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Question 1 of 10
1. Question
Which of the following statements is/are true regarding the patience of a good trader?
I. A good trader possesses the patience to wait for the right opportunity.
II. If you are a good trader, you will be over-anxious, because overanxiousness consumes your brains.
III. When you are fortunate enough to catch a good trade, you need the patience to hold it when it starts to move away from your way.
IV. If you are in a profitable position, instead of fearing that the profit will turn into a loss, you should hope it becomes more profitable.
Correct
Patience
According to Gann, patience is the most important of the essential qualities for trading success. A good trader possesses the patience to wait for the right opportunity. If you are a good trader, you will not be over-anxious, because overanxiousness consumes capital and, over time, will tap you out. When you are fortunate enough to catch a good trade, you need the patience to hold it when it starts to move your way. Perhaps the primary failing of the amateur is to close out a profitable position too soon. In other words, patience is required for both
opening and closing a position. Hope and fear need to be eliminated. Gann tells us if you are in a profitable position, instead of fearing that the profit will turn into a loss, you should hope it becomes more profitable. You have a cushion to work within this case. When you are in a losing position, instead of hoping it will turn around, you should fear that it will get worse. If you see no definitive change in trend, use your essential quality of patience and just wait.
Incorrect
Patience
According to Gann, patience is the most important of the essential qualities for trading success. A good trader possesses the patience to wait for the right opportunity. If you are a good trader, you will not be over-anxious, because overanxiousness consumes capital and, over time, will tap you out. When you are fortunate enough to catch a good trade, you need the patience to hold it when it starts to move your way. Perhaps the primary failing of the amateur is to close out a profitable position too soon. In other words, patience is required for both
opening and closing a position. Hope and fear need to be eliminated. Gann tells us if you are in a profitable position, instead of fearing that the profit will turn into a loss, you should hope it becomes more profitable. You have a cushion to work within this case. When you are in a losing position, instead of hoping it will turn around, you should fear that it will get worse. If you see no definitive change in trend, use your essential quality of patience and just wait.
Question 2 of 10
2. Question
Why knowledge is important for a good trader?
I. A well-thought-out and thorough research is required as the stakes are high, and the competition is intense.
II. The plan should have a mechanism to cut the gains on the bad trades and to minimize losses aggressively on the good ones.
III. A good trader must be organized and remain focused at all times.
IV. You should keep a logbook to log your triumphs and your failures, which will help you avoid the same mistake again.
Correct
Knowledge
The stakes are high, and the competition is intense. You need a well-thought-out and thoroughly researched trading plan before you begin, and you need to do your homework. Your plan should always have a mechanism to cut the losses on the bad trades and to maximize profits aggressively on the good ones. You must be organized and remain focused at all times. If your plan is a good one, you need the consistency to stick with it during down periods.
My personal goal is to make money daily, but that is not always possible, so I try not to lose too much on losing days. It is a constant trial to maintain the vigilance necessary to not to let good judgment lapse. If you are a novice, it makes sense to “paper trade” before you trade for real. If you are trading currently, you should keep a logbook. Log your triumphs and your failures. You want to avoid making the same mistakes again, but I must warn you, all traders repeat mistakes. At the very least, learn not to make the mistakes so often. By keeping a record of what you do right and what you do wrong, you can identify areas of weakness and areas of strength. If you are not totally prepared on any given day, don’t trade. You can’t “wing it” in this business because the competition will eat you up. Over time, you will develop what I call a “trader’s sense.” You will know when a trade doesn’t feel right, and when this happens,
the prudent thing to do is to step aside. You cannot ignore the danger signals, and when they occur, you must act without hesitation. You must have a game plan and stick to it, but the paradox here is that you also need to be flexible. At times, it is best to do nothing, and you need to fight the urge to play for every pot. And, as I said before, stay focused. At times, I’ve been distracted by day trades and missed the big move because I missed the big picture. By the time I finally saw the light, it was too late.
Incorrect
Knowledge
The stakes are high, and the competition is intense. You need a well-thought-out and thoroughly researched trading plan before you begin, and you need to do your homework. Your plan should always have a mechanism to cut the losses on the bad trades and to maximize profits aggressively on the good ones. You must be organized and remain focused at all times. If your plan is a good one, you need the consistency to stick with it during down periods.
My personal goal is to make money daily, but that is not always possible, so I try not to lose too much on losing days. It is a constant trial to maintain the vigilance necessary to not to let good judgment lapse. If you are a novice, it makes sense to “paper trade” before you trade for real. If you are trading currently, you should keep a logbook. Log your triumphs and your failures. You want to avoid making the same mistakes again, but I must warn you, all traders repeat mistakes. At the very least, learn not to make the mistakes so often. By keeping a record of what you do right and what you do wrong, you can identify areas of weakness and areas of strength. If you are not totally prepared on any given day, don’t trade. You can’t “wing it” in this business because the competition will eat you up. Over time, you will develop what I call a “trader’s sense.” You will know when a trade doesn’t feel right, and when this happens,
the prudent thing to do is to step aside. You cannot ignore the danger signals, and when they occur, you must act without hesitation. You must have a game plan and stick to it, but the paradox here is that you also need to be flexible. At times, it is best to do nothing, and you need to fight the urge to play for every pot. And, as I said before, stay focused. At times, I’ve been distracted by day trades and missed the big move because I missed the big picture. By the time I finally saw the light, it was too late.
Question 3 of 10
3. Question
Which of the following is/are the essential qualities of Gann for trading success?
I. Patience
II. Knowledge
III. Quality
IV. Trickiness
Correct
Gann’s four essential qualities for trading success are patience, knowledge, guts and health and rest.
Incorrect
Gann’s four essential qualities for trading success are patience, knowledge, guts and health and rest.
Question 4 of 10
4. Question
Which of the following statements is/are true regarding the futures market?
I. It is a market in which commodities (or financial products) to be delivered or purchased at some time in the future are bought and sold.
II. Each contract is for a set quantity of some commodity or financial asset and can be traded in any multiples of that amount.
III. A futures contract is a legally binding agreement that provides for the delivery of various commodities or financial assets at a specific time period in the future.
IV. When you buy or sell a futures contract, you enter into a contractual obligation that can be met in only one of two ways i.e. by making or taking delivery of the actual commodity and the other way to meet this obligation is by onsetting.
Correct
Futures markets, in their most basic form, market in which commodities (or financial products) to be delivered or purchased at some time in the future are bought and sold.
A futures contract is the basic unit of exchange in the futures markets. Each contract is for a set quantity of some commodity or financial asset and can be traded only in multiples of that amount. A futures contract is a legally binding agreement that provides for the delivery of various commodities or financial assets at a specific time period in the future. (Prior to the time I was in this business, I envisioned the parties actually signing contracts. It’s nothing like that.)
When you buy or sell a futures contract, you don’t actually sign a contract drawn up by a lawyer. Instead, you enter into a contractual obligation that can be met in only one of two ways. The first method is by making or taking delivery of the actual commodity. This is by far the exception, not the rule. Fewer than 1% of all futures contracts are concluded with actual delivery. The other way to meet this obligation, which is the method you will be using, is termed offset.
Incorrect
Futures markets, in their most basic form, market in which commodities (or financial products) to be delivered or purchased at some time in the future are bought and sold.
A futures contract is the basic unit of exchange in the futures markets. Each contract is for a set quantity of some commodity or financial asset and can be traded only in multiples of that amount. A futures contract is a legally binding agreement that provides for the delivery of various commodities or financial assets at a specific time period in the future. (Prior to the time I was in this business, I envisioned the parties actually signing contracts. It’s nothing like that.)
When you buy or sell a futures contract, you don’t actually sign a contract drawn up by a lawyer. Instead, you enter into a contractual obligation that can be met in only one of two ways. The first method is by making or taking delivery of the actual commodity. This is by far the exception, not the rule. Fewer than 1% of all futures contracts are concluded with actual delivery. The other way to meet this obligation, which is the method you will be using, is termed offset.
Question 5 of 10
5. Question
Which of the following is/are the negotiable feature of a futures contract?
I. Quantity
II. Quality
III. Price
IV. Time
Correct
The only negotiable feature of a futures contract is the price.
Incorrect
The only negotiable feature of a futures contract is the price.
Question 6 of 10
6. Question
Which of the following need to be known by the trader to calculate how much money he could make or lose on a particular price movement of a specific commodity?
I. Contract size
II. How the price is quoted
III. Maximum price fluctuation
IV. Value of the maximum price fluctuation
Correct
The size of a contract determines its value. 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
The size of a contract determines its value. 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 true regarding lock-limit move?
I. It means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price.
II. It means that there is an overabundance of both sellers and buyers at the limit-up price.
III. It means that there is an overabundance of sellers (for “lock limit up”) versus buyers at the limit-up price.
II. It means that there is an overabundance of buyers (for “lock limit down”) versus sellers at the limit-down price.
Correct
A lock-limit move means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price, or that there is an overabundance of sellers (for “lock limit down”) at the limit-down price.
Incorrect
A lock-limit move means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price, or that there is an overabundance of sellers (for “lock limit down”) at the limit-down price.
Question 8 of 10
8. Question
Which of the following is/are the type of commission firms?
I. Leverage firms
II. Discounters
III. Half-commission firms
IV. Full-service firms
Correct
Brokers and commissions
Although the margin isn’t a true cost (you get it back at the end of the trade, plus any profits or minus any losses), commissions are a true cost. Commissions are your broker’s fees for his or her services, and they range across the board and by broker. The two major types of commission firms are discounters and full-service firms.
Incorrect
Brokers and commissions
Although the margin isn’t a true cost (you get it back at the end of the trade, plus any profits or minus any losses), commissions are a true cost. Commissions are your broker’s fees for his or her services, and they range across the board and by broker. The two major types of commission firms are discounters and full-service firms.
Question 9 of 10
9. Question
Which of the following statements is/are true for the process of Convergence?
I. It allows physical commodity prices and the Exchange-traded contracts to come together at price.
II. 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 high-priced futures contracts and take delivery. Their buying, in effect, pushes futures prices down to meet the physical price.
III. If the price of a futures contract is too high in relation to the actual commodity, then producers of that commodity buy the contract to make a delivery because the higher-priced futures (in relation to the physical) just might be their best sale. Their buying pushes the price of the futures down to the cash price.
IV. 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.
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 at 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.
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 at 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.
Question 10 of 10
10. Question
Which of the following statements is/are not true for the Basis?
I. If a short hedger experiences a widening of the basis, a basis loss may result.
II. 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.
III. A narrowing basis yields additional losses for a short hedger (the cash falls less, or rises more, in relation to the futures)
IV. A widening basis yields, incremental gains for a long hedger (the cash falls less, or rises more, in relation to the futures).
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.
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