CMT Exam Level 2 Free Practice Questions & Answers

For a variety of reasons, expansion shapes are the least useful forms. First, they occur relatively rarely and are often hard to identify. Second, and more importantly, they are hard to make the most of. Because with time the boundary trend lines separate, the breakout
Lines pass away from each other all the time.

This means the upper breakout level is getting higher and higher along the upper trend line in an upward breaking broadening pattern. By going higher and higher, it not only uses up much of any possible gain after a breakdown, but it also moves further away from any practical degree of protective stoppage, increasing the risk.

Raw performance statistics show that the performance of an expanding pattern is at best average and that its failure rate is above average. However, one of the most efficient patterns using an expanding pattern is when it is incorporated into a diamond top with a symmetric triangle.

Diamond is one of the less common, but still lucrative patterns. It consists of a mixture of an increasing pattern and a symmetrical triangle, which typically occurs at the top of a very sharp price increase. It’s uncommon at bottoms of the market.

The upper trend line slopes upwards in a typical expansion structure and must, therefore, have two peaks-the the latter higher than the former. Likewise, there must be two troughs in the lower trend line — the latter lower than the former one — and each line must be created at the same time as the other.

The best combination is when a downward breakout happens on an under-average amount of breakout with no pullback. The failure rate is fairly small at 4%-10%. To some degree, these low numbers correlate with risk.

Volume is the number of shares or contracts exchanged in any stock market over a given timeframe, usually a day, but maybe one stock to months or years. Analysts display volume on a price chart in many ways, for instance, Bar/candle, Equivolume, and Point-and-Figure.

The most popular volume representation is a vertical bar at the bottom of the price chart which represents the total volume amount for that time. This approach is simple and does not take for granted any direct connection between price and volume. It just shows the details.

If 300 shares were traded at a given price, the traders would record three shares bars to the price. A large number of bars at a given price showed that most operations took place at that level. From this chart, traders could determine the price at which the equalization of supply and demand, and thus the support and resistance zones.

The traditional approach is to add up the volume that occurred while each box was in operation and to represent it on the table. From this, the analyst can visualize quickly where volume occurred in the formation. Using the process, the individual analyst must decide if the information is helpful.

With a relative gain of 20 percent, a relative loss of 20 percent may be made back, but an absolute loss of 20 percent requires only a 25 percent gain to split. This is called the “law of percentages.” It implies that all total losses will be held to a minimum when investing.

You’re left with $80 if you have $100 in money and incur a loss of 20 percent. You must earn an $80 return of 25 percent to return to the $100 break-even level. Of each specific amount of damage, the percentage sum to be won to split is also determined using the formula
% gain necessary = % loss ÷ (1–% loss).

A loss of 50 percent requires a gain of 100 percent to break even. Before reaching such an extreme that is unlikely to be recovered, the investor is better off cutting losses considering the difficulty of investing for a 100 percent gain.

There are three important characteristics of the normal distribution:
• Bell-shaped, with a point in the middle. The mean, median, and mode are all at the peak
• Middle is symmetrical
• It asymptotically crosses the horizontal axis at the left and right tails of the bell curve. This extends in all ways, indefinitely

As the sample size increases it will improve the approximation. The central limit theorem has significant consequences for a wide range of statistical studies.

There are two rule-of-thumb values which are useful for memorizing the normal distribution. Next, nearly two-thirds of the findings must fall within one standard deviation of the mean (be it above or below). Second, around 95 percent of the findings would be within two standard deviations from the mean.

No, you can not have negative prices and every number is possible with any normal distribution, both positive and negative, even though some values are highly improbable as outcomes. Yes, because we can’t get a return lower than – 100%, but we can get a return greater than 100%.

Due to what’s called the central limit theorem, the normal distribution also has special importance. When we take repeated samples from a population, measure each sample’s mean, and then map the sample means distribution, they will approximate a normal distribution.

Some of the following things are taken into consideration during the initial stage of system testing:
• The first decision that must be made is that of trading philosophy and premises
• You must decide on which markets to focus
• You must establish the time horizon for the system
• You must have a risk control plan
• Establish a time routine

Professional analysts use a variety of different forms of trading systems. Although there are numerous systems, they can be divided into four main categories: following trends, counter-trend pattern recognition, and exogenous signals systems.

In some point-and-figure charts, the first letter or the number of the month is plotted instead of the X or O when a new price is first recorded for a new month.

We can similarly plot years, weeks, and days, depending on how sensitive the chart may be to changes in price.

In the point-and-figure charts, the analysis time is of little importance. In many cases, it is only plotted to see how long a formation or pattern takes to form.

When long periods of trading activity are plotted, as in bar charts, distortion arises from the fact that most charts are plotted on an arithmetical scale. Action on low prices doesn’t look as active as action on high prices. Logarithmic scale shifts the plot to include an increase in percentage rather than an absolute change in size.

The prices are converted into their logarithmic equivalent and plotted as a logarithmic number to account for the percentage change in point-and-figure charts. This makes it difficult to analyze immediately unless a logarithmic equivalent table is immediately available because most analysts can not translate the logarithmic number into the actual price
In the eyes.

Logarithmic should only be used for long stretches of price data in which significant uncertainty has meaninglessly made an arithmetic scale. The arithmetic scale is not only as useful for most investment and trading but it is also easier to read and translate to real prices.

The simplest of these methods are line charts that plot a single statistics. More overview information is provided by bar charts and the more colorful Japanese candlestick charts. Point-and-figure charts provide a very different approach to the graphing of price data; this method is used to plot sequential trading data with emphasized price trends and reversals.

Point-and-figure charts provide a very different approach to price data graphing; with this method, sequential trading data is plotted with highlighted price trends and reversals.

The frequency an analyst chooses will depend on the type of analysis being performed and the time period being explored. Analysts may choose to use an arithmetic scale where the graph’s vertical distance is always the same dollar amount, or an analyst may prefer a logarithmic scale so that the chart’s vertical distance always represents the same change in percentage.

Analysts may opt to use an arithmetic scale where the graph’s vertical distance always represents the same dollar sum, or an analyst might choose a logarithmic scale so that the chart’s vertical distance always reflects the same shift in percentages.