Level 1 — RecognitionTrading Strategies

Trading Strategies

⏱ 20 minutes30 marksprintable — key stays hidden on paper

Subject: Stock-Market | Chapter: 4.6 Trading Strategies Difficulty Level: 1 — Recognition Time Limit: 20 minutes Total Marks: 30

Section A — Multiple Choice Questions (1 mark each)

Choose the single best answer.

Q1. A breakout trade is considered more reliable when the price crosses a resistance level with:

(a) Falling volume
(b) Rising / above-average volume
(c) No change in volume
(d) A large opening gap only

Q2. In a pullback (retracement) entry within an uptrend, the trader ideally buys when price:

(a) Makes a new all-time high
(b) Falls back to a support/moving-average and shows signs of resuming the uptrend
(c) Breaks below the trend entirely
(d) Gaps down and stays down

Q3. A trend-following system is designed to:

(a) Predict exact tops and bottoms
(b) Enter counter to the prevailing direction
(c) Ride an established trend and exit when it reverses
(d) Trade only inside sideways ranges

Q4. The Opening Range Breakout (ORB) strategy defines the "opening range" using:

(a) The previous day's close only
(b) The high and low of the first specified minutes of the session
(c) The 200-day moving average
(d) The all-time high

Q5. A "gap fill" refers to price:

(a) Continuing sharply in the gap direction
(b) Returning to the prior day's closing level, closing the gap
(c) Never trading again that day
(d) Doubling the size of the gap

Q6. In a moving-average crossover system, a bullish signal typically occurs when:

(a) The short MA crosses below the long MA
(b) The short MA crosses above the long MA
(c) Both MAs are flat
(d) Price touches the MA once

Q7. The RSI indicator is commonly interpreted as overbought when its value is:

(a) Above 70
(b) Below 30
(c) Exactly 50
(d) Below 0

Q8. MACD is calculated primarily from:

(a) Volume weighted price
(b) The difference between two exponential moving averages
(c) The daily gap size
(d) The RSI value squared

Q9. Range trading works best in a market that is:

(a) Strongly trending upward
(b) Strongly trending downward
(c) Sideways / consolidating between support and resistance
(d) Gapping every day

Q10. VWAP stands for:

(a) Variable Weighted Average Position
(b) Volume Weighted Average Price
(c) Volatility Weighted Adjusted Price
(d) Value Weighted Average Portfolio

Q11. Scalping is characterised by:

(a) Holding positions for months
(b) Many small, very short-duration trades capturing small price moves
(c) Only trading gaps at the open
(d) Buying and never selling

Q12. A supply zone is an area where:

(a) Strong buying is expected to push price up
(b) Strong selling has previously overwhelmed buyers, likely acting as resistance
(c) Volume is always zero
(d) Price gaps up daily

Section B — Matching (1 mark each, 6 marks)

Q13. Match each strategy/term in Column A with its best description in Column B.

Column A	Column B
13.1 Reversal setup	(i) Buys the return to a demand zone in an uptrend
13.2 Pullback entry	(ii) Enters against the current trend expecting a turn
13.3 MACD histogram	(iii) Difference between MACD line and signal line
13.4 ORB	(iv) Trades break of first-minutes high/low
13.5 VWAP	(v) Intraday fair-value benchmark line
13.6 Range trading	(vi) Buy support, sell resistance in a channel

Section C — True / False WITH Justification (2 marks each, 12 marks)

State True or False (1 mark) and give a one-line justification (1 mark).

Q14. "A false breakout occurs when price breaks a level then quickly reverses back inside the range."

Q15. "RSI below 30 is traditionally treated as an overbought condition."

Q16. "In a gap-up scenario, the current day opens above the previous day's high."

Q17. "Trend-following systems generally aim to catch every minor reversal in the market."

Q18. "Price trading above VWAP intraday is often read as bullish by intraday traders."

Q19. "A death cross is when a short-term moving average crosses above a long-term moving average."

End of paper.

Answer keyMark scheme & solutions

Section A (12 marks)

Q1 — (b) Rising/above-average volume confirms genuine participation behind the breakout; low volume breakouts often fail. (1)

Q2 — (b) Pullback entries wait for a temporary dip to support/MA, then join the resuming trend for better risk/reward. (1)

Q3 — (c) Trend-following rides an existing trend and exits on reversal; it does not predict tops/bottoms. (1)

Q4 — (b) ORB uses the high/low of the first N minutes (e.g., 15 min) as the range to break. (1)

Q5 — (b) A gap fill is when price retraces to the prior close, closing the empty space. (1)

Q6 — (b) Short MA crossing above long MA = bullish (golden cross). (1)

Q7 — (a) RSI > 70 = overbought (< 30 = oversold). (1)

Q8 — (b) MACD line = EMA(short) − EMA(long); it is derived from two EMAs. (1)

Q9 — (c) Range trading exploits sideways markets bounded by support and resistance. (1)

Q10 — (b) VWAP = Volume Weighted Average Price. (1)

Q11 — (b) Scalping = many quick trades for small gains. (1)

Q12 — (b) A supply zone is prior heavy-selling area acting as resistance. (1)

Section B (6 marks)

Q13 — one mark each correct match:

13.1 → (ii) reversal enters against current trend
13.2 → (i) pullback buys return to demand in uptrend
13.3 → (iii) histogram = MACD line − signal line
13.4 → (iv) ORB trades first-minutes high/low break
13.5 → (v) VWAP = intraday fair-value benchmark
13.6 → (vi) range trading buys support/sells resistance (6)

Section C (12 marks)

Q14 — True. A false/failed breakout breaks a level then snaps back inside; justification of the reversal-back-inside definition. (True =1, justification =1)

Q15 — False. RSI below 30 is oversold, not overbought; overbought is above 70. (1+1)

Q16 — True. A gap-up means the open is above the previous session's high, leaving an empty gap. (1+1)

Q17 — False. Trend-following deliberately ignores minor noise and rides the major trend; it does not chase every reversal. (1+1)

Q18 — True. Above VWAP means buyers are paying above the day's volume-weighted average — read as bullish/strength. (1+1)

Q19 — False. That description is a golden cross; a death cross is short MA crossing below long MA. (1+1)

[
  {"claim":"MACD line = EMA12 - EMA26 gives positive value when short EMA above long EMA (Q8/bullish)","code":"ema12=105; ema26=100; macd=ema12-ema26; result = (macd>0)"},
  {"claim":"RSI overbought threshold 70 > oversold threshold 30 (Q7/Q15)","code":"overbought=70; oversold=30; result = (overbought>oversold) and (overbought==70) and (oversold==30)"},
  {"claim":"Gap-up: open above previous high (Q16)","code":"prev_high=250; today_open=258; result = (today_open>prev_high)"},
  {"claim":"Golden cross bullish: short MA crosses above long MA, so short>long confirms Q6/Q19","code":"short_ma=101; long_ma=99; golden = short_ma>long_ma; result = (golden==True)"}
]