Stage 4
60 questions
What's the biggest weakness of fundamental analysis?
That even small changes in the assumptions change the result a lot. What comes out is a range, not an exact number.
Which technical approach holds up best when tested?
Momentum. For most classic chart patterns the evidence is weak.
Which distinction matters most for you?
The one between testable rules and claims that only become clear afterwards.
When should you use a logarithmic scale?
For long periods and assets that have risen a lot, because return is measured in percent.
What does a big move on low volume mean?
That only a few people caused it. It tells you less.
Why does every statement about a trend come too late?
Because a high or low can only be recognized once the price has moved the other way afterwards.
Which trend effect is best supported?
Momentum over a few months, though with violent setbacks when the market turns.
Why does an earlier price level slow a rise?
Because many investors paid a similar amount there and want to sell without a loss.
Why is it difficult to test such levels?
Because there's a lot of leeway in drawing them and the rule is easily adjusted to the data afterwards.
What usually happens when a level is tested several times?
It gets weaker, because the orders waiting there are used up.
Why does chart analysis seem more convincing in hindsight?
Because the lines are chosen after the result is already known. That's overfitting.
What role does the scale play?
A line that's straight on a linear scale is curved on a logarithmic one. The two views lead to different statements.
What turns a trend line into a testable method?
Rules fixed beforehand for highs and lows, touches, tolerance, scale and what counts as a break.
Why are chart patterns hard to test?
Because they can hardly be defined clearly and spotting them remains subjective.
What happens if you test a great many patterns?
Some look good by chance alone. Without correcting for the number of attempts, a single good finding is worthless.
What do experiments with made up price charts show?
That people see the same patterns in them as in real charts.
How does the exponential average differ from the simple one?
It weights the most recent days more, reacts faster and gives more false signals in return.
Why are crossover rules easier to test than chart patterns?
Because they can be written down unambiguously.
How do such rules behave in sideways phases?
They produce a series of small losses, because the lines keep crossing back and forth.
What does the RSI measure?
The ratio of average rises to average falls over a chosen period.
Why does the RSI fail in strong trends?
Because it stays in the extreme zone for a long time and keeps signalling a reversal that doesn't come.
What assumption is built into Bollinger Bands?
That price moves are normally distributed. In reality extreme moves are more common, and the price leaves the bands more often.
Why can't an indicator contain anything about the future?
Because it's calculated only from past prices.
What trade off does all smoothing have?
More smoothing means fewer false signals and more delay, less smoothing the opposite.
Why does combining many indicators help so little?
Because they all come from the same price series and move very similarly, so they contribute nothing independent.
What's the basic rule of the balance sheet?
Assets equal debt plus equity. Both sides are always the same size.
Why isn't the amount of debt alone enough?
Because what matters is when it falls due. What's due soon must be covered by assets available soon.
What warning sign can you spot in the figures?
Reported profit that stays well above cash flow from ongoing business for years.
What does a high P/E express?
High growth expectations or that investors are content with a low return. That doesn't automatically make the share expensive.
Why is the P/E tricky for companies with swinging profits?
At the peak of profits it looks low and in the trough high, although the situation is the other way round.
Why does the P/B say little for software companies?
Because self created assets like software or brands usually aren't on the balance sheet at all.
Why does the cash flow statement say more than profit?
Because it offers less leeway for dressing things up than reported profit.
Where is there the most leeway in accounting?
In booking revenue, in capitalizing development costs and in whether the value of acquired companies still holds.
What are key audit matters?
Areas the auditor names because the biggest leeway and risks of error lay there.
Why is money in the future worth less?
Because you have to wait and it's not certain it'll come. That's why it's converted back to today.
Which part usually decides a valuation?
The terminal value, meaning the assumptions for the time after the actual forecast period.
Which route avoids false precision?
The reverse one: working out which assumptions would justify today's price and checking whether they're realistic.
What's the basic problem of on chain analysis?
Assigning addresses to the right owners. There are only rules of thumb for it, and they're often wrong.
Why isn't the number of active addresses a user count?
Because one person can have many addresses and one exchange address can belong to millions of customers.
Why are on chain signals statistically weak?
Because the data only cover a few big market cycles.
What is the fully diluted valuation?
The price times the maximum supply of tokens. For young projects it's often far above the displayed market capitalization.
Why do release schedules matter?
Because they create predictable selling pressure, regardless of how the project develops.
When is burning tokens worth something?
Only if real income is behind it and the tokens weren't newly issued beforehand.
Which four areas should you check?
Team and identity, technology and code, independent audit reports, and token distribution and release.
What does an audit report on smart contracts tell you?
Only what was examined for a particular version of the code and within a defined scope, not that the project is safe.
How do you measure a return promise?
By where the money comes from. Without a visible source it comes from later investors.
In what ways does the policy rate work?
Through the rate used to convert future profits, through companies' borrowing costs and through how attractive bonds are by comparison.
Why does an expected rate hike barely move markets?
Because it's already in the price. Moves come when something differs from expectations.
Why can good economic news push prices down?
If it makes tighter monetary policy and higher rates more likely.
How quickly do markets process scheduled announcements?
Most of the adjustment happens within seconds to minutes.
What does buy the rumour, sell the fact mean?
The expectation drives the price. When the event happens, there's nothing left to drive it further.
What is a private investor's only real edge?
That they can wait longer and sit out swings for years.
What's the first question to ask of any financial source?
What it makes its money from. The way it's paid decides which direction the advice is colored in.
Why are single screenshots of gains worthless?
Because you can pick the nice ones. Only complete, checkable records are credible.
What do you rely on for scientific claims?
On findings that many studies have confirmed over long periods and in several markets.
What does a market maker mainly earn from?
From the gap between buying and selling price, not from the direction of the price.
Why do pension funds sometimes all act the same way at once?
Because of legal investment limits they have to follow, and not necessarily because of their view of the market.