Cmt Level2 Reading

Chartered Market Technician (CMT) Program – Level II The CMT Level II exam measures the candidates’ competency in the application of concepts, theory, and techniques covered by the required readings. CMT Level II candidates must demonstrate their ability to apply concepts identified in their Level I studies to relevant conditions or scenarios. Exam time length: 4 hours, 15 minutes Exam format: Multiple Choice The curriculum is organized into exam specific knowledge domains that provide a framework for recognizing and implementing investment/trading decisions. CMT Level II exam tests the candidate’s knowledge in 12 domains: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Theory and History Market Indicators Construction Trend Analysis Chart and Pattern Analysis Confirmation Cycles Selection and Decision System Testing Risk Management Statistical Analysis Ethics

CMT – Chartered Market Technician | Level II

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CMT Level II Exam Topics & Question Weightings 1. Theory and History

a. behavioral finance b. Andrew Lo’s Adaptive Market Hypothesis a. breadth indicators (e.g., A/D, up/down volume) b. index construction c. sentiment measures (e.g., put-call ratio, investor polls) d. volatility (e.g., vix, historical, implied)

5%

7

8%

13

3. Construction

a. volume

3%

4

4. Trend Analysis

a. trendlines b. multiple time frame analysis

15%

23

15%

23

6%

9

3%

4

10%

15

10%

15

15%

22

2. Market Indicators

c.

5. Chart and Pattern Analysis

breakouts (from channels or chart patterns) d. moving averages e. trend strength indicators (e.g., DMI, ADX, etc.) a. gap analysis b. support and resistance

6. Confirmation

7. Cycles 8. Selection and Decision

9. System Testing

10. Risk Management

a. oscillators and divergence b. sector rotation c. intermarket signals 1.seasonal cycles a. noncorrelated assets b. relative strength c. forecasting techniques (pattern and trend recognition) a. algorithmic development b. optimizing entry and exit rules (filtering) c. equity curve analysis d. position size rules (e.g., Tharp's methods, Kelley criterion, Optimal f) e. profit measures (e.g., profit factor, outlier-adjusted profit to loss, percentage of winning trades, annualized rate of return, payoff ratio, length of average winning trade, efficiency factor) a. absolute and relative risk (i.e. total risk v. risk compared to benchmark) b. risk modeling c. value at risk d. volatility risk

CMT – Chartered Market Technician | Level II

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e. liquidity risk f. diversification g. stops v. hedging h. leverage risk i. j.

k. 11. Statistical Analysis 12. Ethics

portfolio risk management (e.g., market neutral, relative strength) risk measures (e.g., maximum cumulative drawdown, net profit to drawdown, maximum consecutive losses, largest losses, longest flat time, time to recovery, maximum favorable and adverse excursions) risk-based performance measures

a. inferential statistics (e.g., correlation, regression, t-test Ethics Standards and Practices

CMT – Chartered Market Technician | Level II

7%

11

3%

4

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CMT Level II Exam - Learning Objectives 1. Theory and History Behavioral finance

Andrew Lo’s Adaptive Market Hypothesis

Identify the correct application of behavioral finance theory Recognize evidence of cognitive errors or behavioral biases investment selection Contrast the tenets of Behavioral Finance principles with Efficient Market Hypothesis Contrast Efficient Market Hypothesis with Andrew Lo's Adaptive Market Hypothesis,

2. Market Indicators breadth indicators (e.g., A/D, up/down volume) index construction

sentiment measures (e.g., put-call ratio, investor polls) volatility (e.g., vix, historical, implied)

Interpret data and charts of market breadth indicators Recognize changes in market breadth and identify their significance Distinguish between different methods for constructing a market or sector index Recognize the influence of index construction on price action Contrast the uses of differing sentiment measures Identify different measures of volatility Interpret volatility signals as part of a market forecast Compare volatility behavior with corresponding price behavior

3. Construction volume

Interpret volume data Analyze the behavior of a given volume-weighted indicator

4. Trend Analysis trend lines multiple time frame analysis breakouts (from channels or chart patterns)

moving averages

trend strength indicators (e.g., DMI, ADX, etc.)

Select valid trend lines Interpret the significance of trend line breaks Compare trend signals over multiple time frames Identify evidence of changing trends in multiple time frames Analyze breakout signals for use in forecasting Recognize evidence for improving confidence in breakout signals Contrast the use of various moving averages Analyze changes in moving average behavior Interpret signals given by various moving averages Determine the strength of a trend based on indicator data Select the correct definition of trend strength indicators

5. Chart and Pattern Analysis gap analysis

support and resistance

Recognize gap signals Evaluate the strength of various gap signals Classify gap types Identify support and resistance on given charts Evaluate support and resistance evidence from data and

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charts for use in forecasts 6. Confirmation oscillators and divergence sector rotation Intermarket signals

Identify confirming divergence signals within oscillators Recognize confirmation signals given from sector rotation data Recognize confirmation signals inferred from intermarket analysis

7. Cycles seasonal cycles

Identify potential opportunity and risk based on seasonal cycle information Define methods for applying cycle studies

8. Selection and Decision uncorrelated assets

Determine appropriate asset selections based on correlation data

relative strength

Determine appropriate asset selections based on relative strength Determine appropriate asset selections based on trend and pattern forecasts

forecasting techniques (pattern and trend recognition)

9. System Testing algorithmic development

optimizing entry and exit rules (filtering) equity curve analysis position size rules (e.g., Tharp's methods, Kelley criterion, Optimal f)

profit measures (e.g., profit factor, outlieradjusted profit to loss, percentage of winning trades, annualized rate of return, payoff ratio, length of average winning trade, efficiency factor)

Select correct procedures for proper development of algorithms Identify valid data output for algorithmic system testing Determine proper optimizing and filtering procedures for system testing Identify valid system adjustments based on equity curve analysis Recognize the influence of position size rules

Distiguish between different profit measures (profit factor, outlier-adjusted profit to loss ratio and others)

10. Risk Management absolute and relative risk (i.e. total risk v. risk compared to benchmark) risk modeling value at risk volatility risk liquidity risk diversification

Determine differences in risk measures (absolute vs. relative, etc.) Select appropriate risk modeling steps Identify appropriate use of Value at Risk (VaR) Identify effective measures of volatility risk Identify volatility risk from given charts and data Select appropriate responses to liquidity risk Select appropriate diversification strategies to mitigate risk

stops v. hedging

CMT – Chartered Market Technician | Level II

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leverage risk

Explain leverage risk for various asset classes

portfolio risk management (e.g., market neutral, relative strength)

Determine appropriate rules useful in portfolio risk management

risk measures (e.g., maximum cumulative drawdown, net profit to drawdown, maximum consecutive losses, largest losses, longest flat time, time to recovery, maximum + and - excursions) risk-based performance measures

Select appropriate risk measures for various objectives

Define various risk-based performance measures (maximum cumulative drawdown, net profit to drawdown, maximum consecutive losses, largest losses, longest flat time, time to recovery, maximum favorable and adverse excursions

11. Statistical Analysis inferential statistics (e.g., correlation, regression, t-test)

Identify proper application of inferential statistics methods in system development and testing Determine results from an analysis of correlation data Interpret results from regression or t-test data Analyze data from tests using inferential statistics

12. Ethics

Code of Ethics and Standards of Professional Conduct

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************************************************************************************** Listed below is an alternative reading list for the CMT Level II exam. The official readings are contained in the forthcoming custom text published by Wiley due out in July. The CMT candidate is responsible for knowing and understanding the entire list of reading assignments. As part of our ongoing re-investment in the CMT Program, we have entered into a publishing agreement with John Wiley & Sons to publish a custom text for each level of the CMT exams. Each level-specific text will be available through Wiley in eBook format in July 2015. As our publisher, Wiley is working diligently to produce a top quality offering as quickly as possible. We will continue to update you as we receive more detailed information. With any change to established practices, there are some challenges. Making the transition simple and easy for candidates currently enrolled is one of our highest priorities. For candidates who have already purchased some of the books from the required reading lists or for those interested in starting their preparation for the October administration immediately, we have detailed a modified reading list below. Please note, the content and curriculum topics covered in the books listed for each level will correspond to the same learning objectives and topics as seen in the custom text that will be published by Wiley. The specific readings and authors may vary from the reading list below. Both methods of study are equivalent and will cover the same topics and prepare you for the exams.

**************************************************************************************

CMT LEVEL II – Alternative Reading List

CMT – Chartered Market Technician | Level II

OR

Wiley Custom Curriculum

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CMT Level II Exam – Alternative Reading List 1. Kirkpatrick, Charles D. and Dahlquist, Julie, R.: Technical Analysis: The Complete Resource for Financial Market Technicians 2nd Edition, Pearson Education, Inc., c. 2011, ISBN-10: 0-13-705944-2; ISBN-13: 978-013-705944-7 Chapters: 7, 10, 13, 21-23 Appendices A & B 2.

Du Plessis, Jeremy: The Definitive Guide to Point and Figure 2 nd Edition, Harriman House LTD, c. 2012, ISBN: 978-0857192-45-5. Click on the following link to buy it at an MTA member’s special discount: www.updata.co.uk/shop/mtabookoffer.asp Chapters: 4, 5

3. Elder, Alexander: The New Trading for a Living, John Wiley & Sons, Inc., c. 2014, ISBN: 978-1-118-44392-7 Chapters: 21-29, 31-37 4. Kaufman, Perry J: Trading Systems and Methods, 5th Edition, John Wiley & Sons, Inc., c. 2005, 2013, ISBN:978-1-118-04356-1 Chapters: 6-12 5.

Aronson, David R.: Evidence-Based Technical Analysis, John Wiley & Sons, Inc., c. 2006, 2007, ISBN-13: 978-0-470-00874-4, ISBN-10:0-470-00874-1 Chapters: 4-6

6. Nison, Steve: Japanese Candlestick Charting Techniques, 2 nd Edition, New York Institute of Finance, c. 2001, ISBN: 0-7352-0181-1 Chapters: 4-9 7. Burton, Edwin T and Shah, Sunit N.: Behavioral Finance, Understanding the Social, Cognitive, and Economic Debates, John Wiley & Sons, Inc., c. 2013, ISBN: 978-1-118-30019-0 Chapters: 9-11 8. Faber, Mebane, (White Paper) Relative Strength Strategies for Investing, Cambria Investment Management, Inc. 9. Code of Ethics and Standards of Professional Conduct

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