The Top 10 Best Ways to Maximize Time and Effort Before the CMT Exams

With the Chartered Market Technician exams fast approaching in almost a week’s time, many candidates have been asking me how they can focus their review to maximize their time and effort as they race against the clock to learn, review, and memorize information.



The Top 10 Things to Help You Review


1.) CMT Tips


My first suggestion is that they check out our CMT Tips page to make sure they understand the basics of the exam and preparation. Once they have done that and gotten a basic feel for the exam, they are ready to tackle the most important element of organizing their notes and review.


2.) The CMT Level 1 Handbook


For this process I highly recommend following and organizing notes according to the Level 1 Reading Plan laid out in our CMT Level 1 Handbook. The reading plan covers all recommended reading for the Level 1 required by the MTA and is organized in a way that makes sense. For example, rather than reading each book cover to cover, all pages for each topic are grouped together across all books. In this way candidates learn a single topic at a time while referencing two or three books simultaneously.


This method of preparation and review has many advantages. The first and most obvious advantage is that the plan is laid out in chronological order and is designed for someone who has no previous knowledge of technical analysis. In this way they can start with the most basic information and work their way through the material, progressing from most basic to most advanced. The topics are organized into “blocks” so that each one builds upon the block that precedes it, as well as lays the foundation for the block that follows it. Imagine a tower of technical knowledge being constructed from the bottom up in your head, block by block, and you should have a good idea of how we like to prepare our CMT candidates.


3.) Notes by Topic


When you are detailing your review notes, it makes sense to organize by topic. This sounds obvious, but is harder to pull off in practice. Should you group candlestick patterns in short-term patterns, area patterns, or charting techniques? The reading plan does that for you automatically.


4.) Focus on One Thing at a Time


As you go through each topic in our plan, the material will be very fresh in your mind. This will allow you to extract the novel information while skimming over the material that is redundant. This method works best when you look at a single topic at a time without breaking your concentration as the important information will be readily apparent from the less-important filler and redundant information. By organizing your review notes in this way, one topic at a time, and making sure you practice memorizing them before the exam, you will be well prepared on exam day.


5.) Be Realistic About What You Know


We have mentioned this before but we feel it is important to mention it again. Why bother spending time reviewing what you know you already know? You must focus your energy and mental concentration like a laser on the topics that you do not know as well because you had less time to read up on them, or on the topics you have had difficulty recalling details about. In the former case, you know what areas you haven’t devoted as much time. Inevitably there will always be one book, usually the first or last book we decided to read (or never got to in the first place), that we just weren’t able to really get into like we would have liked. This is fairly common, and I find this happens to the majority of candidates, so don’t be alarmed if this sounds like you. It just means you must recognize your weakness and adjust your review accordingly.


6.) Test Yourself


In the later case – in areas you have difficulty recalling – you must first determine where your weakness lies. The best way to do this is by testing yourself. The MTA offers several questions that you can download from their Knowledge Base to get you started. Additionally, Market Tech Lab offers our own third-party practice exams – for both Level 1 and Level 2. When you are done taking our exam, you will have a chance to identify areas that you struggled in, which brings us to our next point.


7.) Review Incorrect and Uncertain Answers


In our exams we not only explain why the answer is the correct answer, but we also reference every page where you can find the explanation word-for-word from the reading list. This allows you to quickly identify why you made the wrong choice and quickly move on to the next question. Additionally if you are still confused or would like more explanation, you can turn to the specific pages that really flesh-out the topic you are reviewing. This will save you countless hours of hunting and page-flipping trying to find just where the explanation is, as well as leaving you with a feeling of security that you know exactly where the question came from.



8.) Repeat, Repeat, Repeat


After you have taken the practice exam and review the questions from the MTA, you should repeat the process to make sure you definitely have the information learned in your mind. This will accomplish one of two things… Remember the tower analogy from point #2? Well now you must cement the blocks together in your head so the tower doesn’t topple. The first thing it does is that you will cement the material in your mind by reinforcing your review of incorrect answers when you answer correctly the second time around. The second is that for all questions you will become quicker at recalling the information and therefore quicker in answering questions on test day. This will give you more time for the more difficult questions on exam day as well as peace of mind.


9.) Review Level 1 and 2 Material


If you are taking the CMT Level 2 or 3 Exams, you are not merely required to know only information from the selected readings for each respective level. Each exam is cumulative, which means level 2 candidates must know level 1 information, and level 3 candidates must know level 1 and 2 information – all of it. While the level 2 and 3 exams will certainly focus primarily on new material, there could be questions on material from other exams and there will definitely be questions that involve material from both 1 and 2 or all three levels (in the case of the Level 3 Exam). It would be very difficult to test the body of technical knowledge based on what you know from only one of the levels, since so much builds on itself – the tower analogy again.


10.) Review the Market Technician’s Blog


This blog has plenty of practical articles and updates on applying and learning technical analysis. Most posts fall into two categories. The first is descriptive. I have laid out various indicators, oscillators, theories, etc. to provide another viewpoint and explanation that typically combines material from all of the reading. It is my hope that these explanations are more concise than what you would find in the books without sacrificing the necessities. Usually these also tie in a chart to provide a present day example.


The second category is application. This will apply most directly to candidates preparing for their Level 2 and 3 Exams, however, all candidates can benefit from the material. In the application postings I have detailed technical methods to analyze current market environments as well as potential implications. The level 2 exam tests technical application, while the level 3 exam is exclusively application. In this way candidates should get a better idea of application in practice rather than in theory, as the suggested reading typically lends itself to.



Wrapping Up

Be sure to stay vigilant in reviewing before your exam. Use this guide. Use your notes. Use your study questions. Use this site and myself as a resource. Follow our Twitter account. We offer tutoring services as well for those that feel they would like the extra guidance. You are welcome to forward any questions to me at and I will do my best to help you out. At Market Tech Lab, our mission is to help candidates prepare, help candidates pass, and help candidates succeed as CMT’s. I envy you, the candidates, as you get to put your knowledge of technical analysis to the test after months of immersion in the topic which we are all so passionate about. I wish you the best of luck on your journey of empowerment through technical analysis.




CMT Level 1 Practice Quiz Answers

This is a follow-up post and answers to the initial Level 1 Practice Quiz. The answers given for that quiz are as follows:



Answer Key:


1.) d.)
2.) c.)
3.) d.)
4.) a.)
5.) c.)
6.) a.)
7.) b.)
8.) b.)
9.) d.)
10.) a.)
11.) d.)
12.) c.)
13.) b.)
14.) b.)
15.) c.)
16.) a.)
17.) b.)
18.) d.)
19.) a.)
20.) c.)
21.) c.)
22.) d.)
23.) c.)
24.) b.)
25.) a.)


Listed below are the books and editions cited in this answer guide:


Technical Analysis of Stock Trends (9th Edition) – Edwards, Magee
Technical Analysis: The Complete Resource for Financial Market Technicians – Dahlquist, Kirkpatrick
Technical Analysis Explained (4th Edition) – Pring


1. d.) All of the above


There are many influences on market prices. As Bassetti writes in the preface, there is “a galaxy of influences.” Other influences include but are not limited to: desire, broker need for income, cunning, gullibility, deception, manipulation, malice, professional money managers’ need for performance, “trap setting,” malice, job security, naiveté, supply and demand, liquidity players, self-destructiveness, passivity, conspiracy, fraud, and the ego.
It is important to remember that “price discounts everything,” and that all possible influences on price have been taken into account and result in the current market price of any given entity. See Edwards, Magee p. ix


2. c.) If advancing, a stock will likely meet resistance at a round number, especially if it is also an all-time high


Round numbers generally provide opportunities for the alert investor because they can be areas of support or resistance. When the stock price attains new high or low territory, the tendency for round numbers to act as support (in a downtrend) or resistance (in an uptrend) increases. Edwards and Magee state this is a natural reaction of investors when setting goals to buy (or sell) stock, because it is more likely that investors will pick a round number than any other non-round, random number. See Edwards, Magee p.245-247


3. d.) The last 15 minutes the market is open


Historically, the greatest upward bias in prices exists 15 minutes before the close. Answers a.) and b.) reflect the times with the greatest average downward price bias according to Pring. See Pring p.389-90


4. a.) A diamond top


A diamond top is formed when a broadening formation leads into a symmetrical triangle, giving the appearance of diamond if drawn by boundary lines. See Edwards, Maggee p.160-67


5. c.) Pennants


Pennants are more commonly seen as continuation patterns, whereas the other patterns all carry major reversal implications. See Edwards, Magee p.151, p.190-95


6. a.) The Arms Index


The Arms Index measures relative volume in advancing vs. declining stocks. An index reading greater than 1 is bearish. The advance/decline line measures advancing or decline issues without regard to their volume. The Chaiken Oscillator measures movements of accumulation or distribution that focus on advancing or declining volume for one specific stock. The Relative Strength Index measures a stocks’ performance with it’s historical average, and tells how strong the stock is currently in regards to its averages. See Dahlquist, Kirkpatrick p.143-45, 151


7. b.) $13, $14


We know that candle A closes higher than it opens because it is white. The candle’s real body marks the open and the close, which are at $13 and $14, respectively. The long shadow or “wick” that extends below the candle signifies the remaining range that the price traded in for that candle. For information on reading candlestick charts see Dahlquist, Kirkpatrick p.203-05, and Pring p.257-59


8. b.) I and II


The high low logic index is composed of the lesser of the number weekly new highs to total issues or the number of weekly new lows to total issues. A low number indicates that a low number of new highs OR new lows have recently occurred, while a high number generally indicates a mixed market. A high reading is the result of both new highs and new lows occurring. It is also a bearish sign and indicates high volatility, while a low reading signifies low volatility and is generally bullish. This indicator is smoothed over with a 10-week moving average. See Dahlquist, Kirkpatrick p.148


9. d.) a centered moving average


Centered moving averages are adjusted for time by shifting the average to the left by a specified number of days. Center moving averages can be any type of average that is centered, for example a centered simple moving average. Envelopes are the result of two averages plotted above and below the price, thus “enveloping” the price. Exponential moving averages emphasize the more recent prices most, while a simple moving average weights all days equally. For more on CMA’s see Dahlquist, Kirkpatrick p.468-69


10. a.) A rally after a downside breakout


A pullback is the term for a rally after a downside breakout. Many pullbacks occur after breaking out of patterns. They resulting price pullback often returns to the price level from which they originally broke out, before continuing downwards as one would expect after a downside break out. A pullback is the opposite of “c.) A reaction after an upside breakout,” which is termed a “throwback.” See Edwards, Magee p.132


11. d.) Compare different markets to see which is performing most favorably


Ratio analysis compares the relative strength of various markets. The purpose of ratio analysis is to see which market is most attractive for investment purposes. See Dahlquist, Kirkpatrick p.515


12. c.) A descending triangle


A down-sloping top line with a “practically horizontal” bottom boundary characterizes a descending triangle. Of the right-angle triangle variety, Edwards and Magee state that these descending triangles have a tendency break out to the downside. See Edwards, Magee p.115-19


13. b.) The general market, sectors, then individual companies


Top-down analysis examines the markets from the most broad perspective to the most narrow to make investment decisions. Answer d.) Stocks, sectors, then the general market would represent bottom-up analysis, which is essentially the opposite. Bottom-up analysis examines individual companies first, then sectors, then the general market to make investment decisions. See Dahlquist, Kirkpatrick p.515-33


14. b.) Diminishing vigor


According to Edwards and Magee, diminishing vigor should mark any reaction that moves counter to the prevailing trend. This means that the volume and price movement should decrease as the reaction counter to the primary trend lengthens. One would not expect a countertrend to be marked with a.) increasing fervor. While both c.) volatility and d.) stability can be apt adjectives to describe a countertrend, neither would be expected as a normal nor expected element – they are in fact opposites. See Edwards, Magee p.169


15. c.) Rising wedges


Rising wedges are typically found in bear markets. Broadening formations are not generally specific to bear or bull markets but rather tops or bottoms. Rounding tops would be expected only at market tops. See Edwards, Magee 168-9


16. a.) A trendline connecting the price peaks of a security


A “blue line” is any line that connects two price peaks to form a trend line. It is useful to determine buying points by plotting the “blue parallel” at a price trough, forming a trend channel used for entry points. A “red line” is answer b.) “A trend line connecting the troughs of a security.” For explanations and diagrams of red and blue lines, see Edwards, Magee p.452-55


17. b.) Sentiment


Sentiment reflects the psychology or emotions of market participants. For a complete breakdown of market sentiment, including indicators, see Dahlquist, Kirkpatrick Ch. 7


18. d.) A shark pattern


The shark pattern is always a three-bar pattern with each bar’s range narrower than the previous. It is essentially two inside bar patterns consecutively. It is a very small triangle and the term shark comes from the fin-like shape. See Dahlquist, Kirkpatrick p.389-90


19. a.) The recognition of patterns where they do not exist.


Representation occurs due to the subjective nature of technical analysis. See Dahlquist, Kirkpatrick p.88-89


20. c.) The nature of trends to have the same characteristics regardless of the time the trend spans


The principle of the fractal nature of trends states that all patterns can be applied to any timeframe chart. You may find a pattern on a monthly chart that has the same implications as the same pattern on a 5-minute chart. The only difference in this case is the significance, as the longer chart pattern is more consequential. See Dahlquist, Kirkpatrick p.15-16


21. c.) Downside volume exceeds the cumulative total of upside and downside volume by 90% AND the percentage of downside points exceeds the cumulative total of all points gained or lost by 90%


NPDD’s are have many potential implications. They are bearish when occurring in isolation or when they occur within 30 days of each other. They are bullish when they are followed by a ninety-percent upside day or several strong upside days; this signals a major reversal. They can also be associated with a short-term correction if they occur after a market high or in reaction to negative news. See Dahlquist, Kirkpatrick p.145-46


22. d.) Andrew’s Pitchfork


This pattern is called Andrew’s Pitchfork after Dr. Alan Andrews. Andrew’s pitchfork is a variation of speedlines drawn on a chart in a downtrend. They offer some guidance as to the future price movement of a stock, as the lines are drawn “into the future.” The other three answers are fictional. For more on Andrew’s Pitchfork, including how to draw it, see Dahlquist, Kirkpatrick p. 243


23. c.) The Presidential Cycle


This cycle is alternatively known as the four-year cycle. The “Popular Cycle” is fictional while The Kondratieff Cycle typically lasts between 50 and 54 years. The Long Wave cycle is only another name for the Kondratieff Cycle, sometimes also called the K-Cycle. For more on cycles see Pring p.364-87


24. b.) A Chandelier exit


A Chandelier exit utilizes an arbitrary ATR multiple (usually between 2.5 and 4 times the ATR) to determine the distance a stop order should be placed below the price level of the new high. It is meant to account for intrinsic volatility. This is useful when there is no clear support for which placing an arbitrary stop order below it would be desirable. See Dahlquist, Kirkpatrick p.260


25. a.) The deletion of the earliest data from a moving average


The Drop-off Effect is the effect that occurs from removing the oldest data. This effect is most pronounced when the oldest data shows considerable change, yet the most recent data shows little change. See Dahlquist, Kirkpatrick p.280


What Retail Sector Health Reveals

By looking at a specific sector or industry within the market, technical analysts are able to decipher bits of information specific to that industry and how it relates to the big picture. The retail sector will provide the analyst information on the consumer and on the market outlook for the consumer spending sector looking 3 to 9 months forward. The consumer spending sector is traditionally a leading indicator for the health of the economy. The reason being that the consumer feels the effects of employment and pay almost immediately and will adjust their spending habits accordingly. This is in addition to the fact consumer spending typically accounts for 70% of economic GDP in the US.


Consumer spending makes up the majority of the US economy.


You could look at sales figures for consumer spending and analyze the figures fundamentally. But this is only part of the equation. The other equation is future outlook as well as sentiment regarding the retail sector. The fundamental figures will not tell you how risky an investment is perceived to be, and we also know that many fundamental readings are prone to randomness and marked by long periods without new information updates. By looking at the retail sector through technical analysis we gain an inside look into perceived future consumer spending and therefore the economy.


Retail sector ETF: XRT on 10-7-11, daily


The above chart shows what appears to be a normal bear market retracement. The Fibonacci numbers show an almost perfect 50% retracement from the July high to August low. There is also price support turned resistance right around this level too, strengthening retail resistance while simultaneously providing the potential for a powerful coil to the upside. A decisive break above 50 would signal that the retail sector is able to overcome resistance and indicate a positive outlook going forward. If and until this happens, it appears the larger overall trend is down as resistance and general market conditions weigh on this sector.


Some bright spots on this chart include a massive bullish engulfing candlestick pattern (circled), as well as relative strength and outperformance by XRT across the broad sector S&P. However, the relative strength is masked by a RS resistance at the red line indicating highs from July. As Market Technicians we know that trendlines, support & resistance, patterns, and even moving averages can be used to analyze other indicators. While both are certainly positive developments overall, keep in mind that with rare exceptions, all stocks sooner or later move with the overall trend.

CMT Level 1 Practice Questions and Quiz

UPDATE 2016: please see our updated mock quiz with new iPad, iOS, and Android technology HERE !


In order to make our Level 1 mini quiz more accessible as well as searchable, I am posting the text version of the quiz below. This is the same exact quiz available on our Study Material page only in this case you don’t have to download the file – making it easier to access and refer to.


1. Which of the items below affect market prices?


I. Fear, greed, arrogance

II. Earnings estimates and earnings reports

III. Economic cycles, investor mood, and market tone

IV. Interest rates


a.) II only

b.) II and IV

c.) I, III, and IV

d.) All of the above


2. Which statement best reflects the significance of stock prices and round numbers:


a.) A stock will always advance higher than the closest round number in a bull market.
b.) A stock will always decline lower than the closest round number in a bear market
c.) If advancing, a stock will likely meet resistance at a round number, especially if it is also an all-time
d.) If advancing, a stock will likely gap over round numbers, missing them entirely


3. Based on historic averages, at what time (EST) during the day would one expect to find the largest upward bias in prices?


a.) Between 11:30am and 12:30pm
b.) Between 3:15pm and 3:45pm
c.) The first 15 minutes the market is open
d.) The last 15 minutes the market is open


4. After a lengthy advance, a broadening formation followed by a symmetrical triangle would likely be forming:


a.) A diamond top
b.) A head-and-shoulders top
c.) A rounding top
d.) A one-day reversal


5. Of the following, which one is NOT typically a major reversal pattern?


a.) Head-and-Shoulders
b.) Rounding turns
c.) Pennants
d.) Symmetrical triangles


6. The indicator that measures relative volume in advancing stocks vs. declining stocks is:


a.) The Arms Index
b.) The Advance/Decline Line
c.) The Chaiken Oscillator
d.) The RSI


7. According to the chart below, candle A. opened at ____, and closed at ____.



a.) $14, $13
b.) $13, $14
c.) $14, $12
d.) $12, $13


8. The high low logic index is the lesser of which two ratios?


I. The number of weekly new highs to total issues
II. The number of weekly new lows to total issues
III. The quantity of weekly advancing volume to total issues
IV. The quantity of weekly declining volume to total issues


a.) I and III
b.) I and II
c.) III and IV
d.) I and IV


9. This moving average takes into account the average for price and time, and is used to identify the cyclical nature of trends:


a.) envelopes
b.) an exponential moving average
c.) a simple moving average
d.) a centered moving average


10. A pullback is:


a.) A rally after a downside breakout
b.) A sustained market decline
c.) A reaction after an upside breakout
d.) A type of oscillator


11. One would use ratio analysis to:


a.) Determine whether a stock is above or below its moving average
b.) Determine if the markets are likely to experience a significant decline in the near future
c.) Analyze the effectiveness of support and resistance for a particular stock
d.) Compare different markets to see which is performing most favorably


12. The chart pattern outlined below represents:



a.) A symmetrical triangle
b.) An ascending triangle
c.) A descending triangle
d.) A wedge formation


13. Choose the answer that best describes the order a technician practicing top-down analysis would study the market:


a.) The general market, individual companies, then sectors
b.) The general market, sectors, then individual companies
c.) Sectors, the general market, then individual companies
d.) Stocks, sectors, then the general market


14. The normal and expected property of any reaction going against a prevailing primary trend as defined by Edwards and Magee is:


a.) Increasing fervor
b.) Diminishing vigor
c.) Volatility
d.) Stability


15. One would expect to commonly find these formations in a bear market:


a.) Broadening formations
b.) Falling Wedges
c.) Rising Wedges
d.) Rounding tops


16. A “blue line” as defined by Edwards and Magee is:


a.) A trend line connecting the price peaks of a security
b.) A trend line connecting the price troughs of a security
c.) A trend line connecting the troughs of a security whose price is flat
d.) The line that results from plotting a tangent equal to the highest price slope


17. “The net amount of any group of market players’ optimism or pessimism reflected in any asset or market price at a particular time” would best be defined as:


a.) Net ticks
b.) Net News Impact
c.) Overhead resistance
d.) Sentiment


18. The 3-bar pattern outlined below can best be described as:



a.) A point
b.) A three-bar squeeze
c.) A horn pattern
d.) A shark pattern


19. One of the largest problems for technical analysts is representation. Representation can best be defined as:


a.) The recognition of patterns where they do not exist
b.) The event that occurs when a pattern becomes too identifiable among analysts, negating its
c.) The process of using a short-term pattern to draw inferences for long-term prices
d.) The theory that states that one pattern must always carry the same implications


20. The fractal nature of trends refers to:


a.) The ability of trends to fracture and become inconsequential
b.) The nature of trends to have their implications known before the trend is finished developing
c.) The nature of trends to have the same characteristics regardless of the time the trend spans
d.) The nature of trends to have the same meaning if identified in two different securities


21. A ninety-percent downside day, or NPDD, occurs when:


a.) Ninety-percent of all stocks are down for the day
b.) Ninety-percent of all volume is to the downside for the day
c.) Downside volume exceeds the cumulative total of upside and downside volume by 90% AND the
percentage of downside points exceeds the cumulative total of all points gained or lost by 90%
d.) The major averages are down by at least 90% for the day


22. The following trend lines annotated on the chart below are collectively known as:



a.) A spear
b.) Poseidon’s Trident
c.) Wilder’s Wrench
d.) Andrew’s Pitchfork


23. One of the most widely accepted stock cycles, this cycle has a tendency to repeat itself roughly once every 41-months and did so with remarkable consistency during the period from 1796 to 1923:


a.) The Popular Cycle
b.) The Kondratieff Cycle
c.) The Presidential Cycle
d.) The Long Wave Cycle


24. The process of continuously raising a stop order to adjust for volatility and new highs using ATR is known as:


a.) A time stop
b.) A Chandelier exit
c.) A Hanging Man
d.) Parabolic SAR


25. The “Drop-off Effect” is the result of:


a.) The deletion of the earliest data from a moving average
b.) A precipitous price decline
c.) The inclusion of more price data in an extended moving average
d.) Daily or weekly price data that is excluded from a chart with every new daily or weekly price data


The answers can be found in the follow-up post here.

See our mock exams, which can be taken from iOS, Android, or iPad here.