CMT Level II adds to the basic foundation of level I and measures the candidate’s competency in the application of concepts,
theory, and techniques covered by the required readings. As we move forward, we will learn a lot about Systematic Trading, System Testing and various aspects of program trading.
Chartered Market Technician Level 2 - Prep Course
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- 1 Charts: Understanding Data Intervals
Employ a sequence of multiple data intervals to identify trends
Compare the typical construction of weekly and monthly interval charts
Review challenges related to consistent data sampling using time-based intraday intervals
Interpret general trend relationships in charts with multiple price-data sets
Interpret the significance of the data points in a scatter plot - 2 Additional Charting Methods
Describe the construction of the types of charts in this chapter
Compare the axes and intervals of these charts
Analyze trends and price action using these charts
Demonstrate how point-and-figure charts help minimize “noise”
Distinguish between charts with defined and undefined x-axes
State the basic principles behind Market Profile - 3 Moving Averages
Contrast various types of moving averages used in trend analysis
Illustrate four ways moving averages are used by technicians
Analyze trend movement using Directional Movement Indicators
Compare common envelope, channel, and band indicators - 4 Time-Based Trend Calculations
Examine methods for forecasting price direction
Calculate a simple approach to momentum
Inventory various weighting methods for moving averages
Explain the drop-off effect and its impact on technical indicators - 5 Trend Systems Part 1
Explain three reasons why trend systems work
Demonstrate appropriate asset selections based on trend and forecast
Diagram how buy and sell signals are used with indicators and tools for measuring trend, such as: Moving Averages, Bollinger Bands, Keltner Channels, Percentage Bands, Volatility Bands, and combinations of bands and other indicators
Illustrate use of the 10-day moving average rule in a trading system - 6 Trend Systems Part 2
Analyze how a trader or investor would go about selecting the right moving average, trend method, and speed
Compare the role of each moving average in a two-trend or three-trend method of trading
Contrast two general rules for generating an exit signal when using moving averages, and explain which one of the two is considered better than the other
Describe the “Golden Cross” and the “Death Cross” - 7 Momentum and Oscillators
Differentiate between momentum and rate of change studies in technical analysis
Distinguish among various calculations of momentum
Demonstrate use of momentum for trend indication and associated signals
Demonstrate use of momentum for finding price extremes and associated signals
Illustrate the use of MACD to generate trading signals
Compare various oscillators and their trading signals including RSI, stochastics, and TRIX - 8 Price Trends 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 - 9 Volume and Breadth
Compare various volume indicators such as On-Balance Volume, Accumulation Distribution, and VWAP
Analyze changes in breadth in the context of price trends
Interpret breadth indicators such as the McClellan Oscillator
Interpret indicators that combine breadth with volume such as Arms Index and Thrust Oscillator
Examine approaches to incorporating volume and breadth into systematic methods - 10 Bar Chart Patterns
Critique the controversy over whether tradeable patterns exist in technical analysis
Discuss the influence that computer technology has had on the study of patterns
Diagram classic chart patterns such as triangles, and double and triple tops and bottoms
Draw rounding chart patterns such as head-and-shoulders
Illustrate “half-mast” chart patterns such as flags and pennants
Demonstrate methods for determining price objectives from patterns - 11 Short-Term Patterns
Analyze reversals in longer-term trends using short-term price patterns
Interpret the significance of various types of gaps that occur on price charts
Compare and analyze wide-range and narrow-range bars and their implications for volatility
Diagram one- and two-bar reversal patterns
Draw common candlestick patterns and analyze their significance within a trend - 12 Single Candle Lines
Interpret market psychology from candle shapes
Diagram and interpret notable individual candles: hammer, hanging man, doji and others in this chapter
Demonstrate the importance of such candles in the context of trends
Differentiate between the buying and selling activity represented by real bodies and shadows in these candles - 13 Multi-Candle Patterns
Diagram and interpret notable patterns formed by multiple candles: engulfing, stars, windows and others in this chapter
Demonstrate the importance of the prevailing trend when interpreting candle patterns
Differentiate between the buying and selling activity represented by real bodies and shadows in these candle patterns
Interpret candle patterns for support and resistance - 14 Candle Pattern Forecasting and Trading Techniques
Analyze candle patterns on charts for indications of trend reversal and continuation
Interpret candle patterns for support and resistance indications and confirmation
Illustrate how to combine Western technical indicators with candles
Employ candlestick analysis for risk management
Demonstrate using candles in multiple time frames - 15 Concepts in Cycle Theory
Illustrate the causes of the “mid-cycle dip” and “3/4 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 trend line (VTL) - 16 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
- 17 Options
Explain the purpose of options markets
List the major terms of an option contract
Describe “the Greeks”
Define implied volatility - 18 Understanding Implied Volatility
Contrast historical and implied volatility when used in price analysis and forecasting
Interpret implied volatility as the market’s estimate of possible future asset prices
Calculate single-day implied volatility
List the inputs to an option pricing model - 19 About the VIX Index
Explain how the VIX is impacted by put-call parity and options supply
Interpret the VIX as an indication of market sentiment
Interpret changes in the VIX as part of a market forecast
Calculate expected 30-day movement of an index or a stock
- 20 Prospect Theory
Compare utility theory and prospect theory
Describe loss aversion
Describe the single greatest limitation of prospect theory - 21 Perception Biases
Describe each of the four perception biases covered in this chapter
Illustrate how each of these biases might affect investor behavior - 22 Inertial Effects
Describe each of the three inertial effects covered in this chapter
Illustrate how each of these might affect investor behavior - 23 Analyzing 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 - 24 Analyzing Sentiment in Derivatives Markets
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
- 25 Inferential Statistics
Compare descriptive and inferential statistics
Demonstrate the use of hypothesis testing to frame statistical tests
Explain confidence intervals, statistical significance, and the base rate fallacy
Compare coefficients of correlation and determination
Differentiate between correlation and causation
Examine the use of regression analysis in technical studies - 26 Correlation
Compare Pearson’s and Spearman’s methods
Describe the coefficient of determination and its uses
Describe the importance of linearity and normality to useful correlation studies
Analyze the effect of outliers on a regression study
Describe homoscedasticity and heteroscedasticity and their effect on correlation and related calculations - 27 Regression
Interpret values generated by regression, multiple regression and tolerance calculations
Demonstrate the process of selecting meaningful predictor variables for multiple regression studies - 28 Regression Analysis
Analyze the concept behind the ARIMA method
Describe the ARIMA process
Employ the results of the ARIMA forecast to generate trading signals
Demonstrate use of linear regression to generate trading signals
Illustrate the use of linear regression for relative strength studies
- 29 Selection of Markets and Issues: Trading and Investing
Differentiate between buy-and-hold, position, swing and day trading, and the use of technical analysis in each
Compare significant factors in trading stocks versus futures
Distinguish between bottom-up and top-down approaches
Contrast secular and cyclical emphasis
Explain the basic concepts of intermarket analysis
Explain the principles behind relative strength analysis
Compare four methods for calculating relative strength - 30 Intermarket Analysis
Interpret the rotation of stocks, bonds, and commodities in the typical business cycle
Describe methods of determining intermarket relationships
Illustrate the importance of measuring correlation for portfolio diversification and asset selection - 31 Relative Strength Strategies for Investing
Illustrate a general approach to a momentum strategy using relative strength
Analyze the use of hedging and non-correlated assets in a long-only relative strength model - 32 A Stock Market Model
Define an environmental model
Contrast internal and external indicators
Sketch the basic components of Davis’ Fab Five model - 33 A Simple Model for Bonds
Categorize each of the four indicators in Zweig’s original model as internal or external
Categorize the additional indicator in the modified version as internal or external, trend following or mean reversion - 34 Perspectives on Active and Passive Money Management
Differentiate between alpha and beta
Compare the Efficient Market Hypothesis with general concepts in behavioral finance and with the Adaptive Markets Hypothesis
- 35 The Statistics of Backtesting
Explain the statistical challenges faced when backtesting
Analyze four important statistical features of time-series price data
Illustrate why log returns are often used in backtesting
Analyze three statistical concerns in backtesting
Differentiate between signal testing and backtesting - 36 The Scientific Method and Technical Analysis
Examine the possibilities and challenges of applying the scientific method to traditional technical analysis
Analyze the three forms of the EMH as to their information content
Explain “null hypothesis” as used in the scientific method
State the five stages of the hypothetico-deductive method
Critique the three consequences, articulated in this chapter, of adopting the scientific method in technical analysis - 37 Theories of Nonrandom Price Motion
Analyze why the existence of nonrandom price motion is a premise of technical analysis
Describe an “efficient market”
Analyze behavioral finance as a theory of nonrandom price motion
Illustrate the two foundations of behavioral finance
Interpret feedback loops in price action - 38 Case Study of Rule Data Mining for the S&P 500
Examine data mining and data-mining bias in testing trading rules
Define and examine data-snooping bias in testing trading rules - 39 System Design and Testing
Differentiate between discretionary and nondiscretionary systems
Illustrate the advantages and disadvantages of nondiscretionary trading systems
Inventory the five initial decisions for constructing a trading system per the authors of this chapter
Distinguish between four types of technical trading systems
Compare various metrics for evaluating trading systems such as profit factor, percent profitable, and average trade net profit
Differentiate between methods of optimization
Define “robustness” as it applies to trading systems
Examine risk-adjusted performance metrics such as Sharpe, Sterling, and Sortino ratios