CMT – Chartered Market Technician | Level II Page 1
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. Theory and History 2. Market Indicators 3. Construction 4. Trend Analysis
5. Chart and Pattern Analysis 6. Confirmation
7. Cycles
8. Selection and Decision 9. System Testing
10. Risk Management 11. Statistical Analysis 12. Ethics
CMT – Chartered Market Technician | Level II Page 2
1. Theory and History a. behavioral finance 5% 7
b. Andrew Lo’s Adaptive Market
Hypothesis
2. Market Indicators a. breadth indicators (e.g., A/D, up/down volume)
8% 13
b. index construction
c. sentiment measures (e.g., put-call ratio, investor polls)
d. volatility (e.g., vix, historical, implied)
3. Construction a. volume 3% 4
4. Trend Analysis a. trendlines 15% 23
b. multiple time frame analysis c. breakouts (from channels or chart
patterns)
d. moving averages
e. trend strength indicators (e.g., DMI, ADX, etc.)
5. Chart and Pattern Analysis
a. gap analysis 15% 23
b. support and resistance
6. Confirmation a. oscillators and divergence 6% 9
b. sector rotation
c. intermarket signals
7. Cycles 1.seasonal cycles 3% 4
8. Selection and Decision a. noncorrelated assets 10% 15
b. relative strength
c. forecasting techniques (pattern and trend recognition)
9. System Testing a. algorithmic development 10% 15 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)
10. Risk Management a. absolute and relative risk (i.e. total risk v. risk compared to benchmark)
15% 22
b. risk modeling
c. value at risk
d. volatility risk
CMT – Chartered Market Technician | Level II Page 3
e. liquidity risk
f. diversification
g. stops v. hedging
h. leverage risk
i. portfolio risk management (e.g., market neutral, relative strength)
j. 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)
k. risk-based performance measures
11. Statistical Analysis a. inferential statistics (e.g., correlation, regression, t-test
7% 11
CMT – Chartered Market Technician | Level II Page 4
1. Theory and History
Behavioral finance 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
Andrew Lo’s Adaptive 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) Interpret data and charts of market breadth indicators Recognize changes in market breadth and identify their significance
index construction Distinguish between different methods for constructing a market or sector index
Recognize the influence of index construction on price action sentiment measures (e.g., put-call ratio,
investor polls) Contrast the uses of differing sentiment measures
volatility (e.g., vix, historical, implied) 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 Select valid trend lines
Interpret the significance of trend line breaks
multiple time frame analysis Compare trend signals over multiple time frames Identify evidence of changing trends in multiple time frames breakouts (from channels or chart patterns) Analyze breakout signals for use in forecasting
Recognize evidence for improving confidence in breakout signals
moving averages Contrast the use of various moving averages Analyze changes in moving average behavior Interpret signals given by various moving averages
trend strength indicators (e.g., DMI, ADX,
etc.) 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 Recognize gap signals Evaluate the strength of various gap signals
Classify gap types Identify support and resistance on given charts
support and resistance Evaluate support and resistance evidence from data and
CMT Level II Exam - Learning Objectives
CMT – Chartered Market Technician | Level II Page 5 charts for use in forecasts
6. Confirmation
oscillators and divergence Identify confirming divergence signals within oscillators sector rotation Recognize confirmation signals given from sector rotation data Intermarket signals 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
forecasting techniques (pattern and trend
recognition) Determine appropriate asset selections based on trend and pattern forecasts
9. System Testing
algorithmic development Select correct procedures for proper development of algorithms
Identify valid data output for algorithmic system testing optimizing entry and exit rules (filtering) Determine proper optimizing and filtering procedures for
system testing
equity curve analysis Identify valid system adjustments based on equity curve analysis
position size rules (e.g., Tharp's methods,
Kelley criterion, Optimal f) Recognize the influence of position size rules
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)
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) Determine differences in risk measures (absolute vs. relative, etc.) risk modeling Select appropriate risk modeling steps
value at risk Identify appropriate use of Value at Risk (VaR)
volatility risk Identify effective measures of volatility risk Identify volatility risk from given charts and data
liquidity risk Select appropriate responses to liquidity risk
diversification Select appropriate diversification strategies to mitigate risk stops v. hedging
CMT – Chartered Market Technician | Level II Page 6 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)
Select appropriate risk measures for various objectives
risk-based performance measures 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
CMT – Chartered Market Technician | Level II Page 7
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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.
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CMT – Chartered Market Technician | Level II Page 8 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: 978-0-13-705944-7
Chapters: 7, 10, 13, 21-23 Appendices A & B
2. Du Plessis, Jeremy: The Definitive Guide to Point and Figure 2nd 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, 2nd 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
