Noesis
Level 2 — RecallTrading Strategies

Trading Strategies

⏱ 30 minutes50 marksprintable — key stays hidden on paper

Subject: Stock-Market | Chapter: 4.6 Trading Strategies Difficulty: Level 2 — Recall (definitions, standard problems, short derivations) Time Limit: 30 minutes | Total Marks: 50

Section A — Definitions & Short Answer (24 marks)

Q1. Define a breakout trading strategy. State the two most common confirmation signals a trader uses to avoid a false breakout. (4 marks)

Q2. Explain the difference between a pullback (retracement) entry and a breakout entry in a trending market. (4 marks)

Q3. State what a trend-following system attempts to do, and name two indicators commonly used to identify trend direction. (4 marks)

Q4. Define the three types of gap trading setups: gap-up, gap-down, and gap-fill. (4 marks)

Q5. Describe the core idea of range trading. Where does a range trader typically place buy and sell orders? (4 marks)

Q6. Define the Opening Range Breakout (ORB) strategy and state what the "opening range" refers to. (4 marks)

Section B — Standard Problems & Short Derivations (26 marks)

Q7. A stock's closing prices over 5 days are: 100, 102, 104, 103, 106. (a) Compute the 5-day Simple Moving Average (SMA). (3 marks) (b) If today's price is 110, state whether a price/SMA crossover signal is bullish or bearish, with reason. (2 marks)

Q8. In an RSI-based system, over 14 periods the average gain = 2.0 and average loss = 1.0. (a) Compute the Relative Strength (RS). (2 marks) (b) Compute the RSI using RSI=100−1001+RSRSI = 100 - \dfrac{100}{1+RS}. (3 marks) (c) State whether this reading indicates overbought, oversold, or neutral (thresholds 70/30). (1 mark)

Q9. For MACD, the fast EMA = 152 and slow EMA = 148. (a) Compute the MACD line. (2 marks) (b) If the signal line = 3, state the MACD histogram value and whether momentum is bullish or bearish. (3 marks)

Q10. During a session, total value traded = ₹5,00,000 across total volume = 2,000 shares. (a) Compute the VWAP. (3 marks) (b) If current price = ₹260, state whether it is above or below VWAP and what an intraday long trader typically infers. (2 marks)

Q11. Match each term with its correct definition (write pairs). (2 marks) Terms: (i) Supply zone (ii) Demand zone Definitions: (A) price area where buying pressure historically exceeds selling; (B) price area where selling pressure historically exceeds buying.

Answer keyMark scheme & solutions

Q1. (4 marks)

  • Breakout strategy: entering a trade when price moves beyond a defined support/resistance level (or consolidation range) with the expectation the move continues. (2)
  • Two confirmations: (i) increased volume on the breakout candle; (ii) a close beyond the level (not just a wick) / retest holding. (1 each = 2)

Q2. (4 marks)

  • Breakout entry: enter as price pushes past a key level. (1)
  • Pullback entry: wait for price to retrace back toward a broken level, moving average, or Fibonacci level, then enter in the trend direction. (2)
  • Pullback offers better risk/reward and tighter stops; breakout enters earlier but risks false moves. (1)

Q3. (4 marks)

  • Trend-following aims to capture and ride sustained directional moves, buying strength/selling weakness, staying in until trend reverses. (2)
  • Two indicators: Moving averages and ADX (also acceptable: MACD, Donchian channels). (1 each = 2)

Q4. (4 marks)

  • Gap-up: price opens significantly above previous close. (1)
  • Gap-down: price opens significantly below previous close. (1)
  • Gap-fill: price moves back to close the gap, retracing to the prior close level; traders fade the gap expecting it to fill. (2)

Q5. (4 marks)

  • Range trading: trading within a horizontal channel between defined support and resistance in a non-trending market. (2)
  • Buy near support, sell/short near resistance. (2)

Q6. (4 marks)

  • ORB: enter a trade when price breaks above/below the price range formed during the first N minutes of the session. (2)
  • Opening range = the high and low established in the initial period after market open (e.g., first 15/30 min). (2)

Q7. (5 marks) (a) SMA = (100+102+104+103+106)/5=515/5=103(100+102+104+103+106)/5 = 515/5 = 103. (3) (b) Price 110 > SMA 103 → price crossing above the average = bullish signal. (2)

Q8. (6 marks) (a) RS = avg gain / avg loss = 2.0/1.0=22.0/1.0 = 2. (2) (b) RSI =100−1001+2=100−33.33=66.67= 100 - \frac{100}{1+2} = 100 - 33.33 = 66.67. (3) (c) 66.67 is between 30 and 70 → neutral (approaching overbought but not yet). (1)

Q9. (5 marks) (a) MACD line = fast EMA − slow EMA = 152−148=4152 - 148 = 4. (2) (b) Histogram = MACD − signal = 4−3=14 - 3 = 1 (positive) → bullish momentum. (3)

Q10. (5 marks) (a) VWAP = value traded / volume = 500000/2000=250500000/2000 = 250. (3) (b) 260 > 250 → price above VWAP → long trader sees bullish bias / buyers in control (price above average intraday cost). (2)

Q11. (2 marks)

  • (i) Supply zone → (B). (1)
  • (ii) Demand zone → (A). (1)
[
  {"claim":"5-day SMA of [100,102,104,103,106] = 103","code":"result = (Rational(100+102+104+103+106,5)==103)"},
  {"claim":"RSI with RS=2 equals 200/3","code":"RS=Integer(2); rsi=100-Rational(100,1+RS); result=(simplify(rsi-Rational(200,3))==0)"},
  {"claim":"MACD histogram = 1 when MACD=4, signal=3","code":"result=((4-3)==1)"},
  {"claim":"VWAP = 500000/2000 = 250","code":"result=(Rational(500000,2000)==250)"}
]