Answer 4-1: A = (I)
Computerized technical analysis is more objective than classical charting. You may argue whether support or resistance is present, but there can be no argument about the direction of an indicator—it's either up, down, or flat. A good technician aims to discover the balance of power between bulls and bears and bet on the winning group—not to forecast the future. A computer doesn't remove emotions from trading because we still have to place our orders. Anyone who tries to sell you “a sure thing” should be viewed with utter suspicion.
Answer 4-2: I = B; II = C; III = A
A toolbox is a collection of analytic and charting tools. Black boxes for automatic trading come with excellent historical records but self-destruct when markets change; gray boxes straddle the boundary between those two groups.
Answer 4-3: I = B; II = C: III = A
It pays to combine indicators from different groups so that their negative features cancel each other out while their positive features remain undisturbed. We'll return to this theme in the chapter on the Triple Screen trading system.
Answer 4-4: B
To calculate a simple moving average, add the closing prices in its time window and divide their sum by the number of days in that window. Adding prices for the past 5 days produces 110, and dividing 110 by 5 is 22.
Answer 4-5: A
Exponential moving averages are harder to calculate by hand than simple MAs. If you use a computer, both are ...