NISM Series XV · Unit 15 of 15 · about 15% of the paper
Technical analysis: NISM Series XV notes and practice questions
Reading price and volume: trends, patterns, indicators and their limits. The largest single chapter.
What to know in Unit 15
- Dow theory and trends.
- Support and resistance.
- Moving averages, RSI, MACD, Bollinger.
- Candlesticks and chart patterns.
- Volume and breadth.
Key terms, examples and exam traps
Dow theory
Dow theory holds that markets move in primary, secondary and minor trends, and that averages must confirm each other.
Example. An analyst views a multi-year uptrend with corrections inside it.
Exam trap. This statement is false: Dow theory says market trends are unpredictable noise.
Trend
A trend is the general direction of price movement: an uptrend has higher highs and higher lows, a downtrend lower highs and lower lows.
Example. A chart shows each peak and trough above the last.
Exam trap. This statement is false: An uptrend has lower highs.
Support
Support is a price level where buying interest is strong enough to stop a decline temporarily.
Example. A stock repeatedly bounces from ₹100.
Exam trap. This statement is false: Support is a level where selling prevents any rise.
Resistance
Resistance is a price level where selling pressure tends to halt a rise temporarily.
Example. A stock fails to cross ₹150 several times.
Exam trap. This statement is false: Resistance is a level where buyers appear.
Breakout
A breakout is a price move beyond support or resistance, ideally on higher volume, signalling a possible new trend.
Example. A stock closes above its long-held resistance on heavy volume.
Exam trap. This statement is false: A breakout on very low volume is the most reliable.
Simple moving average
A simple moving average is the average closing price over a set number of periods, smoothing price data to show the trend.
Example. A 50-day average of closing prices.
Exam trap. This statement is false: A moving average shows a single day's high.
Exponential moving average
An exponential moving average gives greater weight to recent prices and reacts faster than a simple average.
Example. An analyst prefers an average that responds more quickly to new prices.
Exam trap. This statement is false: An EMA gives equal weight to all days.
Golden cross
A golden cross occurs when a shorter-term average, such as the 50-day, crosses above a longer-term average, such as the 200-day, a bullish signal.
Example. The 50-day average rises above the 200-day average.
Exam trap. This statement is false: A golden cross is a bearish signal.
Death cross
A death cross occurs when the 50-day average crosses below the 200-day average, a bearish signal.
Example. The shorter average falls beneath the longer one.
Exam trap. This statement is false: A death cross is a bullish signal.
RSI
The Relative Strength Index is a momentum oscillator from 0 to 100; above 70 is considered overbought and below 30 oversold.
Example. A reading of 78 suggests the stock may be overbought.
Exam trap. This statement is false: An RSI above 70 means oversold.
MACD
MACD is the difference between a 12-period and 26-period EMA, with a 9-period signal line; crossovers indicate momentum changes.
Example. A line crossing above its signal line suggests rising momentum.
Exam trap. This statement is false: MACD measures trading volume.
Bollinger Bands
Bollinger Bands plot a moving average with bands two standard deviations above and below, showing volatility and extremes.
Example. Bands widen when volatility rises.
Exam trap. This statement is false: Bollinger Bands show company earnings.
Stochastic oscillator
The stochastic oscillator compares a closing price with the range over a period; above 80 is overbought and below 20 oversold.
Example. A reading of 15 suggests an oversold stock.
Exam trap. This statement is false: A stochastic reading above 80 is oversold.
On-balance volume
On-balance volume adds volume on up days and subtracts it on down days, to see whether volume confirms the price trend.
Example. A rising price with falling OBV is a warning sign.
Exam trap. This statement is false: OBV is a measure of earnings.
Volume confirmation
A price move accompanied by rising volume is considered more reliable than one on thin volume.
Example. A rally on heavy volume is trusted more.
Exam trap. This statement is false: Volume is irrelevant to price moves.
Head and shoulders
A head and shoulders pattern has three peaks, with the middle highest, and signals a potential trend reversal from up to down when the neckline breaks.
Example. A chart shows a left shoulder, higher head and right shoulder.
Exam trap. This statement is false: A head and shoulders pattern signals a continuing uptrend.
Double top
A double top is a bearish reversal pattern in which price makes two peaks at a similar level and then breaks below the trough between them.
Example. Price hits ₹200 twice and falls.
Exam trap. This statement is false: A double top is a bullish pattern.
Double bottom
A double bottom is a bullish reversal pattern with two troughs at a similar level followed by a break above the middle peak.
Example. Price falls to ₹80 twice and then rises.
Exam trap. This statement is false: A double bottom is a bearish pattern.
Triangle pattern
Triangles are consolidation patterns where price ranges narrow; ascending triangles often break upward and descending ones downward.
Example. Price makes lower highs and a flat support line.
Exam trap. This statement is false: Triangles show the maximum volatility.
Cup and handle
The cup and handle is a bullish continuation pattern with a rounded bottom followed by a small pullback before a breakout.
Example. A rounded base is followed by a small consolidation and a rise.
Exam trap. This statement is false: A cup and handle is a bearish reversal.
Candlestick
A candlestick shows open, high, low and close for a period, with the body showing the open-to-close range and wicks showing extremes.
Example. A candle has a long lower wick and small body.
Exam trap. This statement is false: A candlestick shows only closing price.
Doji
A doji forms when the open and close are almost equal, signalling indecision between buyers and sellers.
Example. A candle with almost no body and long wicks.
Exam trap. This statement is false: A doji shows a strong trend.
Bullish engulfing
A bullish engulfing pattern is a large up candle that completely covers the previous down candle, suggesting a reversal upwards.
Example. A big green candle swallows the previous red one after a decline.
Exam trap. This statement is false: A bullish engulfing pattern appears at the top of an uptrend.
Fibonacci retracement
Fibonacci retracement levels such as 38.2%, 50% and 61.8% mark likely pullback areas within a trend.
Example. A stock falls back to 61.8% of the previous rally and bounces.
Exam trap. This statement is false: Fibonacci levels predict company earnings.
Gap
A gap is an empty space between one day's range and the next, showing sudden change in sentiment, often after news.
Example. A stock opens well above the previous day's high.
Exam trap. This statement is false: A gap means the stock did not trade.
Advance-decline line
The advance-decline line tracks the number of advancing minus declining stocks and shows the breadth of a market move.
Example. The index rises while fewer stocks advance, a sign of narrow breadth.
Exam trap. This statement is false: The advance-decline line measures interest rates.
Open interest in analysis
Rising open interest with rising prices indicates fresh buying and strengthens the trend; falling open interest suggests short covering or unwinding.
Example. Prices and open interest rise together.
Exam trap. This statement is false: Open interest measures a stock's daily volume.
Limitations of technical analysis
Technical signals can fail and give false breakouts; they are best used with risk limits and alongside other analysis.
Example. A breakout reverses within days and stops out traders.
Exam trap. This statement is false: Technical signals are always accurate.
Elliott wave
Elliott wave theory proposes that markets move in repeating waves of five impulse and three corrective moves, although interpretation is subjective.
Example. An analyst labels price moves as waves.
Exam trap. This statement is false: Elliott wave is a precise mathematical law.
Relative strength comparison
Relative strength compares a security's performance with a benchmark or peers to identify leaders and laggards.
Example. An analyst picks stocks outperforming the index.
Exam trap. This statement is false: Relative strength is the same as RSI.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? A double bottom is a bullish reversal pattern with two troughs at a similar level followed by a break above the middle peak.
- Client agreement
- Terminal value
- Double bottom
- Recommendation requirements
Q2. Which term is described here? A doji forms when the open and close are almost equal, signalling indecision between buyers and sellers.
- Bullish engulfing
- Earnings per share
- Record date
- Doji
Q3. In technical analysis, a support level is
- A price at which the company pays a dividend
- The highest price ever reached
- The average of closing prices
- A price area where buying interest tends to stop a decline
Q4. Which statement best describes “Gap”?
- SEBI regulates the securities market, RBI the money market and banks, and exchanges oversee their members.
- CAPM estimates the cost of equity as the risk-free rate plus beta times the equity risk premium.
- A gap is an empty space between one day's range and the next, showing sudden change in sentiment, often after news.
- A price move accompanied by rising volume is considered more reliable than one on thin volume.
Q5. Which statement best describes “Volume confirmation”?
- FCFE is the cash available to shareholders after debt payments and reinvestment, discounted at the cost of equity.
- A price move accompanied by rising volume is considered more reliable than one on thin volume.
- A head and shoulders pattern has three peaks, with the middle highest, and signals a potential trend reversal from up to down when the neckline breaks.
- A candlestick shows open, high, low and close for a period, with the body showing the open-to-close range and wicks showing extremes.
Q6. Which term is described here? Resistance is a price level where selling pressure tends to halt a rise temporarily.
- Resistance
- Inventory days
- Doji
- Cost of equity (CAPM)
Frequently asked questions
How much of NISM Series XV comes from Unit 15?
Unit 15 (Technical analysis) usually carries about 15% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XV Unit 15?
Dow theory and trends. Support and resistance. Moving averages, RSI, MACD, Bollinger. Candlesticks and chart patterns.
Are these NISM Series XV practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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