analysis and
forecasting purposes as discussed in Chapter 8.

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2.Chapter 8 provides examples of daily charts only for the
analysis of long-term trends.
3.The Midterm Assessment includes questions only on
Lesson 6 and does not cover earlier lessons.

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Chapter 7 | Lesson Seven: Moving Averages| Quiz
and Test
1.Moving averages are primarily used as a
trend-following device.
2.Long-range moving averages are more sensitive to price
action than short-range moving averages.
3.The simple moving average gives equal weight to each
day’s price.
Chapter 8 | Lesson Eight: Oscillators and Contrary
Opinion| Quiz and Test
1.Oscillators are used exclusively to identify bullish
market trends.
2.Divergence patterns in oscillators can indicate potential
market reversals.
3.The Contrary Opinion method suggests trading against
prevailing market sentiment.
Chapter 9 | Lesson Nine: Point and Figure Charting
and Japanese Candlesticks| Quiz and Test
1.Point and figure charts are an alternative to bar
charts that emphasize simplicity and effectiveness

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 in trading decisions.
2.Japanese candlestick charts were originally developed in
the West for trading purposes.
3.Understanding point and figure charts and Japanese
candlesticks can significantly enhance trading strategies.

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Chapter 10 | Final Assessment| Quiz and Test
1.A bullish or bearish nature of a pattern can always
be determined from the structure and market
context.
2.Horizontal lines on a chart represent the support and
resistance levels accurately, and their meanings are the
same across all types of charts.
3.The presence of divergent trendlines always indicates a
market reversal is imminent.

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