CMT Exam Level 1 Free Practice Questions & Answers Set 2

These numbers combined with the above-average median return indicate that although rare when a diamond top is identified, it has an above-average chance of being at least risk profitable.

When properly established the diamond formation appears to run a fast-moving price on the breakout. Indeed, if the action of the post-breakout price is slow, the position will probably be closed or a close trailing stop put near the current price.

The price objective is usually the distance traveled by the entry price to get to the diamond. In general, a steep entrance is followed by a steep exit.

A wedge pattern is a pattern of triangles with both trend lines heading in the same direction. A rising wedge has both lines headed upward, the lower border climbing faster than the upper border.

The declining coil has both lines headed down, with the bounded upward drop faster than the lower limit. In the future, as in a standard triangle, the lines will cross, and the nomenclature for the crossover and height is identical.

A channel is either rising or declining two parallel trend-lines. In the earlier channel discussion, we noted that when the channel line, drawn parallel to the trend line from the opposite set of reversal points, starts to slope towards the trend line, it implies players are less enthusiastic about the direction of the trend line.

Even at low bars is a positive reversal equivalent to the negative. A reversal has the same effects as a divergence, namely that the pattern begins showing signs of tension and possible reversal.

If an oscillator enters, and stays, almost by necessity defining the underlying trend is above or below the midpoint in the oscillator range.

Volume is the predictor of the classic proof. Volume measurements are often depicted on stock charts and several indexes and oscillators incorporate volume statistics.

Throughout electronic analytical circles, the amplitude is also called the “power” of the loop, where it tends to be a constant in such applications. Influence in the financial world can be profoundly affected by exogenous, unpredictable events.

The most popular means of calculating relative strength is called the process of proportioning. It’s simply the ratio of two investments, sectors, industry groups, averages, commodities, and so on, seeing which one outperforms the other.

If the ratio line goes up, it simply shows that the stock in question is stronger than its industry average. Behavioral interpretations are similar to those employed in price and other oscillators. Analysis of divergence, trend lines, and even patterns appear in the lines of the relation.

There are several methods of relative strength measurement, the most popular being the percentage change, the alpha, the trend slope, and the Levy methods.

“Lookback” is the time span for measuring relative price power. The stocks were then sorted based on those exchange rates. They found the higher decile stocks kept being solid for the next three to ten months. Their review included big, capitalized and thinly capitalized stocks, as well as high-priced and low-priced ones.

Comparing the alpha of AAPL with that of other stocks is a way of evaluating which are the highest and better investment candidates.

The line is expressed using the line’s slope, the beta, and the vertical intercept called the alpha. Thus every stock has an alpha and a beta over a given duration.

The alpha defines the meaning when the line of the regression goes through the 0 percent change in S&P and is, thus, a trend indicator compared to the S&P 500. MPT indicated high beta stocks would be more competitive but also riskier.

In MPT, the alpha must always either approach or be close to zero, since technically there can be no systemic benefit from the market
(S&P 500) alone. In other words, the price movement of a stock is determined by beta, not alpha.

The high beta stocks could also have negative alphas, suggesting their movements compared to the S&P could be downward, though more volatile.

Of all probability distributions, the most well-known is the normal distribution, also known as the Gaussian distribution. Because of its bell shape, it’s also known as the bell curve. It takes only two parameters — the mean and standard deviation.

If there is another support zone at some distance below the currently broken zone, prices will generally trade down to that next lower zone.

When there is another support zone at any distance below the currently broken zone, prices can usually move down to the next lower zone. Therefore, if a higher support zone is breached, a support zone in a weakening market will become a price target.

Support zones exist every day, week, or even at all horizons minute by minute. Some traders only trade stocks or futures, particularly e-mini futures, frequently intraday between these zones between very, very short-term support and zones of resistance.

The presence of these zones can be seen by horizontal lines at major troughs, and extended into the future, they will become areas of support to the price decline.

Many traders are going to swap the “bounces” between help and resistance but this is typically very risky and requires very low operational costs and continuous care. Practicing the “breakout” trade is the most profitable and efficient way of using the trading range.

It is difficult to trade within a given range. Although several books suggest this as a tactic, profiting from range trading is virtually impossible for the nonprofessional. Second, it’s hard to understand that rates are traded in a range after a large amount of traded has passed and time has passed and the possibilities are remembered mainly in the retrospect.

The limits of a trading range are mostly zones rather than precise price thresholds, the point at which an execution order should be issued, whether purchasing or selling, is indefinite.

Channel trading is the only exception to the range trading. A channel is a trading path that is tilted at an angle so it flows upwards or downwards. Trend lines define the channel boundaries just as helplines define the trading range and resistance lines.

One can exchange back and forth on these channels but only in the direction of the channel trend. In other words, if the channel bends upwards, for example, only long positions are taken at the lower boundaries and sold at the upper boundaries, but no short position is taken contrary to the channel pattern.

The variable being discussed in regression is called the dependent variable. The illustrating variable is called the independent variable, or explanatory variable. We may expand the regression concept to more than one variable, independent. That is called regression multiple.