CMT Exam Level 3 Free Practice Questions & Answers

By adding the height of the rectangle formation to the breakout size, one goal can be determined. According to Bulkowski, in rectangles, the upward target is reached or exceeded 91 percent –93 percent of the time, and in downward breakouts, 65 percent –77 percent of the time is reached or exceeded.

The top and bottom triple formation is just a triangle, with three touches to the support or resistance line. Therefore it is more precise than the rectangle and less general. That peak in the top should be on the same level and have roughly the same shape. The middle point could be down marginally from the other two.

The design of the rectangles is bounded by parallel lines. When the same general pattern has non-parallel boundary lines, so that the structure becomes a triangle pattern when extended into the future they cross each other. Triangles may be the product of a lower bound upward-sloping or an upward bound downward.

The point at which the two lines pass and cross over each other is called the apex or cradle in these triangles, and the distance between the first high point of reversal and the first low point of reversal inside the triangle is called the base.

Unless the lower bound is a horizontal support section, and the upper one is a slanting downward trend line, it is called a downward triangle. If the lower trend line is rising, and the upper bound is a region of horizontal resistance, it is called a triangle ascending.

If both the upper and lower bound slant in the same direction and converge, it is called a wedge, and when the two lines diverge regardless of slope, a reverse triangle is called an extending pattern. When we combine an extending pattern with a triangle, normally a symmetrical triangle, we get what is known as a diamond pattern

If one index bursts out upwards but there are no other indexes, the indexes are said to be divergent; in other words, they do not work together. However, a legitimate, strong trend should have all the indexes acting in concert.

For both price and oscillator, a high on day 4 and another on day 20 will appear. When on day 20 the price high is higher than on day 4 but on day 20 the oscillator high is not higher than on day 4, then the trend is called negative divergence.

There are several other aspects of cycle analysis of which the technical analysis needs to be aware. Below are the names of these aspects:
(a) Accuracy
(b) Harmonics
(c) Inversions

A right translation in a cycle is when the peak is beyond the halfway point, and a left translation is when the cycle peak occurs before the halfway point.

As in trading, the trend is the most critical aspect of any price change and the greatest determinant of whether the investor will benefit from the investment. Bucking the investment trend is just as risky as it is in business.

The mathematical approach used for evaluating the relative attractiveness of the markets is called ratio analysis. It compares various markets to one another in order to see which performs most favorably. When a market that matches the investor’s objectives has been chosen, further comparisons are made with components of that market, such as by industry category, capitalization, or price.

Hard assets are solid commodities such as gold and silver; these assets traditionally are considered an inflation hedge. Soft assets
are financial assets, called paper assets, that primarily include stocks and bonds.

Generally, when hard assets rise in value, soft assets decline. Inflation is usually correlated with higher interest rates or higher costs of goods. If inflation is a hazard paper assets become undesirable as savings, which decline in value as interest rates increase. Likewise, as hard asset values go down, interest rates typically go down, and soft assets go up in value.

Gold is historically the indicator of prices of hard assets because of its fundamental appeal as a shield for inflation. Gold is a hard asset; fragile assets are in U.S. stocks. Remember that the stock market decreases as the gold prices increase, and vice versa. This action has contributed to the hypothesis that hard and soft asset markets mix.

Drawdown is called the amount of money lost, or possibly lost. It’s known as the amount by which an account’s equity declines from a high. In other words, a drawdown is how much investors would lose if they were invested at their peak value in an account.

A benefit is not equal to a loss. A small loss often calls for a bigger benefit to counter it. In quantifiable systems, the aim is to mitigate the potential loss.

System efficiency may rely more on filters, modifications, and the strategies for entry and exit than the system itself. It doesn’t mean any old approach is going to succeed. Pick one that is familiar, comfortable, sensible, and has a decent record; then concentrate on the process.

Things continue to get more complicated as we might suspect. We had a measure of variance with one variable, called variance. The variant of variance between two variances is covariance. It is measured similarly to the variance.

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.

The thin vertical bars are called the shadows, which reflect the price extremes of the trading session. The upper shadow is called the shadow above the real body; the shadow underneath the real body is called the lower shadow.

Individual candlesticks can potentially take on an assortment of interesting sizes. If the stock’s opening price equals the low trading session price, there will be no lower shadow on that day. Equally, if the protection closes for the day at its high level, there will be no upper shadow.

In general, price units are plotted on the stock chart’s vertical axis. The analyst shall decide the scale to be used, or the difference between certain price units. Two types of scales are commonly used: an integer scale, and a semi-logarithmic scale.

The point-and-figure chart documents price data using a methodology that is somewhat different from line, bar, and candlestick charts. Point-and-figure charts only account for price change. Volume is excluded; and while time can be annotated on the map, it is not an integral part of the graph.

Gradually, as the size of the box increases, the price history becomes smaller and the chart is squeezed to the left, as fewer columns are needed. Eliminating the noise makes the chart more useful for traders or investors interested in longer periods and activities.

The term derivative describes a financial contract, also called the underlying, that “derives” its value from some other investment vehicle. The primary use for derivatives is to hedge against the underlying risk of failure or to gamble with high leverage. Apart from the risk of loss from the hedge or decreasing value of speculation, hedging, and speculation both take on additional risks such as counterparty risk.

Futures contracts that are traded in the futures markets are contracts in which the buyer and seller agree to trade at specific terms at a specific future date. Future markets are sometimes referred to wrongly as commodity markets rather than as a practical definition from historical experience.

Where those horizontal lines bundle together, a support or resistance zone sometimes overlaps at the same price level. The more horizontal lines there are inside, this zone is usually stronger. In other words, the more times the price level has stopped earlier progress or enabled earlier falls, the greater the potential resistance or support would become.

The more significant the point of reversal, the greater is the amount of support or resistance. There are different ways of defining an important point of reversal. Following are the methods that a reversal point:
(a) DeMark or Williams Method
(b) Percentage Method
(c) Gann Two-Day Swing Method
(d) High Volume Method

When set thresholds, or circuit breakers, are exceeded based on a percentage increase in the Dow Jones Industrial Average, the exchange stops all trading for a limited period of time.