CMT-Level-II Exam Format | CMT-Level-II Course Contents | CMT-Level-II Course Outline | CMT-Level-II Exam Syllabus | CMT-Level-II Exam Objectives

CMT Level II – 12 Sections Outline Section One: Theory and History of Technical Analysis 1. Alpha and Beta - Outperforming the Benchmarks * Compare the terms alpha and beta * Compare and contrast the EMH, AMH, and FMH * Analyze possible anomalous supply-demand scenarios that may be opportunities 2. Fusion Analysis: Technical Analysis as Part of a Team Approach * Contrast the roles of a fundamental analyst and a technical analyst * Outline ways technicians can work with fundamentalists ## Section Two: Behavioural Finance 1. Anatomy of Market Bubbles * Explain what a market bubble is * Outline the five stages of a market bubble * Identify several charts that can be used to assess the stages of a market bubble ## Section Three: Charts: Organizing Market Data 1. Charting Multiple Data Sets and Multiple Data Intervals * Employ a sequence of multiple data intervals to identify trends * Review challenges related to consistent data sampling using time-based intraday intervals * Interpret general trend relationships in charts with multiple price-data sets 2. Market Profile * State the basic principles behind Market Profile ## Section Four: Chart Pattern Analysis 1. Classical Chart Patterns * Calculate price targets for reversal and continuation patterns * Contrast confirming breakouts and breakdowns using the 3% rule and the ATR multiple rule * Employ rangebound mean-reversionary trading tactics and breakout tactics 2. Candlestick Patterns in the Real World * Identify various candlestick patterns * Examine the psychological insights revealed in various candlestick patterns * Relate the meaning of candlesticks patterns with their volume characteristics * Distinguish between various types of doji candlesticks 3. Candlestick Analysis in the Real World * Examine the difference between single-candle patterns and multi-candle patterns * Summarize the implications for candlestick patterns when they occur at potential support or resistance zones * Differentiate between unconfirmed and confirmed candlestick patterns * Learn to identify complete and incomplete patterns and their implications for trading decisions * Compare the abandoned baby reversal and the island reversal patterns * Outline guidelines for interpreting imperfect candlestick patterns * Develop the ability to integrate candlestick patterns into broader chart pattern analysis for better decision making 4. Point-and-Figure Pattern Analysis * Identify complex point-and-figure chart patterns * Calculate price projections using vertical and horizontal counts * Summarize additional uses for point-and-figure charts ## Section Five: Trend Analysis 1. Price Trend and Volume * Describe the four phases of price-volume trends * Interpret volume in the context of price trends * Interpret price and volume to identify the current phase 2. Market Internals * Examine basic indicators such as the advance-decline line and up and down volume * Describe various breadth indicators * Explain how breadth indicators are commonly used * Contrast different ways to calculate and use leadership indicators * Interpret several advanced indicators * Examine ways of using qualitative analysis when examining market internals ## Section Six: Volatility Analysis 1. Extrapolating Price from Volatility * State what the VIX measures * State how the VIX expresses that measurement * Calculate expected volatility and price ranges for various look-ahead periods using VIX * Express a limitation of VIX-based forecasts 2. Volatility Risk Premium * Examine the relationship between implied and realized volatility * Define the Volatility Risk Premium (VRP) * Explain how to capture the VRP using options 3. Volatility Indexes and VIX Complex * Examine the term structure shapes of backwardation and contango * Interpret what a shift in the VIX futures term structure shape from contango to backwardation suggests * Explain how the shape of the VIX futures term structure and the intermonth spreads can provide early warning signals for deploying risk management tools against long SPX positions * Point out two methods for managing downside risk in the S&P 500 * Contrast using VIX calls with using S&P 500 puts to manage downside risk * State the key objective of risk management strategies ## Section Seven: Sentiment 1. Analysing Sentiment in the Stock Market * Analyze the impact of insider activity on a security’s price action * Compare insider buying versus insider selling * Analyze short interest and the short interest ratio * Interpret sentiment as drawn from surveys of investors and professionals 2. Analyzing Sentiment in the Derivatives Market * Interpret changes in futures open interest in the context of price action * Analyze the Commitments of Traders report * Employ options put/call ratios as sentiment indicators * Interpret volatility data drawn from the options market ## Section Eight: Statistics for Technicians 1. Inferential Statistics * Define hypothesis testing * Describe the steps in hypothesis testing * Compare the possible errors in hypothesis testing * Demonstrate the use of hypothesis testing to frame statistical tests ## Section Nine: Technical Indicators 1. Momentum and Indicator Interpretation Part 1 * Express what technical momentum is * Distinguish between technical momentum conditions using velocity and acceleration * Compare overbought and oversold conditions in uptrends, downtrends, and rangebound markets * Identify momentum divergences * Outline momentum from the beginning to the end of directional trends * Interpret the significance of various variables of divergences 2. Momentum and Indicator Interpretation Part 2 * Describe the difference between reversals in price and reversals in momentum * Identify ways to recognize trend changes in momentum * Interpret several momentum indicators * Discover buy and sell signals on different momentum indicators * Outline the three steps of a valid signal 3. Volume Weighted Average Price * State the original purpose of the VWAP * Interpret order execution as good or bad based on price and VWAP * Express why VWAP is a true dollar average * Use VWAP to determine whether buyers or sellers are in control of a market * Describe how VWAP is calculated * Outline why VWAP can be referred to as the ultimate sentiment indicator * Diagram the typical intraday volume pattern 4. Practical Applications of Bollinger Bands * Relate what %b illustrates about Bollinger Bands * Relate what BandWidth illustrates about Bollinger Bands * Describe the cyclical nature of volatility * Identify Two-Bar Reversals in the context of Bollinger Bands and %b * Identify Squeezes and Bulges using BandWidth ## Section Ten: Comparative Market Analysis 1. Advanced Applications of Relative Strength * Explain two major issues in relative strength analysis * Compare and contrast the JdK RS-Ratio and JdK RS-Momentum * Outline the roles of JdK RS-Ratio and JdK RS-Momentum as building blocks for the RRG chart * Illustrate the role of the benchmark in the RRG chart * Diagram the ideal sequence of rotation for securities in the RRG chart ## Section Eleven: Cycle Analysis 1. Concepts in Cycle Theory * Illustrate the causes of the mid-cycle dip and ¾-cycle high * Analyze the implications of an inversion * Examine the cyclical explanation for rounded tops and V-bottoms * Interpret the implications of left and right translation * Calculate a centered moving average (CMA) envelope * Demonstrate the use of a valid trendline (VTL) 2. Applied Cycle Analysis * Diagram the steps to a comprehensive cycle analysis * Differentiate tools that find cycles from tools that phase cycles * Illustrate how to identify a dominant cycle with a spectrogram * Compare the phasing of smaller harmonics to larger harmonics 3. Analysis of Seasonal Cycles * Explain how the annual cycle conforms to cycle theory * Describe two methods of detrending price data * Restate common seasonal tools 4. The Elliott Wave Principle Part 1 * Describe the basic operating theory of the Wave Principle * Label waves using standard Elliott Wave notation * Compare motive waves and corrective waves * Diagram types of motive waves such as impulse, extension, and diagonal * Identify types of corrective waves such as zigzag, flat, and triangle 5. The Elliott Wave Principle Part 2 * Describe characteristics of corrective waves such as alternation and depth * Analyze how Elliott Wave analysis reflects investor psychology * Compute Fibonacci relationships as applied to Elliott Wave analysis 6. The Elliott Wave Principle Part 3 * Diagram the observations of several market cycle experts * Infer the potential benefits of using time-based tools with traditional price-based tools ## Section Twelve: Systems and Quantitative Methods 1. Trading Systems * Compare five common trading models * Outline the go/no-go metrics * Explain the four ways of generating trading signals * Analyze the seven stops to a consistently profitable trading system 2. Applying Quantitative Techniques * Outline each step of the quantitative process * Compare the use of trigger rules, filter rules and value rules * Contrast signal test results and select the most appropriate * Interpret trade measures, performance measures, and accounting measures, including annualized return, annualized volatility, total return, CAGR, maximum drawdown, profit factor, and expected value * Contrast the performance measures: Sharpe ratio, Information ratio, Sortino ratio, and Calmar ratio * Explain the different calculations that can be used for stops * Define robustness when selecting parameter values using optimization