CFA® Level 1 Exam Prep: Understanding Upticks

D

An uptick is simply when the current transaction price is higher than the last transaction price.

An uptick refers to a situation where the price of a security or asset increases from the previous transaction or the previous day's closing or opening price. It is a commonly used term in financial markets, particularly in relation to trading and technical analysis.

Among the provided answer choices, option C states that an uptick occurs when the current day's closing price is higher than or equal to the previous day's closing price, and the current day's opening price is higher than or equal to the previous day's opening price. Let's break down this option to understand it in more detail:

1. "the current day's closing price is higher than or equal to the previous day's closing price": This part implies that the closing price of the security at the end of the current trading day is greater than or equal to the closing price at the end of the previous trading day. In other words, the security's price has increased or remained the same compared to the previous day's closing price.

2. "the current day's opening price is higher than or equal to the previous day's opening price": This part states that the opening price of the security at the start of the current trading day is greater than or equal to the opening price at the start of the previous trading day. This condition indicates that there has been an increase or no change in the security's price from the previous day's opening price.

By combining both conditions mentioned above, option C captures the concept of an uptick. It implies that for an uptick to occur, the closing price must be higher than or equal to the previous day's closing price, and the opening price must be higher than or equal to the previous day's opening price.

Option A, on the other hand, only considers the closing prices and states that an uptick occurs when the current day's closing price is higher than the previous day's closing price. This definition is narrower than option C because it doesn't take into account the opening prices. Therefore, option A does not provide a comprehensive explanation of an uptick.

Option B focuses solely on the opening prices, stating that an uptick occurs when the current day's opening price is higher than the previous day's opening price. Similar to option A, this definition is limited because it neglects the closing prices.

Option D introduces a different concept by referring to the transaction price. It states that an uptick occurs when the current transaction price is higher than the last transaction price. This definition only considers the immediate transaction prices and does not account for the opening or closing prices. Therefore, option D does not fully capture the meaning of an uptick.

To summarize, the most accurate and comprehensive definition of an uptick is provided by option C. It takes into account both the closing and opening prices, requiring the current day's closing price to be higher than or equal to the previous day's closing price, and the current day's opening price to be higher than or equal to the previous day's opening price.