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Question 1 of 10
1. Question
How is the sell signal generated by calculating the 10-day SMA?
I. If the market closes below the average, that day’s market activity creates the setup bar.
II. The entry for a sale will be triggered by a subsequent market move below the low of the setup bar.
III. To determine the buffered entry price, we take the low price of the setup bar, multiply by .5%, and subtract from the low price.
IV. If your buffered entry price is hit, you are now into the market on the short side at your triggered entry price.
Correct
Generating the sell signal
The process of generating the sell signal begins the same way as generating the buy signal—by calculating the 10-day SMA. The SMA is calculated based on the settlement (closing price). When determined, draw it on a daily chart. Entering a new pivot trade from the short side requires three steps:
1. Setup bar
2. Buffered entry price
3. Triggered entry
Incorrect
Generating the sell signal
The process of generating the sell signal begins the same way as generating the buy signal—by calculating the 10-day SMA. The SMA is calculated based on the settlement (closing price). When determined, draw it on a daily chart. Entering a new pivot trade from the short side requires three steps:
1. Setup bar
2. Buffered entry price
3. Triggered entry
Question 2 of 10
2. Question
How is buffered entry price calculated for generating a sell signal?
Correct
To determine the buffered entry price, you take the low price of the setup bar, multiply by .05%, and subtract from the low price. This number is your buffered
order entry price.
Incorrect
To determine the buffered entry price, you take the low price of the setup bar, multiply by .05%, and subtract from the low price. This number is your buffered
order entry price.
Question 3 of 10
3. Question
In the coffee market, the low price of the setup bar day is $1.45/pound.The tick size is .05. What is the closest buffered order entry price?
Correct
(Price X Tick size) 1.45 x .05 = .0725
1.45 – .0725 = 1.3775
Incorrect
(Price X Tick size) 1.45 x .05 = .0725
1.45 – .0725 = 1.3775
Question 4 of 10
4. Question
Which of the following is/are reasons for a setup not leading to an entry?
I. The market just grazed the set up high or low and the buffer kept you out of trouble.
II. There is no follow-through after setup and therefore no signal.
III. The buffer was in trouble.
IV. The signal is very odd.
Correct
There are two reasons a setup does not lead to an entry. The first is that the market just grazed the set up high or low and the buffer kept you out of trouble. The other is that there is no follow-through after setup and therefore no signal. If you magnify a typical signal, it will look as shown in Figure 10.4. In fact, a setup that is not triggered would lead to what I call a “reverse pivot.”
Incorrect
There are two reasons a setup does not lead to an entry. The first is that the market just grazed the set up high or low and the buffer kept you out of trouble. The other is that there is no follow-through after setup and therefore no signal. If you magnify a typical signal, it will look as shown in Figure 10.4. In fact, a setup that is not triggered would lead to what I call a “reverse pivot.”
Question 5 of 10
5. Question
Which of the following statements is/are true for reverse pivot?
I. It occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction.
II. Reverse pivots more often not lead to powerful signals with above-average reward-to-risk ratios.
III. It occurs when a setup that is triggered leads to a confirmed signal in the opposite trend direction.
IV. Reverse pivots more often lead to powerful signals with below-average reward-to-risk ratios.
Correct
A reverse pivot occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction. My experience has been that reverse pivots
more often than not lead to powerful signals with above-average reward-to-risk ratios.
Incorrect
A reverse pivot occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction. My experience has been that reverse pivots
more often than not lead to powerful signals with above-average reward-to-risk ratios.
Question 6 of 10
6. Question
To calculate how much money you could make or lose on a particular price movement of a specific commodity, we need to know which of the following?
I. Contract size
II. How the price is quoted
III. Maximum price fluctuation
IV. Value of the maximum price fluctuation
Correct
To calculate how much money you could make or lose on a particular price movement of a specific commodity, you need to know the following:
• Contract size
• How the price is quoted
• Minimum price fluctuation
• Value of the minimum price fluctuation
Incorrect
To calculate how much money you could make or lose on a particular price movement of a specific commodity, you need to know the following:
• Contract size
• How the price is quoted
• Minimum price fluctuation
• Value of the minimum price fluctuation
Question 7 of 10
7. Question
Which of the following is/are the major types of commission firms?
I. Discounters
II. Self-directed trader
III. Full-service firms
IV. Small trade firm
Correct
The two major types of commission firms are discounters and full-service firms.
Incorrect
The two major types of commission firms are discounters and full-service firms.
Question 8 of 10
8. Question
Which of the following statements is/are true for a basis loss?
I. If a long hedger (one who sells futures) experiences a widening of the basis.
II. Where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures a basis loss may result.
III. The short hedger’s cash position loss may be lower than the gain realized on the futures side of the transaction.
IV. In a rising market, the gain on the cash side of the transaction would not be as large as the loss on the futures side.
Correct
The basis
In these examples, I have kept the basis fairly constant, but in reality, it can change. If a short hedger (one who sells futures) experiences a widening of the
basis (where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures), a basis loss may result. In other
words, the short hedger’s cash position loss may be greater than the gain realized on the futures side of the transaction. Or, in a rising market, the gain on the cash side of the transaction would not be as large as the loss on the futures side.
Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls
less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk.
Incorrect
The basis
In these examples, I have kept the basis fairly constant, but in reality, it can change. If a short hedger (one who sells futures) experiences a widening of the
basis (where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures), a basis loss may result. In other
words, the short hedger’s cash position loss may be greater than the gain realized on the futures side of the transaction. Or, in a rising market, the gain on the cash side of the transaction would not be as large as the loss on the futures side.
Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls
less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk.
Question 9 of 10
9. Question
Which of the following statements is our true for basis gain?
I. A basis gain would occur with a widening basis on a long hedge.
II. The futures would rise in price to a greater degree than the cash.
III. A narrowing basis yields additional gains for a short hedger and incremental losses for a long hedger.
IV. In a rising market, the gain on the cash side of the transaction would be as large as the loss on the futures side.
Correct
Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls
less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk.
Incorrect
Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls
less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk.
Question 10 of 10
10. Question
Which of the following statements is/are true for the process of convergence?
I. If the price of the commodity is too high in relation to the futures price, then the people involved in the use of a particular commodity buy the low-priced futures contracts and take delivery. Their buying, in effect, pushes futures prices up to meet the physical price.
II. If the price of a futures contract is too high in relation to the actual commodity, then producers of that commodity sell the contract to make a delivery because the higher-priced futures (in relation to the physical) just might be their best sale. Their selling pushes the price of the futures down to the cash price.
III. If the price of the commodity is too low in relation to the futures price, then the people involved in the use of a particular commodity buy the low-priced futures contracts and take delivery. Their buying, in effect, pushes futures prices up to meet the physical price.
IV. If the price of a futures contract is too high in relation to the actual commodity, then producers of that commodity sell the contract to make a delivery because the low-priced futures (in relation to the physical) just might be their best sale. Their selling pushes the price of the futures down to the cash price.
Correct
This option is as important in theory as in practice because it is what allows physical commodity prices and the Exchange-traded contracts to come together in price. If the price of the commodity is too high in relation to the futures price, then the people involved in the use of a particular commodity buy the low-priced futures contracts and take delivery. Their buying, in effect, pushes futures prices up to meet the physical price. If the price of a futures contract is too high in relation to the actual commodity, then producers of that commodity sell the contract to make a delivery because the higher-priced futures (in relation to the physical) just might be their best sale. Their selling pushes the price of the futures down to the cash price. This entire process is known as convergence. This potential process of convergence is what makes the system work; however, in practice, only 1% to 2% of all commodity contracts end in delivery.
Incorrect
This option is as important in theory as in practice because it is what allows physical commodity prices and the Exchange-traded contracts to come together in price. If the price of the commodity is too high in relation to the futures price, then the people involved in the use of a particular commodity buy the low-priced futures contracts and take delivery. Their buying, in effect, pushes futures prices up to meet the physical price. If the price of a futures contract is too high in relation to the actual commodity, then producers of that commodity sell the contract to make a delivery because the higher-priced futures (in relation to the physical) just might be their best sale. Their selling pushes the price of the futures down to the cash price. This entire process is known as convergence. This potential process of convergence is what makes the system work; however, in practice, only 1% to 2% of all commodity contracts end in delivery.
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