What are the 5 uses of share price indexes?
- To forecast the economic cycle.
- The timing of purchases and sales.
- To evaluate performance of a portfolio.
- To quantify risk.
- To determine speculative activities.
What 3 methods are used to calculate the share price index?
Price weighting, equal weighting, market capitalisation.
How does equal waiting work?
adds a weight by taking portfolio value and dividing by mp (cents), then summing all the values.
How do you calculate market capitalization?
Number of issued shares * market price and then summing for all the companies caps.
What is a primary bull market trend?
long term period where peaks higher than previous and troughs also higher than previous.
What is a primary bear market trend?
Long term period where peaks are lower than previous and troughs also lower than the previous.
What is a secondary trend?
Long term interrupted whereby price will move in the opposite direction.
What are the general guidelines for that of a secondary trend? (2)
Must last at least 3 weeks and at least one third of previous price movement must be cancelled out.
What is a double top formation and when should you buy?
Share price rises to certain level, then turns around and drops, then starts rising again back to level already reached. When price breaks though double top, it is a signal to buy.
What implies the buy/ sell signal will be stronger?
The wider the formation the stronger the signal.
What is a Bullish signal formation?
Develops when falling price trend is reversed and after at least one effort succeeds in breaking through upwards. Must be at least 4 columns wide.
What is a Bearish signal formation?
Develops when rising price trend is reversed and after at least one effort succeeds in breaking through downwards. Must be at least 4 columns wide.
What is a Bullish symmetrical triangle formation?
Rising price trend forms a triangular formation then continues to rise. Must be at last 5 columns wide with higher troughs and peaks than before .
What is a Bearish symmetrical triangle formation?
Falling price trend where price forms a triangular formation then continues to fall. Must be at least 5 columns wide with lower toughs and peaks than before.
Where does support line develop?
At bottom of formation.
What is use of support line?
If price falls through support line, it is a signal to sell.
Where does the resistance line develop?
Normally at the top of the formation (signal purchase)
What are moving averages used for and where are they useful?
Used to indicate whether a trend has reversed and useful where share prices are very volatile.
What are the two purchase signals for moving averages?
- If average flattens or starts rising after a decline, and the daily share price breaks through the line in its upward movement.
- I share price above the average line and starts to drop towards the average line but does not cross it and starts rising.
What happens when 50-day line crosses 200-day line from below?
Signal to purchase.
What happens when 50-day line crosses 200-day line from above?
Signal to sell.
What is market breadth used for?
To measure direction of the overall market. Analyzes number of companies advancing relative to number of companies declining each day.
What happens if ALSI line and AD line move in opposite direction?
Market viewed as being technically weak.
What is the relative strength index and what does it measure?
Internal measure of price strength that measure speed and change of price movements and indicates whether a share is overbought or undersold.
