Technical Analyst

Technical analysts is the person who evaluate the constant fluctuations of the stock market and provide critical investment information to their clients. We got some most asked Interview question and answers in Technical Analyst Job Interview.

Q.1 Which approach will traders use with focus on short term gains?
Traders with focus on short term gains will use top-down approach as opposed to long term valuations. The top-down approach is a macroeconomic analysis that looks at the overall economy before focusing on individual securities. A trader would first focus on economies, then sectors, and then companies in the case of stocks.
Q.2 When should a trader use Bottom-up approach?
The bottom-up approach focuses on individual stocks as opposed to a macroeconomic view. It involves analyzing a stock that appears fundamentally interesting for potential entry and exit points. For example, an investor may find an undervalued stock in a downtrend and use technical analysis to identify a specific entry point when the stock could be bottoming out. They seek value in their decisions and intend to hold a long term view on their trades.
Q.3 A novice trader may decide to follow a moving average crossover strategy, where he tracks two moving averages (50-day and 200-day) on a particular stock price movement. What does this indicate?
For this strategy, if the short-term 50-day moving average goes above the long-term 200-day moving average, it indicates an upward price trend and generates a buy signal.
Q.4 What is your strategy to handle risk factors while trading?

Trading can be challenging, which means it's important to do your homework beyond the above points. Some other key considerations include:

  • Firstly, Understanding the rationale and underlying logic behind the technical analysis.
  • Then, Backtesting trading strategies to see how they would have performed in the past.
  • Practicing trading in a demo account before committing real capital. Being aware of the limitations of technical analysis to avoid costly failures and surprises. Being thoughtful and flexible about scalability and future requirements.
  • Trying to evaluate the features of a trading account by requesting a free trial.
  • Lastly, Starting small in the beginning and expanding as you gain experience.
Q.5 What is the difference between Trendlines and Channels?
Traders often use a trendline connecting highs for a period as well as another to connect lows in order to create channels. Also, more than one trendline can be applied to a chart. On the other hand, a channel adds a visual representation of both support and resistance for the time period being analyzed. Similar to a single trendline, traders are looking for a spike or a breakout to take the price action out of the channel. They may use that breach as an exit point or an entry point depending on how they are setting up their trade.
Q.6 What do you understand about the beta of an asset?
The beta of an asset is a method for measuring the systematic risk of an asset. It displayed how the price of a security responds to changes in market price. Moreover, it specifies the extent of movement of the returns of the stock with respect to the movement of market returns. However, Assets that are riskier than average will have Betas that exceed 1, and assets that are safer than average will have Betas lower than 1 that is 0.
Q.7 What are some of the limitation of a trendline?

Some of the limitations of trendlines include -

1. Firstly, trendlines have to be readjusted as more price data comes in.

2. Secondly, a trendline will sometimes last for a long time, but eventually the price action will deviate enough that it needs to be updated.

3. Moreover, traders often choose different data points to connect.

4. Lastly, trendlines applied on smaller timeframes can be volume sensitive.

Q.8 What are some of the key pointers of Risk-Adjusted Return?
  • Firstly, a risk-adjusted return measures an investment's return after considering the degree of risk that was taken to achieve it.
  • Secondly, there are various methods of risk-adjusting performance, such as the Sharpe ratio and Treynor ratio, with each yielding a slightly different result.
  • Lastly, the purpose of risk-adjusted return is to assist investors to determine whether the risk taken was worth the expected reward.
Q.9 What does Candlesticks reflect?
Candlesticks reflects the impact of investor sentiment on security prices and are used by technical analysts to determine when to enter and exit trades.
Q.10 What is Dead Cat Bounce (DCB)?
Dead Cat Bounce refers to the situation when the chart displays a prevailing trend downwards followed by a small rally, but the direction turns downward again. The second sell-off is then assisted and resumes the original downtrend.
Q.11 Explain the mechanism of Tree Shakes in terms of the share price.
When a market maker is trying to fill a large institutional buy order, sometimes they may not have enough shares. For fixing this, they start to gradually drop the share price in order to give the illusion that the company has a problem. Weak shareholders will sell up, and the market maker continues to drop the price until enough weak holders give up their shares. The market maker then fulfills its large order and returns the share price to where it started.
Q.12 Explain the term Falling Knife.
This states that normally for reasons such as a profit warning, or a change in market conditions, the future outlook of the company less profitable than originally expected. Hence when a novice investor sees a rapidly falling share price, he or she may see it as an opportunity to buy cheap whereas, in reality, the share price may fall further. Traders should therefore avoid catching a falling knife.
Q.13 How would you define a trend line?
This refers to a straight line for the price movement of a security. It is a momentum indicator that calculates the rate of increase in the share price over time and alerts traders to any acceleration or deceleration of the trend. This also provides a direction of the security’s movement. Further, trend lines are a simple and widely used technical analysis approach to judging entry and exit investment timing. And, this can connect two or more price points and then expands into the future to act as a line of “support” or “resistance”.
Q.14 Explain the types of trend lines.

There are three types of trends lines:

1. Uptrend Line This is formed by connecting two or more low points and has a positive slope and. Uptrend lines act as support and indicate that net demand is increasing even as the price rises.

2. Downtrend line This has a negative slope and is formed by connecting two or more high points. Downtrend lines act as resistance and indicate that net supply (supply less demand) is increasing even as the price declines.

3. Sideways Trend This is a horizontal price movement of a stock between resistance and support levels that takes place when the forces of supply and demand are balanced.

Q.15 Explain the Dow Theory.

Dow Theory was developed by Charles Dow in the late 19th Century based on his analysis of market price action. The Dow Theory has been around for almost 100 years and the basic elements of Dow Theory are still used even in today’s volatile and technology-driven market. Further, the assumptions stated by Rhea for the successful application of Dow Theory,

  • Firstly, the Dow Theory states that manipulation of the primary trend is not possible, only individual shares could be manipulated as stated by Hamilton.
  • Secondly, the market reflects all available information
  • Thirdly, Dow theory should be looked upon as a set of guidelines and principles for assisting investors and traders with their own study of the market.
Q.16 What is the significance of Volume?
Volume is used for confirming trends and chart patterns. A price movement whether up or down with comparatively higher volume is considered much stronger than a similar move with weak volume. Therefore, in order to explore for large price movement, the volume should also be validated so as to see whether it tells the same story.
Q.17 What do you understand about Price Volume Trends (PVT)?
Price Volume Trend merges the percentage change in price and volume in order to confirm the strength of price trends or through divergences notification of weak price moves. In contrast to other price-volume indicators, the Price Volume Trend takes into account the percentage increase or decrease in the price instead of simply adding or subtracting volume depending on whether the current price is higher than the previous day’s price. The PVT is calculated by multiplying the day’s volume by the percent that the security’s price changed and adding this value to a cumulative total.
Q.18 Explain the types of charts used by traders and investors.

There are three main types of charts:

1. Line Chart This is the most elementary type of chart as it represents only the closing price over a period of time. The line chart is formed by joining the closing price over a specified time period. This displays the least amount of data and is used by traders who do not focus on details such as the open, high, and low prices

2. Bar Chart In addition to the closing price, bar charts also display the open, high, and low prices for the time period selected. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The opening and closing prices are represented on a vertical line by a horizontal dash. The opening price is displayed by the dash that is located on the left side of the vertical bar and the closing price is represented by the dash on the right side of the vertical bar.

3. Candlestick Charts These charts have a thin vertical line showing the range of the trading period similar to the bar charts. However, the difference comes in the formation of a wide bar on the vertical line, indicating the difference between the opening and the closing price. Candlesticks rely heavily on the use of colours to explain what has happened during the trading period. Two-color are used to indicating days up and days down. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear but if the stock has traded down for the period, then the candlestick will usually be red or black, accordingly.

Q.19 Define upside and downside Tasuki gap.`
Upside Tasuki Gap refers to a continuation pattern with a long white body followed by another white body that has gapped above the first one. The third day is black and opens inside the body of the second day, then closes in the gap between the first two days, but does not close the gap. Downside Tasuki Gap refers to a continuation pattern with a long, black body followed by another black body that has gapped below the first one. The third day is white and opens inside the body of the second day, then closes in the gap between the first two days, but does not close the gap.
Q.20 What is the Average Directional Index (ADX)?
This refers to an indicator that helps traders in determining when the market is trending, how strong or weak a trend is, and when a trend may be about to start or reverse.
Q.21 What do you know about the Fibonacci numbers?
They are a sequence of numbers in which each successive number is the sum of the two previous numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 610, etc. However, this sequence of numbers has an interesting number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number and any given number is approximately 0.618 times the following number. The Fibonacci sequence also plays a very vital role in the technical analysis of stocks.
Q.22 Name the types of studies based on Fibonacci numbers.
There are four types of studies based on these numbers: Arcs Fans Retracements Time Zones
Q.23 What are Fibonacci Arcs?
Fibonacci Arcs are shown by first drawing a trend line between two extreme points, for example, a trough and an opposing peak. Three arcs are then drawn, centered on the second extreme point, so they intersect the trend line at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.
Q.24 What do you know about Fibonacci Fan Lines?
Fibonacci Fan Lines are shown by drawing a trend line between two extreme points, for example, a trough and an opposing peak. Then an “invisible” vertical line is drawn through the second extreme point. Three trend lines are then drawn from the first extreme point so they pass through the invisible vertical line at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.
Q.25 What are Fibonacci Time Zones?
This can be considered as a series of vertical lines. They are spaced at the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of Fibonacci Time Zones involves looking for significant changes in price near the vertical lines.
Q.26 What does long white/green candlesticks indicate?
A long white/green candlesticks represents that there is strong buying pressure; which indicates price is bullish. But, it is suggested to look at in the context of the market structure as opposed to individually.
Q.27 What does an engulfing pattern suggests?
An engulfing pattern indicates a potential trend reversal. In which case the first candlestick has a small body that is completely engulfed by the second candlestick. It is referred to as a bullish engulfing pattern when it appears at the end of a downtrend, and a bearish engulfing pattern at the conclusion of an uptrend.
Q.28 Can you describe the macroeconomic indicators influencing the stock market?
The macroeconomic indicators affecting the stock market include: GDP Growth Rate Economic and political stability The behavior of monsoon and performance of agriculture Mode of public investment and savings Monetary and fiscal policy Inflation Infrastructural facilities and arrangements
Q.29 Explain the theory of an efficient market.

An efficient market is a place where the market price of the security is an unbiased estimate of its native value. However, the efficient market hypothesis is based on assumptions like:

  • Firstly, the market is free without any trade restrictions.
  • Secondly. The market takes in all the information quickly and efficiently.
  • Thirdly, the information is freely available to all at the same time. Next, the information is correct.
  • Lastly, market players can analyze the information fast and occupies the market via buying and selling signals.
Q.30 Define fundamental analysis and technical analysis.
Fundamental analysis examines securities by attempting to measure their intrinsic value. This covers three types of analysis: Economy analysis Industry analysis Company analysis And, technical analysis varies from fundamental analysis in which the traders look for statistical trends in the stock's price and volume. Moreover, it helps in forecasting the future price of shares on basis of historical movements of the price.
Q.31 Can you name the type of risks in the stock market?

There are two types of risk:

1. Systematic risks This include: Interest rate risk Market risk Purchasing power risk

2. Unsystematic risks This include: Liquidity risk Business risk Financial risk Default risk

Q.32 Can you please explain the impact of an evening star?
An evening star is a bearish reversal pattern where the first candlestick continues the uptrend. The second candlestick gaps up and has a narrow body. The third candlestick closes below the midpoint of the first candlestick.
Q.33 What is a morning start?
A morning star is a bullish reversal pattern where the first candlestick is long and black/red-bodied, followed by short candlestick that has gapped lower; it is completed by a long-bodied white/green candlestick that closes above the midpoint of the first candlestick.
Q.34 Name the payable charges while purchasing a stock?
The charges payable while purchasing a stock include: Firstly, Stock Brokers Secondly, Commission Thirdly, Stamp duty Lastly, Cost of the stock
Q.35 Define Elliott Wave Theory.
The term Elliott Wave Theory can be considered as a theory in technical analysis used for explaining the price movements in the financial market. The theory was developed by Ralph Nelson Elliott after he observed and identified recurring, fractal wave patterns. This theory looks for recurrent long-term price patterns related to persistent changes in investor sentiment and psychology. Moreover, this detects the impulse waves that set up a pattern and corrective waves that oppose the larger trend.
Q.36 Which technique will you use to signal the continuation of the current trend?

It is suggested to use an Upside Tasuki Gap to signal the continuation of the current trend. It is a three-bar candlestick formation such that -

  • The first bar is a large white/green candlestick within a defined uptrend.
  • The second bar is another white/green candlestick with an opening price that has gapped above the close of the previous bar.
  • The third bar is a black/red candlestick that partially closes the gap between the first two bars.
Q.37 What Is a Stick Sandwich?
A stick sandwich is a technical trading pattern with three candlesticks that appears to resemble a sandwich on a trader's screen. Stick sandwiches will have the middle candlestick oppositely colored of the candlesticks on either side of it, both of which will have a larger trading range than the middle candlestick. Stick sandwich patterns can occur in both bearish and bullish indications.
Q.38 What Is a Breakaway Gap?
A breakaway gap is used in technical analysis used to identify a strong price movement through support or resistance. A gap is the difference between the open price and prior close price, where no trading activity takes place. The price breaks away from the support or resistance through a gap, as opposed to an intraday breakout. Also, breakaway gaps are often seen early in a trend when the price moves out of a trading range or following a trend reversal.
Q.39 What does a breakaway gap with larger than average volume indicate?
A breakaway gap with larger than average volume, or high volume, indicates strong conviction in the gap direction. Moreover, a volume increase on a breakout gap helps confirm that the price is likely to continue in the breakout direction. But if the volume is low on a breakaway gap there is a greater chance of failure.
Q.40 When do we observe a runaway gap?
A runaway gap is when the price opens significantly higher than the prior close in an established uptrend.
Q.41 When do we experience exhaustion gap?
An exhaustion gap occurs near the end of a trend and is caused by a final group of buyers, who regret not having bought prior, surging in.
Q.42 When will you observe common gaps?
Common gaps occur when there is a small difference between the open and closing price. These occur frequently and most traders consider them to have less significance than breakaway, runaway, and exhaustion gaps.
Q.43 What does Doji candlesticks indicate?
Doji Candlestick indicate indecision in a market that may be a signal for an impending trend change or market reversal. Some of the important characteristics are - Firstly, the singular characteristic of a doji candlestick is that the opening and closing prices are the same, so that the candlestick body is a flat line. Secondly, the longer the upper and/or lower “shadows”, or “tails”, on a doji candlestick – the part of the candlestick that indicates the low-to-high range for the time period – the stronger the indication of market indecision and potential reversal.
Q.44 What does a dragonfly doji, after a prolonged downtrend signals?
The dragonfly doji, when appearing after a prolonged downtrend, signals a possible upcoming reversal to the upside. Such that the examination of the price action indicated by the dragonfly doji explains its logical interpretation. The dragonfly shows sellers pushing price substantially lower (the long lower tail), but at the end of the period, price recovers to close at its highest point.
Q.45 What is the impact of gravestone doji?
The gravestone doji indicates a strong rejection of an attempt to push market prices higher, and thereby suggests a potential downside reversal may follow.
Q.46 When do we experience Bearish Abandoned Baby?
A bearish abandoned baby is one of the most specialized candlestick pattern consisting of three candles, one with rising prices, a second with holding prices, and a third with falling prices. We can expect this pattern signals at least a short-term reversal in a currently upward trending price. But, the occurrence of this pattern is quite rare.
Q.47 What Does the Hammer Candlestick Tell You?
A hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies within the period to close near opening price. This pattern forms a hammer-shaped candlestick, in which the lower shadow is at least twice the size of the real body. The body of the candlestick represents the difference between the open and closing prices, while the shadow shows the high and low prices for the period. Remember, a hammer occurs after a security has been declining, suggesting the market is attempting to determine a bottom. Also, hammers signal a potential capitulation by sellers to form a bottom, accompanied by a price rise to indicate a potential reversal in price direction.
Q.48 When do Short selling occur?
Short selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money.
Q.49 Why is the activity of hedging an investment is considered to be lower risk than trading for speculation?
The activity of hedging an investment is considered to be lower risk than trading for speculation since it is generally conducted over a longer-term time horizon. Moreover, due to additional risks in short selling, it is usually conducted over a smaller time horizon and is thus more likely to be an activity conducted for speculation.
Q.50 When do we experience short squeeze?
A short squeeze happens when a stock begins to rise, and short-sellers cover their trades by buying their short positions back. This buying can turn into a feedback loop. Demand for the shares attracts more buyers, which pushes the stock higher, causing even more short-sellers to buy back or cover their positions.
Q.51 What does Efficient Market Hypothesis states?
Efficient Market Hypothesis states that financial markets are “informationally” efficient. Prices on traded assets already reflect all known information and therefore are unbiased in the sense that they reflect the collective beliefs of all investors about future prospects.
Q.52 When Tree shake happens ?
When a market maker starts to drop the share price, the weak share holders will sell up. The market maker will continue to drop the price until enough weak holders have relinquished their shares. The market maker then fulfils its large order and returns the share price to where it started.
Q.53 When accumulation phase occurs ?
Accumulation phase occurs when the “expert” traders are actively taking positions which are against the majority of people in the market. Price does not change much during this phase as the “experts” are in the minority so they are not a large enough group to move the market
Q.54 What does Doji represents?
Doji represents indecision in the market but is normally considered a strong signal.
Q.55 In bearish engulfing, when is a reversal not expected?
When the white candle completely engulfs the black candle that precedes it
Q.56 Using the moving averages, when will a trader buy or sell?
The trader will buy when the price of a financial instrument breaks above the moving average line and sell when the financial instrument breaks below the moving average line
Q.57 Give some examples of charting software

1.Amibroker

2. MetaStock

3. AdvancedGet

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