Chartered Market Technician (CMT) Program Level II

Chartered Market Technician (CMT) Program – Level IIThe CMT Level II exam measures the candidates’ competency in the application of concepts, theory, andtechniques covered by the required readings. CMT Level II candidates must demonstrate their ability toapply concepts identified in their Level I studies to relevant conditions or scenarios.Exam time length: 4 hours, 15 minutesExam format: Multiple ChoiceThe curriculum is organized into exam specific knowledge domains that provide a framework forrecognizing and implementing investment/trading decisions. CMT Level II exam tests the candidate’sknowledge in 12 domains:1.2.3.4.5.6.7.8.9.10.11.12.Theory and HistoryMarket IndicatorsConstructionTrend AnalysisChart and Pattern AnalysisConfirmationCyclesSelection and DecisionSystem TestingRisk ManagementStatistical AnalysisEthicsCMT – Chartered Market Technician Level IIPage 1

CMT Level II Exam Topics & Question Weightings1. Theory and Historya. behavioral finance5%78%133%415%2315%23b. Adaptive Market Hypothesis2. Market Indicatorsa. breadth indicatorsb. sentiment measuresc.volatility3. Constructiona. volume4. Trend Analysisa. trendlinesb. multiple time frame analysisc. breakoutsd. moving averagese. trend strength indicators5. Chart and Pattern Analysisa. gap analysisb. support and resistance6. Confirmationa. oscillators and divergenceb. sector rotationc. intermarket signals6%97. Cyclesa. seasonal cycles3%48. Selection and Decisiona. uncorrelated assetsb. relative strengthc. forecasting techniques10%159. System Testinga. algorithmic developmentb. objective analysis of rulesc. performance measures10%1510. Risk Managementa. absolute and relative risk15%23b. risk modelingc. value at riskd. volatility riske. liquidity riskf. diversificationg. leverage riskh. portfolio risk managementi. risk-based performance measures11. Statistical Analysisa. inferential statistics7%1112. Ethicsa. Standards and Practices3%4CMT – Chartered Market Technician Level IIPage 2

CMT Level II Exam - Learning Objectives1. Theory and HistoryBehavioral financeAndrew Lo’s Adaptive Market HypothesisIdentify the correct application of behavioral finance theoryRecognize evidence of cognitive errors or behavioral biasesinvestment selectionContrast the tenets of Behavioral Finance principles withEfficient Market HypothesisContrast Efficient Market Hypothesis with Andrew Lo'sAdaptive Market Hypothesis,2. Market Indicatorsbreadth indicators (e.g., A/D, up/downvolume)index constructionsentiment measures (e.g., put-call ratio,investor polls)volatility (e.g., vix, historical, implied)Interpret data and charts of market breadth indicatorsRecognize changes in market breadth and identify theirsignificanceDistinguish between different methods for constructing amarket or sector indexRecognize the influence of index construction on price actionContrast the uses of differing sentiment measuresIdentify different measures of volatility Interpret volatilitysignals as part of a market forecastCompare volatility behavior with corresponding price behavior3. ConstructionvolumeInterpret volume dataAnalyze the behavior of a given volume-weighted indicator4. Trend Analysistrend linesSelect valid trend linesInterpret the significance of trend line breaksmultiple time frame analysisCompare trend signals over multiple time frames Identifyevidence of changing trends in multiple time framesbreakouts (from channels or chart patterns) Analyze breakout signals for use in forecastingRecognize evidence for improving confidence in breakoutsignalsmoving averagesContrast the use of various moving averages Analyze changesin moving average behavior Interpret signals given by variousmoving averagestrend strength indicators (e.g., DMI, ADX,Determine the strength of a trend based on indicator dataetc.)Select the correct definition of trend strength indicators5. Chart and Pattern Analysisgap analysisRecognize gap signals Evaluate the strength of various gapsignalsClassify gap types Identify support and resistance on givenchartssupport and resistanceEvaluate support and resistance evidence from data andcharts for use in forecastsCMT – Chartered Market Technician Level IIPage 3

6. Confirmationoscillators and divergencesector rotationIntermarket signalsIdentify confirming divergence signals within oscillatorsRecognize confirmation signals given from sector rotation dataRecognize confirmation signals inferred from intermarketanalysis7. Cyclesseasonal cyclesIdentify potential opportunity and risk based on seasonal cycleinformationDefine methods for applying cycle studies8. Selection and Decisionuncorrelated assetsDetermine appropriate asset selections based on correlationdatarelative strengthDetermine appropriate asset selections based on relativestrengthDetermine appropriate asset selections based on trend andpattern forecastsforecasting techniques (pattern and trendrecognition)9. System Testingalgorithmic developmentoptimizing entry and exit rules (filtering)equity curve analysisposition size rules (e.g., Tharp's methods,Kelley criterion, Optimal f)profit measures (e.g., profit factor, outlieradjusted profit to loss, percentage ofwinning trades, annualized rate of return,payoff ratio, length of average winningtrade, efficiency factor)Select correct procedures for proper development ofalgorithmsIdentify valid data output for algorithmic system testingDetermine proper optimizing and filtering procedures forsystem testingIdentify valid system adjustments based on equity curveanalysisRecognize the influence of position size rulesDistiguish between different profit measures (profit factor,outlier-adjusted profit to loss ratio and others)10. Risk Managementabsolute and relative risk (i.e. total risk v.risk compared to benchmark)risk modelingvalue at riskvolatility riskliquidity riskdiversificationDetermine differences in risk measures (absolute vs. relative,etc.)Select appropriate risk modeling stepsIdentify appropriate use of Value at Risk (VaR)Identify effective measures of volatility risk Identify volatilityrisk from given charts and dataSelect appropriate responses to liquidity riskSelect appropriate diversification strategies to mitigate riskstops v. hedgingleverage riskExplain leverage risk for various asset classesCMT – Chartered Market Technician Level IIPage 4

portfolio risk management (e.g., marketneutral, relative strength)Determine appropriate rules useful in portfolio riskmanagementrisk measures (e.g., maximum cumulativedrawdown, net profit to drawdown,maximum consecutive losses, largestlosses, longest flat time, time to recovery,maximum and - excursions)risk-based performance measuresSelect appropriate risk measures for various objectivesDefine various risk-based performance measures (maximumcumulative drawdown, net profit to drawdown, maximumconsecutive losses, largest losses, longest flat time, time torecovery, maximum favorable and adverse excursions11. Statistical Analysisinferential statistics (e.g., correlation,regression, t-test)Identify proper application of inferential statistics methods insystem development and testing Determine results from ananalysis of correlation data Interpret results from regressionor t-test data Analyze data from tests using inferentialstatistics12. EthicsCode of Ethics and Standards of Professional ConductCMT – Chartered Market Technician Level IIPage 5

************************************Listed below is an alternative reading list for the CMT Level II exam. The official readings are containedin the forthcoming custom text published by Wiley due out in July. The CMT candidate is responsiblefor 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 withJohn Wiley & Sons to publish a custom text for each level of the CMT exams. Each level-specific text will beavailable through Wiley in eBook format in July 2015. As our publisher, Wiley is working diligently to produce atop quality offering as quickly as possible. We will continue to update you as we receive more detailedinformation.With any change to established practices, there are some challenges. Making the transition simple and easyfor candidates currently enrolled is one of our highest priorities. For candidates who have already purchasedsome of the books from the required reading lists or for those interested in starting their preparation for theOctober 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 thesame learning objectives and topics as seen in the custom text that will be published by Wiley. The specificreadings and authors may vary from the reading list below. Both methods of study are equivalent and willcover the same topics and prepare you for the ******************************************CMT LEVEL II – Alternative Reading ListCMT – Chartered Market Technician Level IIORWiley Custom CurriculumPage 6

CMT Level II Exam – Alternative Reading List1. Kirkpatrick, Charles D. and Dahlquist, Julie, R.: Technical Analysis: The Complete Resource for FinancialMarket Technicians 2nd Edition, Pearson Education, Inc., c. 2011, ISBN-10: 0-13-705944-2; ISBN-13: 978-013-705944-7Chapters:7, 10, 13, 21-23Appendices A & B2.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 pters:4, 53. Elder, Alexander: The New Trading for a Living, John Wiley & Sons, Inc., c. 2014, ISBN: 978-1-118-44392-7Chapters:21-29, 31-374. Kaufman, Perry J: Trading Systems and Methods, 5th Edition, John Wiley & Sons, Inc., c. 2005, 2013,ISBN:978-1-118-04356-1Chapters:6-125.Aronson, David R.: Evidence-Based Technical Analysis, John Wiley & Sons, Inc., c. 2006, 2007, ISBN-13:978-0-470-00874-4, ISBN-10:0-470-00874-1Chapters:4-66. Nison, Steve: Japanese Candlestick Charting Techniques, 2 nd Edition, New York Institute of Finance, c.2001, ISBN: 0-7352-0181-1Chapters:4-97. Burton, Edwin T and Shah, Sunit N.: Behavioral Finance, Understanding the Social, Cognitive, andEconomic Debates, John Wiley & Sons, Inc., c. 2013, ISBN: 978-1-118-30019-0Chapters:9-118. Faber, Mebane, (White Paper) Relative Strength Strategies for Investing, Cambria InvestmentManagement, Inc.9. Code of Ethics and Standards of Professional ConductCMT – Chartered Market Technician Level IIPage 7

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,