Technical Analysis & Chart Patterns Flashcards

What does a 'negative divergence' between price and RSI indicate?

Answer: Price makes a higher high but RSI makes a lower high

Negative (bearish) divergence occurs when price achieves a higher high while RSI forms a lower high, warning of weakening momentum.

In the context of Bollinger Bands, a 'Bollinger squeeze' refers to:

Answer: Bands narrowing significantly, signaling a potential volatility expansion

A Bollinger squeeze occurs when bands contract to unusually narrow widths, often preceding a large directional price move.

The 'neckline' in an inverse head and shoulders pattern is defined as:

Answer: The line connecting the highs of the two shoulders

The neckline connects the reaction highs (peaks) between the left shoulder, head, and right shoulder of an inverse head and shoulders.

On-Balance Volume (OBV) is used primarily to:

Answer: Confirm price trends using cumulative volume flow

OBV accumulates volume on up days and subtracts it on down days, helping confirm whether volume supports the prevailing price trend.

A 'pennant' continuation pattern is most similar in structure to which other pattern?

Answer: Symmetrical triangle

A pennant resembles a small symmetrical triangle but forms on a steep flagpole and resolves as a continuation, not a reversal.

When using the Average True Range (ATR) indicator, a trader primarily uses it to:

Answer: Measure market volatility for stop placement

ATR measures average daily volatility, making it ideal for setting stop-loss distances that account for normal price fluctuation.

A bearish 'evening star' candlestick pattern is confirmed when:

Answer: The third candle closes deep into the body of the first bullish candle

The evening star is confirmed when the third bearish candle closes significantly into the prior large bullish candle's body, showing reversal conviction.