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In technical analysis, it is when a stock price approaches a support or resistance level set by the market. If the stock stays within the support and resistance levels, the test is passed. However, if the stock price reaches new lows and/or new highs, the test has failed.

Investopedia Says:

To test whether a stock price will break a support or resistance level, technical traders will typically use specific stock-charting programs designed to track price movements to identify when to buy or sell a position.

Related Links:
Understanding this key concept can drastically improve your short-term investing strategy. Support & Resistance Basics
A thorough understanding of these can help you locate important entry/exit points when the markets make the turn northward. Support and Resistance Zones - Part 1
In this the second part of the study of Support and Resistance Zones, let's look closer at overhead supply and draw some of the human emotion of investing into the equation. Support and Resistance Zones - Part 2
We offer some tips on this process that can help refine your current trading strategies. Backtesting: Interpreting the Past


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In general: examination to determine knowledge, competence, or qualifications.

Finance: criterion used to measure compliance with financial ratio requirements of indentures and other loan agreements (e.g., a current asset to current liability test or a debt to net worth test). See also Quick Ratio.

Securities: term used in reference to a price movement that approaches a Support Level or a Resistance Level established earlier by a commodity future, security, or market. A test is passed if the levels are not penetrated and is failed if prices go on to new lows or highs. Technical analysts say, for instance, that if the Dow Jones Industrials last formed a solid base at 11,000, and prices have been falling from 12,000, a period of testing is approaching. If prices rebound once the Dow hits 11,000 and go up further, the test is passed. If prices continue to drop below 11,000, however, the test is failed. See also Technical Analysis.

In general: means used to evaluate the behavior of a person, the characteristics of a person or thing, or the effect of an action. Tests require a method and scale of measurement and a controlled environment in which to observe or measure. For example, to test a light bulb, the method used might be to place it in a lamp that is plugged into a socket and turned on. The scale of measurement relates to the increase in light seen coming from the light bulb. The control involves using a lamp that works, has access to electricity, and is visible to the observer.

Advertising: introduction of a new product or promotion on a small scale to measure consumer response. Testing of this nature is usually limited to consumer marketing. In business-to-business marketing, reactions are usually gathered through personal interviews conducted before a product is introduced to the market. A product test may include the initial in-factory assessment of the product, a small test by a group of potential users, and, finally, a market test which is a simulation of a national launch.

The design of an effective market test includes decisions regarding where to test, how long to test, and what to do in response to test results. A test location is generally chosen based upon the presence of demand for that product and the degree to which consumers in that location/city are representative of the total market. The duration of the test depends upon the money budgeted, the length of time it usually takes for a consumer to make a second purchase (or first purchase if the test sample was free), and the probability of a competitor's entering the market. See also test market.

Direct marketing: evaluation of one or more elements of a marketing strategy or promotion on a small scale prior to full-scale introduction. Tests usually consist of a standard element called the control (such as a control package or offer, etc.) and a test element. The control represents the package that has outperformed every other package used to date. The objective of the test package is to assess its ability to beat the control. The control and the test are sent to sample groups of prospects or customers selected using a statistical sampling technique. The validity of a test is dependent upon the degree to which the sample selected is representative of the promotion universe.

The elements most frequently tested are product, offer, list, copy, and package; however, virtually every aspect of a direct-marketing promotion gets tested at one time or another, from the tilt of the address label to the taste of the glue on the reply envelope.

Direct marketing is uniquely well-suited to testing, because the results of a promotion change are easily measured in terms of response. Most direct marketers include a test of some sort in every mailing or promotion they do. One basic rule of testing is that only one element at a time should be changed, so that a difference in response can be clearly attributed to that change. It is commonly understood that what doesn't work for one marketer might work for another; therefore, the results of a test should not be universally applied across all marketers. See also a-b split; dry-testing; key code; nth name selection; panel; pyramiding; rollout; rule of 300.

1. In Regression Analysis, test of the statistical significance of a regression coefficient. It involves basically two steps: (1) compute the T-value of the regression coefficient as follows: t-value = coefficient/standard error of the coefficient; (2) compare the value with the t table value. High t-values enhance confidence in the value of the coefficient as a predictor. Low values (as a rule of thumb, under 2.0) are indications of low reliability of the coefficient as a predictor.

2. General statistical test for hypotheses, based on t-distribution, known as a small sample distribution. The t-test is used to estimate and test hypotheses about population means, the difference between two means, a population variance, and a comparison of two population variances. For example, an accounting instructor wishes to test to determine if the use of a new and old textbook had anything to do with the difference in performance of the two classes.

 
 
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Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
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