Indicators & Oscillators
Chapter: 3.4 Indicators & Oscillators Level: 1 — Recognition Time Limit: 20 minutes Total Marks: 30
Section A — Multiple Choice (1 mark each) — 10 marks
Choose the single best answer.
Q1. Which moving average reacts faster to recent price changes? (a) Simple Moving Average (SMA) (b) Exponential Moving Average (EMA) (c) Both react equally (d) Neither reacts to price
Q2. A "golden cross" occurs when: (a) A short-term MA crosses below a long-term MA (b) A short-term MA crosses above a long-term MA (c) Price crosses the RSI line (d) The MACD histogram turns red
Q3. RSI is typically considered "overbought" when it rises above: (a) 30 (b) 50 (c) 70 (d) 100
Q4. The MACD line is most commonly calculated as: (a) 50-day EMA minus 200-day EMA (b) 12-day EMA minus 26-day EMA (c) 26-day SMA minus 12-day SMA (d) RSI minus signal line
Q5. A Bollinger Band "squeeze" indicates: (a) High volatility and an ongoing trend (b) Low volatility and potential upcoming breakout (c) That RSI is oversold (d) A confirmed golden cross
Q6. The stochastic oscillator measures: (a) The rate of volume change (b) A closing price's position relative to its recent high–low range (c) The difference of two EMAs (d) Average true range
Q7. ADX is primarily used to measure: (a) Trend direction (b) Trend strength (c) Overbought conditions (d) Volume flow
Q8. VWAP stands for: (a) Variable Weighted Average Price (b) Volume Weighted Average Price (c) Volatility Weighted Adjusted Price (d) Value Weighted Average Position
Q9. ATR (Average True Range) is best described as a measure of: (a) Trend direction (b) Volatility (c) Momentum divergence (d) Volume accumulation
Q10. OBV (On-Balance Volume) is primarily a: (a) Volatility indicator (b) Volume-based indicator (c) Moving average (d) Cloud-based indicator
Section B — Matching (1 mark each) — 6 marks
Q11. Match each indicator (i–vi) to its primary category (A–F).
| Indicator | Category | |
|---|---|---|
| (i) RSI | A. Volatility | |
| (ii) Bollinger Bands | B. Volume | |
| (iii) OBV | C. Momentum oscillator | |
| (iv) ADX | D. Trend/support-resistance system | |
| (v) Ichimoku Cloud | E. Trend strength | |
| (vi) MACD | F. Momentum/trend hybrid (EMA-based) |
Section C — True/False WITH Justification (2 marks each) — 14 marks
(1 mark = correct T/F, 1 mark = valid justification)
Q12. "A bearish RSI divergence occurs when price makes a higher high but RSI makes a lower high." (T/F + justify)
Q13. "The MACD histogram represents the difference between the MACD line and the signal line." (T/F + justify)
Q14. "A death cross is a bullish signal indicating the start of an uptrend." (T/F + justify)
Q15. "An ADX reading below 20 generally indicates a strong trend." (T/F + justify)
Q16. "VWAP is calculated using both price and volume data over the trading session." (T/F + justify)
Q17. "Using 15 different indicators together always produces clearer, more reliable signals." (T/F + justify)
Q18. "In the Ichimoku system, price trading above the cloud (Kumo) is generally interpreted as bullish." (T/F + justify)
Answer keyMark scheme & solutions
Section A (1 mark each)
Q1 — (b) EMA. Why: EMA weights recent prices more heavily, so it responds faster than the equally-weighted SMA. (1)
Q2 — (b) short-term MA crosses above long-term MA. Why: A golden cross (e.g., 50-day above 200-day) signals bullish momentum. (1)
Q3 — (c) 70. Why: Standard RSI thresholds are 70 (overbought) / 30 (oversold). (1)
Q4 — (b) 12-day EMA − 26-day EMA. Why: This is the standard MACD line definition. (1)
Q5 — (b) low volatility / potential breakout. Why: Squeeze = bands contract as volatility falls, often preceding a large move. (1)
Q6 — (b) close position within recent high–low range. Why: %K = (Close − Low)/(High − Low)×100. (1)
Q7 — (b) trend strength. Why: ADX quantifies strength, not direction (which comes from +DI/−DI). (1)
Q8 — (b) Volume Weighted Average Price. (1)
Q9 — (b) Volatility. Why: ATR averages the true range, a range/volatility measure. (1)
Q10 — (b) Volume-based indicator. Why: OBV cumulates volume based on up/down closes. (1)
Section B (Q11 — 1 mark per correct match, 6 total)
- (i) RSI → C Momentum oscillator
- (ii) Bollinger Bands → A Volatility
- (iii) OBV → B Volume
- (iv) ADX → E Trend strength
- (v) Ichimoku Cloud → D Trend/support-resistance system
- (vi) MACD → F Momentum/trend hybrid (EMA-based)
Section C (2 marks each: 1 T/F + 1 justification)
Q12 — TRUE. Justification: Bearish divergence = price higher high while momentum (RSI) makes a lower high, warning of weakening upward momentum. (1+1)
Q13 — TRUE. Justification: Histogram = MACD line − Signal line; bars grow/shrink as the two lines diverge/converge. (1+1)
Q14 — FALSE. Justification: A death cross (short MA crossing below long MA) is bearish, signaling potential downtrend. (1+1)
Q15 — FALSE. Justification: ADX below 20 indicates a weak/absent trend; strong trends are typically ADX above 25. (1+1)
Q16 — TRUE. Justification: VWAP = Σ(price×volume)/Σ(volume), so it uses both price and volume across the session. (1+1)
Q17 — FALSE. Justification: Too many indicators cause "indicator overload"—redundant/conflicting signals; a few complementary tools are better. (1+1)
Q18 — TRUE. Justification: Price above the Kumo (cloud) is a bullish condition; below is bearish; inside is neutral/consolidation. (1+1)
[
{"claim":"RSI overbought threshold is 70 and oversold is 30, sum = 100","code":"ob=70; os=30; result = (ob+os==100)"},
{"claim":"MACD line = 12-EMA minus 26-EMA (period difference is 14)","code":"result = (26-12==14)"},
{"claim":"Stochastic %K for Close=15, Low=10, High=20 equals 50","code":"C,L,H=15,10,20; k=(C-L)/(H-L)*100; result = (k==50)"},
{"claim":"VWAP for prices [10,12] with volumes [100,300] equals 11.5","code":"num=10*100+12*300; den=100+300; vwap=Rational(num,den); result = (vwap==Rational(23,2))"}
]