CMT Exam Level 1 Free Practice Questions Quiz 30

Trading ranges (or lateral trends) arise when peaks and troughs approximately appear at similar rates. The cluster of peaks at a certain price point, and the cluster of troughs below peaks at another price level. The configuration typically occurs after a temporary halt has achieved a greater level. A trading range is also called a region of convergence or congestion or the creation of a rectangle.

Once prices have risen and then reverse downward, the highest point in the rise, the peak, is referred to as a point of resistance, a level at which advance has met with “resistance” sale.

If the sellers (supply) are stronger and more violent than the buyers (demand), the result is a resulting price drop from the high. If more than one resistance level occurs at approximately the same amount, a resistance level becomes a resistance zone. Prices rarely grow at the same point and stop.

A point of support is the opposite of a point of resistance, in that it is one trough. Buyers at the support point are as strong or violent as sellers and stop a fall in prices.

The more significant the point of reversal, the greater is the amount of support or resistance. There are different ways of defining an important point of reversal. Following are the methods that a reversal point:
(a) DeMark or Williams Method
(b) Percentage Method
(c) Gann Two-Day Swing Method
(d) High Volume Method

Simple line charts are especially useful when analyzing patterns over the long term. Since line charts represent summary statistics, they are also used when information is plotted in the same graph on many different variables.

While the line chart shows one piece of information visually for each time interval, a bar chart shows at least three pieces of information for each period: the peak, the low and the closing price. Many bar charts often include a fourth piece of information about price, the opening price. One bar represents each time interval (that is, day, week, or five-minute).

The top of this vertical line is the highest price the security traded on the day at; the bottom of the bar is the lowest trading price of the day. During the day, a longer line indicates a broader range of trade. Similarly, a short bar means the difference between the daytime highest price and the daytime lowest price was minimal.

A small tick mark on the right side of the bar shows the day’s closing price. If the bar chart shows the opening price for the day, it is indicated by a small tick mark to the left side of the column.

Candlestick charts are similar in form to bar charts. Both charts use the high price, low price, and closing price but the opening price is also used in the candlestick charts.