Noesis
Level 2 — RecallCharts, Trends & Dow Theory

Charts, Trends & Dow Theory

⏱ 30 minutes40 marksprintable — key stays hidden on paper

Level 2 — Recall & Standard Problems

Time Limit: 30 minutes Total Marks: 40

Q1. Define a candlestick chart. State the four data points it displays for each period. (4 marks)

Q2. State any four tenets of Dow Theory. (4 marks)

Q3. A daily candle shows the following OHLC data: Open = \120,High=, High = $128,Low=, Low = $118,Close=, Close = $125$. (a) Is this a bullish or bearish candle? Give the reason. (2 marks) (b) Calculate the length of the real body and the length of the upper shadow (wick). (4 marks)

Q4. Define the three types of market trends according to Dow Theory: primary, secondary, and minor. Give the approximate duration of each. (6 marks)

Q5. Explain the "higher highs / higher lows" logic. State what price structure confirms: (a) an uptrend, and (b) a downtrend. (4 marks)

Q6. The following are consecutive swing points on a chart: Swing High 1 = \50,SwingLow1=, Swing Low 1 = $45,SwingHigh2=, Swing High 2 = $54,SwingLow2=, Swing Low 2 = $48$. Identify the trend and justify using HH/HL logic. (4 marks)

Q7. Distinguish between a linear price scale and a logarithmic price scale. State one situation where a log scale is preferred. (4 marks)

Q8. Explain the role of volume confirmation in trend analysis. What does volume that contradicts a price move signal? (4 marks)

Q9. Define a trendline and a channel. State how many touch points are minimally required to draw a valid trendline. (4 marks)

End of Paper

Answer keyMark scheme & solutions

Q1. (4 marks)

  • A candlestick chart is a price chart where each period is shown as a "candle" consisting of a real body and wicks/shadows, displaying price movement over a chosen timeframe. (2)
  • Four data points: Open, High, Low, Close (OHLC). (2, ½ each) Why: Candlesticks encode all four OHLC values visually — body = open/close range, shadows = high/low extremes.

Q2. (4 marks) — 1 mark each for any four:

  • The averages (market) discount everything.
  • The market has three trends (primary, secondary, minor).
  • Primary trends have three phases (accumulation, public participation, distribution).
  • The averages must confirm each other.
  • Volume must confirm the trend.
  • A trend is assumed to continue until a clear reversal signal appears. Why: These are Dow's classical principles establishing trend-based analysis.

Q3. (6 marks) (a) Bullish, because Close (125125) > Open (120120). (2) (b) Real body = |Close - Open| = |125 - 120| = \5.∗∗(2)∗∗Uppershadow=. **(2)** Upper shadow = High - \max(Open, Close) = 128 - 125 = $3$. (2) Why: Body measures open-to-close move; upper wick measures rejection above the body top.

Q4. (6 marks) — 1 mark definition + 1 mark duration each:

  • Primary trend: the major long-term direction; lasts 1 year or more (months to years). (2)
  • Secondary trend: corrective moves against the primary trend; lasts weeks to a few months (~3 weeks–3 months). (2)
  • Minor trend: short-term fluctuations/"noise"; lasts less than 3 weeks (days). (2)

Q5. (4 marks)

  • HH/HL logic: trend direction is defined by the sequence of swing highs and swing lows. (1)
  • (a) Uptrend = higher highs AND higher lows. (1.5)
  • (b) Downtrend = lower highs AND lower lows. (1.5) Why: Successively rising peaks and troughs show buyers in control; the opposite shows sellers.

Q6. (4 marks)

  • Compare highs: 54>5054 > 50 → Higher High. (1)
  • Compare lows: 48>4548 > 45 → Higher Low. (1)
  • Both HH and HL present → Uptrend. (2)

Q7. (4 marks)

  • Linear scale: equal price distances = equal vertical spacing; e.g., \10\to$20andand$100\to$110$ span equal height. (1.5)
  • Log scale: equal percentage moves = equal vertical spacing; \10\to$20(100(100%) and$100\to$200$ (100%) span equal height. (1.5)
  • Log preferred for long-term charts / large price ranges (viewing percentage growth). (1)

Q8. (4 marks)

  • Volume confirms strength/validity of a price move; a genuine trend should show rising volume in the trend direction. (2)
  • Volume that contradicts (e.g., price rising on falling volume) signals weakness / possible reversal or lack of conviction (divergence). (2)

Q9. (4 marks)

  • Trendline: a straight line connecting successive swing lows (uptrend) or swing highs (downtrend) showing direction/support-resistance. (1.5)
  • Channel: two parallel trendlines bounding price between support and resistance. (1.5)
  • Minimum touch points = two (a third confirms validity). (1)
[
  {"claim":"Q3 bullish candle: close>open","code":"open_,close_=120,125\nresult=(close_>open_)"},
  {"claim":"Q3 real body length = 5","code":"body=abs(125-120)\nresult=(body==5)"},
  {"claim":"Q3 upper shadow = 3","code":"upper=128-max(120,125)\nresult=(upper==3)"},
  {"claim":"Q6 higher high present","code":"result=(54>50)"},
  {"claim":"Q6 higher low present -> uptrend","code":"hh=54>50\nhl=48>45\nresult=(hh and hl)"}
]