CMT Exam Level 3 Free Practice Questions & Answers Set 2

If a formation completes the breakout, bar charts will project price targets. Most goals are calculated on the price of the breakout. Goals are seldom used because most technicians are content with only being on the right side of the curve, just trying to ride the curve, and generally thinking goals are unreliable.

Calculate the target by taking the height of the pattern and applying it to the price of the breakout.

A double formation is among the classic configurations which are simplest. A double top consists of just three points of inversion: two peaks separated by a trough. The initial price must join the trend from below the trough price for it to be a true double top, and the exit signal must occur on the breakout below the trough low level.

When one sees a double pattern, it is appropriate to make many important observations before acting to improve the chances of benefit. First of all, never buy before the breakout occurs. Second, look either at the same point as the twin bottoms or slightly higher and earlier, for flat bases. Third, try an absence over the development of a consolidation field. Fourthly, look for what is called a variety called “Eve & Eve.” Volume doesn’t seem significant, though on the first “hump” it’s typically higher.

Rectangle with entry up and breakout up has the following characteristics. Prices are bounded between the two lines and oscillate, and ultimately exit or split out in one direction or another. The pattern may have a slight tilt upwards or downwards, but there are still parallel trend lines describing the support and resistance areas. It seems similar to a horizontal pipe.

A “false” breakout is one that breaks out from the direction of the final breakout in the opposite direction, and a “premature” breakout is one that breaks in the same direction as the actual breakout.

The oscillator can not hit the actual extreme bound but will come near and have the same consequences in doing so. The zone then is the area that is small enough to be relevant to the extreme bound. The upper area is considered overbought, and the lower area is considered overbought. If security has risen high enough for the oscillator to enter the overbought zone, it is said to be overbought and when the price has fallen far enough for the oscillator to hit the overbought zone, it is said to be overbought.

A negative failure swing occurs when the oscillator breaks out of an overbought zone, produces a reversal point, pulls back but fails to re-enter the zone, and breaks down below the earlier reversal point. A positive swing of loss at an oversold region is the opposite.

Amplitude is the difference between the horizontal axis and the maximum pitch or trough. An amplitude of 2 will result in a cosine wave with an amplitude of 1 twice the height of cosine waves Term s the difference between successive lows or successive highs.

A period is a difference between successive lows or successive highs. For our use, the duration is the time it takes for the loop to return to its original position along the horizontal axis. Phase defines how far the particular process starts away from the y-axis. And it decides the difference between two separate phase cycles.

The first approach is the top-down approach whereby market prospects are first established, then group prospects are calculated, and finally — after the decision is made that the market is favorable and certain classes are favorable to investment-specific stocks are selected from within the classes. It is also called the allocation of properties, and the first step is the selection of classes.

The bottom-up process from which stocks are selected, usually based on their price behaviour. This approach is more technically focused as one of its key selection criteria is the use of relative price power. When first choosing stocks, irrespective of their party affiliations, the portfolio manager will determine which groups are doing well and whether or not the entire market is in favor.

By first choosing stocks, irrespective of their party affiliations, the portfolio manager will determine which groups are doing well and whether or not the whole market is in favor. If few stocks move through the performance screens, it is obvious, for example, that the market is in trouble and if many stocks meet the investment criterion, the market is in favor.

Top-down research starts with a review of the global markets such as interest rates, currencies, and stock markets to assess which market would have the greatest potential for future benefit.

While a nondiscretionary, mechanical device has several benefits, there are often pitfalls. For one thing, extrapolating won’t produce the same effects as testing; history isn’t necessarily repeating itself. The more designed or curve-fitted a system, the less effective it will become in the future.

Some of the characteristics of the necessary mindset include the following:
(a) Realize that losses will occur—keep them small and infrequent
(b) Realize that profits will not necessarily occur constantly or consistently
(c) Be organized—winging it will not work
(d) Test, test, and test again, without curve-fitting
(e) Develop a plan consistent with one’s time available and investment horizon—daily, weekly, monthly, and yearly

The population is the whole set of potential effects or whole sets of individuals. For example, in the United States, we can think of the adult population. A sample is when we look at a few results or any of the individuals in the collection and try to draw inferences about the whole population from them. For example, like our sample, we might perform a survey of 1,000 randomly selected adults in the U.S.

If we compute the mean, we get 46.41 with a standard deviation of 5.70. Below are the formula needed to compute the result.
Standard deviation= (Σ(x – mean)2)/n
Mean= Sum of values/number of values

The low and high prices are plotted on a thin bar to create a candlestick map, much as they would be for the bar chart we much mentioned. A box is used to represent prices that open and close. A horizontal mark is made for making this box at both the price of opening and closing; a rectangle is created using these two horizontal marks. This rectangular box is called the real body of the candlestick.

If the security is closed at a price higher than it opened, then the real body is white or open. These real body candlesticks, which are white, or “open,” show price advances from opening. Conversely, if the closing price fall below the opening price, the candlestick’s actual body becomes black-shaded. Such “locked,” or black, real body candlesticks mark price declines from the launch.

The average trader or investor is constrained by the Federal Reserve rules, which currently require that a minimum of 50 percent of the market valuation be in cash for overnight positions and 25 percent in intraday positions for stocks and indexes. This means the trader or buyer will have a margin of 2-to-1 for overnight holdings and a margin of 4-to-1 for intraday trend trades.

Liquidity is outstanding in the cash equity markets. The number of transactions and the amount of money transacted each day show you will still find eager buyers and sellers.

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.

If the candlestick’s actual body is tall, then the price of opening and closing was fairly far apart. Shorter real bodies suggest prices that were very close for opening and closing.

Tom DeMark and Larry Williams both have a system for evaluating a reversal point using the number of bars on either side of a possible reversal point (in a bar chart). For example, in a low bar, the analyst might be looking directly on either side of the alleged trough bar for two bars with higher lows.

Using DeMark or Williams Method:
To increase the value of the trough, the number of bars on either side can be increased but the number of troughs must be sacrificed. The higher the number of requisite confirming lows, the greater the trough.

Another way to define large troughs is by determining in advance how far the price will go down and rally into the trough. Typically one percentage is used.

Typically one percentage is used. Using 1 percent, for example, would describe a substantial recession if the price falls more than 1 percent, makes a peak and then recovers more than 1 percent. The larger the percentage used, the greater the reversal point, but the less regular.

A important point of inversion may also be marked by very large volume. High volume suggests that activity on that trading day was higher than average.

Simply draw a horizontal line across each important trough (or peak) into the future to create a support (or resistance) region. These lines may be traced through the respective lows of the bar or, as Jiler suggests, use the close of the bar since this is what most investors read in the paper.