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Quizzes > Quizzes for Business > Finance

Stock Trading Fundamentals Quiz Challenge

Test Your Equity Trading Knowledge and Skills

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art display promoting a quiz on Stock Trading Fundamentals

Are you ready to test your knowledge with this engaging stock trading fundamentals quiz? Designed for beginner traders and those wanting to reinforce market strategies, this quiz covers essential concepts like order types, valuation metrics, and risk management. With 15 multiple-choice questions, participants can compare results with our Stock Trading & Options Knowledge Test or sharpen their skills through the Financial Trading Knowledge Quiz. Educators and self-learners alike will find it perfect for classroom use, individual review, or group sessions. Plus, the quiz is fully editable in the quizzes editor for custom practice.

What does a "bull market" refer to?
A market with high volatility only
A market characterized by rising prices
A market characterized by falling prices
A market where prices remain flat
A bull market is defined by a sustained period of rising asset prices. It represents optimism among investors expecting further increases in market values.
What is the bid-ask spread?
The difference between closing price and opening price
The difference between the lowest ask price and the highest bid price
The average of bid and ask prices
The sum of the bid price and the ask price
The bid-ask spread is calculated as the ask price minus the bid price. It represents transaction costs and liquidity in the market.
Which order type executes immediately at the current market price?
Trailing stop order
Market order
Stop order
Limit order
A market order is executed instantly at the best available price in the market. It guarantees execution but not the execution price.
What does the price-to-earnings (P/E) ratio measure?
Annual dividend payment divided by share price
Market capitalization divided by EBITDA
The share price divided by book value per share
The current share price divided by earnings per share
The P/E ratio compares a company's share price to its earnings per share. It helps investors assess valuation relative to peers.
What is a support level on a price chart?
A moving average line
The highest price reached during a trading session
A price level where supply exceeds demand causing a price drop
A price level where demand is thought to be strong enough to prevent further decline
A support level is where buying interest is strong enough to halt or reverse a falling price. Traders watch support to identify potential entry points.
Which chart pattern typically indicates a potential bearish reversal?
Head and shoulders
Ascending triangle
Cup and handle
Double bottom
The head and shoulders pattern signals a trend reversal from bullish to bearish. It consists of three peaks with the middle peak (head) higher than the two shoulders.
The Relative Strength Index (RSI) is commonly considered overbought when it is above which level?
90
30
50
70
An RSI reading above 70 typically indicates that an asset may be overbought. Traders use this level to anticipate a possible price pullback.
What is the primary purpose of placing a stop-loss order?
To limit potential losses on a position
To enter a trade at a specified price
To guarantee a profit target
To delay execution until market volatility increases
A stop-loss order automatically closes a position at a predetermined price to prevent further losses. It is a key risk management tool.
If you risk $1 for the potential to make $3 on a trade, what is your risk-reward ratio?
2:1
1:1
3:1
1:3
A risk-reward ratio of 1:3 means you risk one unit to gain three units. Traders use this ratio to ensure that winning trades outweigh losing trades in profitability.
Which order type combines features of a stop order and a limit order?
Trailing stop order
Market order
Good-till-cancelled order
Stop-limit order
A stop-limit order triggers a limit order once the stop price is reached. It lets traders control execution price after a stop level is hit.
A bullish moving average crossover occurs when the:
Long-term moving average crosses above the short-term moving average
Price crosses below both moving averages
Moving averages converge and then diverge
Short-term moving average crosses above the long-term moving average
A bullish crossover signals upward momentum when a faster moving average crosses above a slower one. Traders view this as a buy signal.
What does drawdown measure in trading?
The decline from a peak in account equity to a trough
The maximum position size used
The net profit over a trading period
The number of consecutive losing trades
Drawdown calculates the reduction in equity from its highest point. It helps traders understand potential risk and volatility in their strategy.
How is dividend yield calculated?
Current share price divided by annual dividends per share
Annual dividends per share divided by book value per share
Annual dividends per share divided by the current share price
Total dividends paid divided by market capitalization
Dividend yield expresses dividends as a percentage of share price. It shows how much cash flow an investor receives for each dollar invested.
The MACD line is calculated by subtracting which exponential moving average from which?
9-period EMA minus 26-period EMA
12-period EMA minus 26-period EMA
9-period EMA minus 12-period EMA
26-period EMA minus 12-period EMA
MACD is the difference between the 12-period and 26-period EMAs. This line is used to gauge momentum and trend strength.
If you have $100,000 and risk 2% per trade with a $5 stop-loss per share, how many shares can you buy?
400 shares
500 shares
600 shares
200 shares
2% of $100,000 is $2,000. Dividing the risk amount by the $5 risk per share gives 400 shares. This ensures you only risk 2% of capital.
In a head and shoulders pattern, a break below the neckline typically signals which action?
Set a wider stop-loss
Hold current position
Enter a short position
Enter a long position
A break below the neckline completes the head and shoulders pattern and signals a bearish reversal. Traders often use it to enter short positions.
What characteristic defines a trailing stop order?
It guarantees execution at the stop price
It converts into a limit order after triggering
It is only valid at market open
It adjusts the stop price as the market price moves favorably
A trailing stop moves the stop price in line with favorable price moves, locking in gains. If the market reverses, it triggers at the last adjusted stop price.
The PEG ratio improves on the P/E ratio by incorporating what additional factor?
Return on equity
Book value per share
Dividend payout ratio
Expected earnings growth rate
PEG ratio divides the P/E ratio by the company's earnings growth rate. It provides a more complete valuation by accounting for growth expectations.
When the MACD histogram turns negative, what does this indicate?
The MACD line is below the signal line, indicating bearish momentum
Price is above the upper Bollinger Band
The MACD line is above the signal line, indicating bullish momentum
The RSI has reached oversold conditions
A negative MACD histogram shows the MACD line has fallen below its signal line. This is interpreted as increasing bearish momentum.
To minimize slippage when executing large orders throughout the day, which execution strategy is most appropriate?
Immediate-or-cancel order
Market-on-open order
VWAP execution strategy
Simple limit order
VWAP strategy breaks large orders into smaller trades executed along the volume-weighted average price. This reduces market impact and slippage for big orders.
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Learning Outcomes

  1. Identify essential stock market terminology and jargon
  2. Analyse price charts and patterns to spot trends
  3. Apply risk management principles to trading decisions
  4. Evaluate different order types and execution strategies
  5. Demonstrate understanding of valuation metrics and ratios
  6. Master core technical indicators for market analysis

Cheat Sheet

  1. Master Key Stock Market Terms - Ready to speak like a pro? Get comfy with essential phrases like "bull market" for rising prices, "bear market" for falling vibes, and "IPO" for a company's grand debut. These power words will supercharge your confidence in any market discussion. Stock Market Terminology on Inveshares
    2. Stock Market Terminology on Inveshares
  2. Analyze Price Charts Effectively - Dive into candlestick patterns and moving averages to spot market trends like a seasoned trader. Spotting a "bullish engulfing" pattern can hint at an upcoming upswing, while a "doji" warns of indecision. Master these visuals to make smarter trading calls. Introduction to Technical Analysis on StockMarketForDummies
    3. Introduction to Technical Analysis on StockMarketForDummies
  3. Implement Risk Management Strategies - Keep your trading game safe by setting up stop-loss orders that automatically sell if a stock dips too low. For example, placing a stop-loss just below a support level shields your investments from surprise crashes. This simple move can be your financial safety net, so you trade with peace of mind. Technical Analysis & Risk Management on eToro
    4. Technical Analysis & Risk Management on eToro
  4. Understand Different Order Types - Know when to pounce or play it cool by mastering market orders that execute instantly and limit orders that wait for your price. This savvy knowledge ensures you buy low, sell high, or vice versa with precision. Become the boss of your trades by choosing the right order for every scenario. Order Types Glossary on Inveshares
    5. Order Types Glossary on Inveshares
  5. Evaluate Valuation Metrics - Crunch the Price-to-Earnings (P/E) ratio - market price per share divided by earnings per share - to see if a stock is overpriced or a hidden gem. A high P/E may mean sky-high expectations, while a low P/E could hint at a bargain. Use this quick formula to spot buying opportunities or avoid price traps. Stock Market Terms on ValuePickr
    6. Stock Market Terms on ValuePickr
  6. Utilize Technical Indicators - Tools like the Relative Strength Index (RSI) help you gauge market momentum, where an RSI above 70 signals overbought conditions and below 30 hints at oversold territory. Complement with MACD lines or Bollinger Bands to confirm trend strength or potential reversals. Armed with these indicators, you'll surf market waves instead of wiping out. Technical Indicator Types on Britannica
    7. Technical Indicator Types on Britannica
  7. Recognize Support and Resistance Levels - Spot price zones where a stock tends to bounce up or get capped and use them to plan your entries and exits. When prices stall at resistance or slide off support, you'll know exactly when to jump in or cash out. This simple mapping can turn guesswork into a game plan. Technical Analysis on Wikipedia
    8. Technical Analysis on Wikipedia
  8. Apply Moving Averages - Smooth out the noise by calculating Simple Moving Averages (SMA) over specific periods - like the popular 50-day and 200-day lines - to reveal hidden trends. When the 50-day SMA crosses above the 200-day SMA, traders call it a "golden cross" and often spot a bullish surge. Using these averages keeps your strategy steady and stress-free. Moving Averages Guide on StockMarketForDummies
    9. Moving Averages Guide on StockMarketForDummies
  9. Understand Market Volatility - Track Bollinger Bands to measure how wild price swings get - wider bands signal higher volatility and potential breakouts, while narrow bands hint at calm before a storm. Recognizing these patterns equips you to adjust trade sizes and risk levels on the fly. With volatility insights, you'll ride market waves confidently instead of getting seasick. Volatility Indicators on Britannica
    10. Volatility Indicators on Britannica
  10. Develop a Trading Plan - Draft a clear roadmap that outlines your financial goals, risk tolerance, and step-by-step strategies before diving into the market. By setting rules for entry, exit, and position sizing, you'll avoid emotional pitfalls and stay disciplined under pressure. A solid plan turns chaotic markets into a manageable journey toward your targets. Chapter 7: Risk Management on VolumeCharts
    11. Chapter 7: Risk Management on VolumeCharts
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