A moving average and an unconfirmed breakout

The case and its answers

Every question of this case, with its answer and why each other option is wrong.

A fictional share’s five consecutive closing prices are ₹10, ₹12, ₹14, ₹16 and ₹18. The next day it closes at ₹20. On the following trading day, it reaches an intraday high of ₹21 but closes at ₹19. Volume is 15 lakh shares compared with a recent average of 5 lakh. The analyst’s stated rule calls a breakout above ₹20 confirmed only if a daily close is above ₹20. Use a simple five-day moving average, replacing the oldest close when a new close is added. The exercise evaluates the stated rule and calculations. It does not claim that any chart pattern guarantees future returns.

All people, firms, prices and contract terms are fictional.

Ignore taxes and transaction costs unless the case explicitly includes them.

1. Q1What is the five-day simple moving average before the ₹20 close is added?

   • A

     Option A. ₹18

     Why it is wrong: This is only the most recent of the five closes.

   • B

     Option B. ₹14 — Correct answer

   • C

     Option C. ₹70

     Why it is wrong: This is the sum before dividing by five.

   • D

     Option D. ₹15

     Why it is wrong: This is not the arithmetic mean of the five values.

   Answer: B. (₹10 + ₹12 + ₹14 + ₹16 + ₹18)/5 = ₹14. Remember: A simple moving average gives equal weight to each observation in its window.

   Hint, shown before you answer in practice mode: Add the five closes and divide by five.

   XV-S2-C04-Q1easynumerical

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2. Q2What is the five-day moving average after the ₹20 close replaces the ₹10 close?

   • A

     Option A. ₹14

     Why it is wrong: This leaves the old window unchanged.

   • B

     Option B. ₹18

     Why it is wrong: This is not the mean of the updated five closes.

   • C

     Option C. ₹15

     Why it is wrong: This divides six closes by six rather than using five days.

   • D

     Option D. ₹16 — Correct answer

   Answer: D. (₹12 + ₹14 + ₹16 + ₹18 + ₹20)/5 = ₹16. Remember: A rolling average retains a fixed window length.

   Hint, shown before you answer in practice mode: Drop the oldest observation and include the new one.

   XV-S2-C04-Q2mediumnumerical

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3. Q3How many times the recent average is the final day’s trading volume?

   • A

     Option A. 3 times — Correct answer

   • B

     Option B. 5 times

     Why it is wrong: This confuses the baseline volume with the ratio.

   • C

     Option C. 0.33 times

     Why it is wrong: This reverses the comparison.

   • D

     Option D. 10 times

     Why it is wrong: This uses the difference as a ratio.

   Answer: A. 15 lakh ÷ 5 lakh = 3 times. Remember: Volume comparisons need an explicitly defined reference period.

   Hint, shown before you answer in practice mode: Divide observed volume by the reference average.

   XV-S2-C04-Q3mediumnumerical

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4. Q4Does the final day confirm a breakout under the stated rule?

   • A

     Option A. Yes, because the intraday high reached ₹21.

     Why it is wrong: The rule is based on the daily close.

   • B

     Option B. No. Its ₹19 close is below the required ₹20 level despite the intraday high. — Correct answer

   • C

     Option C. No, because every high-volume day is bearish.

     Why it is wrong: The case gives no such rule.

   • D

     Option D. Yes, because volume was above average.

     Why it is wrong: Volume does not replace the closing-price requirement.

   Answer: B. The close does not exceed ₹20. The observed high and volume may be relevant context but do not satisfy the rule. Remember: Separate a specified trading condition from supporting observations.

   Hint, shown before you answer in practice mode: Apply every part of the specified confirmation condition.

   XV-S2-C04-Q4mediumapplication

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