CMT

PROGRAM
GUIDE
2025

CMT Association, Inc

115 Broadway, New York 10006 | 264 Dr Annie Besant Road, Mumbai 400025
+1-646-652-3300
[email protected]
www.cmtassociation.org
© 2024 CMT Association, Inc.
1
Table of Contents
CHARTERED MARKET TECHNICIAN PROGRAM ..................... 4
KNOWLEDGE DOMAINS BREAKDOWN .............................. 5
CMT LEVEL I .................................................................... 6
Foundational Principles of Technical Analysis .................................................... 7
CMT Level I Sections, Units, and Learning Objective Statements ......... 8
Section One: Theory and History of Technical Analysis.............................................................. 8
Section Two: Charts: Market Price Data.................................................................................... 9
Section Three: Trend Analysis .................................................................................................. 10
Section Four: Chart Pattern Analysis ...................................................................................... 11
Section Five: Technical Indicators ........................................................................................... 12
Section Six: Statistics for Technicians ................................................................................... 13
Section Seven: Behavioral Finance ........................................................................................ 14
Section Eight: Sentiment ....................................................................................................... 14
Section Nine: Cycle Analysis ................................................................................................. 15
Section Ten: Comparative Market Analysis ............................................................................. 16
Section Eleven: Volatility Analysis .......................................................................................... 18
Section Twelve: Systems and Quantitative Methods................................................................ 19
CMT LEVEL II .................................................................. 20
Application of Technical Analysis Methods ....................................................... 21
CMT Level I Sections, Units, and Learning Objective Statements ........ 22
Section One: Theory and History of Technical Analysis............................................................ 22
Section Two: Behavioural Finance .......................................................................................... 23
Section Three: Charts: Organizing Market Data...................................................................... 23
Section Four: Chart Pattern Analysis ..................................................................................... 24
Section Five: Trend Analysis.................................................................................................... 25
Section Six: Volatility Analysis ............................................................................................... 26
Section Seven: Sentiment ...................................................................................................... 27
Section Eight: Statistics for Technicians ................................................................................ 27
Section Nine: Technical Indicators........................................................................................... 28
Section Ten: Comparative Market Analysis ............................................................................. 29
Section Eleven : Cycle Analysis ............................................................................................. 30
2
 Section Twelve: Systems and Quantitative Methods................................................................ 31
CMT LEVEL III ................................................................. 32
The Work of a Technical Analyst........................................................................ 33
CMT Level I Sections, Units, and Learning Objective Statements ........ 34
Section One: Quantifying and Managing Risk........................................................................ 34
Section Two: Classical Chart Analysis.................................................................................... 35
Section Three: Trend Analysis .................................................................................................. 35
Section Four: Technical Indicators........................................................................................... 36
Section Five: Volatility Analysis .............................................................................................. 37
Section Seven: Systems and Quantitative Methods ................................................................ 38
Section Eight: Topics in Portfolio Management ....................................................................... 39

3
CHARTERED MARKET
TECHNICIAN PROGRAM

CMT Level I
Foundational Principles of Technical Analysis
Core Concepts and Underlying Theories and Terminology | The Tools and Methods Used in
Technical Analysis.
80 to 100 hours
Format – 132 Multiple Choice Question
Exam Duration – 2 Hours

CMT Level II
Application of Technical Analysis Methods
Application of the Concepts, Tools, and Methods of Technical Analysis to Identify Opportunities
and Manage Risk.
100 to 140 hours
Format – 170 Multiple Choice Question
Exam Duration – 4 Hours

CMT Level III

The Work of a Technical Analyst
Integrating Concepts and Tools into Methods for Analyzing Market Action and Managing
Positions and Risk.

Format – Multiple Choice Question & Short Answers

Exam Duration – 4 Hours

4
 KNOWLEDGE DOMAINS
BREAKDOWN

95.00%

5.00%
Level III
Knowledge Domains

10.00%

3.00%
Level II

7.00%

40.00%

40.00%

3.00%
Level I

38.00%

33.00%

26.00%

0.00% 20.00% 40.00% 60.00% 80.00% 100.00%

Level I Level II Level III

Application of Technical Analysis 10.00% 95.00%
Ethics 3.00% 3.00% 5.00%
Theory and History 38.00% 7.00%
Classical Techniques 33.00% 40.00%
Advanced Techniques 26.00% 40.00%

5
CMT LEVEL I
2025
Foundational Principles of Technical Analysis
Core Concepts and Underlying Theories and Terminology
The Tools and Methods Used in Technical Analysis

6
CMT LEVEL I
Foundational Principles of Technical Analysis
Core Concepts and Underlying Theories and Terminology | The Tools and Methods Used in Technical Analysis

I. Theory and History

i. Evolution of Technical Analysis
ii. Key Concepts in Technical Analysis and Market Analysis
iii. Behavioral Finance
II. Classical Techniques
i. Chart Types and Construction
ii. Trend Analysis
iii. Chart Pattern Analysis
iv. Internal and External Technical Indicators
v.Cycles
III. Advanced Techniques
i. Statistical Analysis
ii.Volatility Analysis
iii. Systematic Trading
iv. Cross-asset Analysis
v.Principles of Risk Management
IV. Ethics

Important points to note

• The CMT Level I exam tests introductory concepts and definitions in technical analysis.
• The actual exam consists of 132 multiple-choice questions of which 120 are scored items. The remaining 12 questions
are under trial for future use.
• Candidates have two hours to complete the 132 questions on the exam.
• The exam is delivered on a computer in Prometric testing facilities, or through Prometric’s ProProctor remote-
proctoring service. Please be sure to Ethics
schedule your exam well in advance. 3%
• Questions on the Code of Ethics and
Advanced
Standards of Professional Conduct
Techniques
appear on all three levels of the CMT 26% Theory and
exams. The Standards of Practice History
Handbook is a valuable study guide for 38%
the Code and Standards. Please use
those documents as ethics are not
otherwise included in the CMT Program
textbooks.
• The CMT Association maintains a
discussion forum for CMT candidates.
Candidates are encouraged to utilize
Classical
this resource to discuss and clarify their Techniques
understanding of the subject matter. 33%

KNOWLEDGE DOMAINS BREAKDOWN

7
CMT LEVEL I

Please find the complete Table of Contents for the candidate body of knowledge in CMT Level I
below. Each Section contains one or more units. Each unit lists multiple Learning Objective
Statements (LOS). These LOS are your explicit guide to preparing for your exam. They are listed at
the start of each unit in the digital LMS and will guide your reading. Comprehension and fluency with
each LOS by the end of each unit should give you high confidence in moving on to the next unit and
section.GFDSA

Section One: Theory and History of Technical Analysis

1 A Brief History of Technical Analysis
 Name the principal individuals who created and organized the concepts of Dow theory
 Identify the two important stock averages that Dow Jones began publishing in the 1800s
 Recall some of the earliest European and Asian markets for which prices were charted

2 The Dow Theory

 State the two stock indexes that Dow employed in his analysis
 Recall why Dow thought these two averages were so important
 Review the basic tenets of the Dow Theory
 State the most important price of the day according to the Dow Theory
 Define what is meant by confirmation
 Identify the three primacy price movements

3 Markets, Instruments, Data and the Technical Analyst

 Name four asset classes amenable to technical analysis
 List five tradable instruments that a technician is likely to employ
 Recall the necessary characteristics of a market for technical analysis to be applicable
 Describe data-handling issues with which a technician should be familiar

4 The Opportunity of the Efficient Markets Hypothesis

 Define the Efficient Markets Hypothesis (EHM)
 Recall a commonly accepted implication of the EHM
 Explain the Joint Hypothesis problem
 State the three forms of tests for the EHM
 Express three anomalies that challenge the EHM
 Recognize what the arcsine law predicts for asset prices
 Identify four prominent challenges to the EHM
 State four alternatives to the EHM
 Explain the difference between a random walk and a martingale process
 Express Fama’s suggested revision to the three forms of testing the EHM

5 The Fibonacci Sequence and The Golden Ratio

 Recall how the Fibonacci sequence is constructed
 State the value of the Golden Ratio to three decimal places
 Describe how the Golden Ratio relates to the Fibonacci sequence
 Explain how Fibonacci retracements and extensions might help a technical analyst

8
CMT LEVEL I

Section Two: Charts: Market Price Data

1 An Overview of Charting
 Explain how a technical analyst uses charts to summarize price action
 Discuss the advantages of reviewing price information in chart format
 Identify the four basic price points represented in charting
 Describe how to construct line, bar, and candlestick charts
 Review the information available in line, bar, and candlestick charts
 Define “range” as it applies to prices on a bar or candlestick

2 The X Axis
 Define “fractal” and how it relates to chart construction
 Describe what is meant by “data interval”
 Identify the variables plotted on the axes in a conventional price chart
 Discuss volume as an alternative to time on the x axis of a chart
 Describe how point-and-figure charts are constructed
 Define “box size” and “reversal”
 Describe the construction of range bars

3 The Y Axis
 Describe the differences between arithmetic and logarithmic scales
 State when a technician might prefer a logarithmic scale

4 Charting Volume and Open Interest

 Define volume
 Define open interest
 Describe typical methods for displaying volume in a price chart
 Describe how open interest is displayed in a futures chart

9
CMT LEVEL I

Section Three: Trend Analysis

1 Trend Primer: What is a Trend
 Summarize what a trend is
 Describe the three primary movements of price
 Explain what it means for price to be fractal
 State the principle of polarity

2 Trend Primer: A Trend's Four Phases

 Describe Wyckoff’s four primary market structure phases
 Outline the four primary trades
 Define a retracement
 Explain the difference between the special breakout retracements called throwbacks and pullbacks

3 Trend Primer: Trend Identification and Following

 Express the importance of trend identification
 Explain ways to confirm breakouts
 Outline some manual and mathematical ways of identifying trend
 Describe how to identify trends using one and two moving averages
 Summarize the process of trend-following from beginning to end
 Recall the reward-to-risk ratio
 Discuss manual and mathematical methods of following trends
 Recall some important general risk management principles

4 Introduction to Volume Analysis

 Define volume
 Define open interest
 Define the terms related to volume as discussed in this chapter
 Describe how volume provides information on liquidity and participation

5 Volume, Open Interest, and Price

 State the implications of volume changes for price trends
 Identify trends in price and volume in a chart
 Define VWAP
 Explain how open interest rises and falls
 State the implications of open interest changes for price trends

6 Market Internals
 State what market internals are used to gauge
 Describe measures of market internals including breadth, leadership, and volume

10
CMT LEVEL I

Section Four: Chart Pattern Analysis

1 Classical Chart Patterns
 Describe reversal chart patterns and their volume characteristics
 Describe continuation chart patterns and their volume characteristics
 Distinguish between the psychology of buyers and sellers during consolidation periods versus trending
periods
 Identify flag and pennant patterns and their volume characteristics
 Summarize the various types of gaps

2 Introduction to Candlesticks
 Summarize the evolution of candlestick charting from 18th-century Japan to modernity
 Match the four key data points used to create candlesticks with the four parts of candlesticks
 State the standard method for coloring bullish and bearish candlesticks
 Discuss how candlesticks illustrate market sentiment, specifically strength, volatility, and indecision

3 Introduction to Candlestick Patterns

 Recognize various trend reversal candlestick patterns
 Explain the psychology of various trend reversal candlestick patterns
 State what causes gaps to occur on charts
 Recall why gaps can be important
 State the importance of doji candlesticks
 Describe various types of doji candlesticks
 Summarize the strengths and weaknesses of candlesticks

4 Basics of Point-and-Figure Charting

 Explain how a point-and-figure chart is different from a bar chart
 State what is needed to construct point-and-figure charts
 Describe how changing the box size and reversal size affects point-and-figure charts
 Outline when to plot Xs and Os on a point-and-figure chart
 Identify basic point-and-figure chart patterns
 Describe the use of trendlines on a point-and-figure chart

11
CMT LEVEL I

Section Five: Technical Indicators

1 Moving Averages
 Generalize what a moving average is
 Describe the simple and linearly weighted moving averages
 Explain the Wilder and EMA smoothing methods
 Recall the length of the three most common trends
 Summarize strategies for using moving averages
 Discuss moving average bands

2 Technical Indicator Construction

 Explain what a technical indicator is
 Describe the two general categories of indicators
 Contrast various momentum indicators
 Summarize various volume indicators
 Discuss indicators that use price and volume
 Describe the three plots of the Directional Movement Index (DMI)
 Express the DMI’s general interpretation
 Outline the DMI’s uses

3 Introduction to Bollinger Bands

 Recall Bollinger’s major insight into the nature of volatility
 Describe first principles
 Explain how Bollinger Bands are calculated
 State the most basic application of Bollinger Bands
 State what Bollinger Bands graphically illustrate

12
CMT LEVEL I

Section Six: Statistics for Technicians

1 Introduction to Statistics Part 1
 Recall the definition of statistics
 Outline the difference between descriptive and inferential statistics
 Define sample and population
 Explain the two main types of data
 Describe the three most common measures of central tendency: arithmetic mean, median, and mode
 Discuss alternative methods of calculating means and their uses
 State why the geometric mean is so important to investors
 Describe what is meant by “measures of dispersion”
 Explain two measures of dispersion: standard deviation and variance
 State what z-scores measure and how they can be used

2 Introduction to Statistics Part 2

 State the value of data visualization as a complement to descriptive statistics
 Explain how to calculate outliers in a data set
 Express what scatterplots are used for
 Identify the three features of a data set that scatterplots describe
 Define Pearson’s Correlation Coefficient r
 Differentiate between correlation and causation
 State what a linear model can be used to determine
 Recall the linear regression equation
 Examine the use of regression analysis in technical studies
 Compare coefficients of correlation and determination

3 Introduction to Probability
 Define probability
 Explain the impact of the law of large numbers on a series of outcomes
 Define random variable and the phrase “independent and identically distributed”
 Describe a normal probability distribution
 State the Empirical Rule
 Explain skew and kurtosis

13
CMT LEVEL I

Section Seven: Behavioral Finance

1 Behavioral Finance
 Identify two assumptions that traditional economic research has historically relied on
 Summarize prospect theory
 Describe loss aversion
 Outline belief perseverance biases
 Outline information processing biases
 Outline emotional biases
 Express what makes emotional biases different from other types of biases

Section Eight: Sentiment

1 Market Sentiment and Technical Analysis
 Define sentiment as it relates to financial markets
 Discuss the importance of the “crowd”
 Explain the effect of the crowd during trends and at turning points
 Describe the challenges of using sentiment indicators

2 Sentiment Measured from Market Data

 Describe the VIX as a sentiment measure
 Describe the use of futures open interest in gauging sentiment
 Explain the use of options volume and open interest as sentiment indicators
 Identify the three primary groups in the Commitments of Traders report
 Explain insider activity as a sentiment indicator
 Define short interest

3 Sentiment Measured from External Data

 Describe the use of news and advisories as sentiment measures
 Explain the concept of contrary opinion
 Indicate how mutual fund cash and other funds measures are used to gauge sentiment
14
CMT LEVEL I

Section Nine: Cycle Analysis

1 Foundations of Cycle Theory
 Name the two types of cycles
 Identify the three defining characteristics of a cycle
 List and define each of Hurst’s seven Principles of Commonality
 Describe the principle of harmonics
 Define a composite wave
 Identify left and right translation
 Describe a dominant cycle
 Recall the tools that aid in cycle identification

2 Common Cycles
 Memorize notable economic cycles and their periods
 Recall some sequences/nonlinear cycles

15
CMT LEVEL I

Section Ten: Comparative Market Analysis

1 Equities
 Define equity securities
 Describe the benefits of equities for investors
 List critical market data a technical analyst needs
 Explain the effect of corporate actions on price data
 Classify by sectors, capitalization, and other ways to segment the market

2 Indexes
 State the value of using indexes in technical analysis
 Explain weighting methods used in major indexe
 Define “survivorship bias”

3 Fixed Income/Bonds
 Explain the relationship between price and yield
 List the major types of issuers of debt securities
 Identify the basic terms of a debt instrument: issuer, coupon, maturity
 State the ways in which debt prices are expressed
 Describe the importance of U.S. government debt in the pricing of other debt securities;
“yield (or credit) spread”
 Define “yield curve”

4 Futures
 State the economic purpose of futures markets
 List the major terms of a futures contract
 Define open interest in futures
 Classify various futures markets as industrial, agricultural, financial, and so on
 Describe challenges technicians face when using futures market data

5 Exchange - Traded Products (ETPs)

 Define an exchange-traded product (ETP)
 Review differences between exchange-traded funds (ETFs) and exchange-traded notes (ETNs)
 Describe the uses for leveraged ETPs
 Explain the potential impact of ETPs on market breadth

6 Foreign Exchange (Currencies)

 Identify the base and quote currencies in a pair
 Classify currency pairs as “major” or “cross”
 Discuss the impact on technical analysis of the “dealer market” system of currency trading
 Explain the data used in building currency charts

7 Digital Assets
 Describe why digital assets exist
 Explain how a blockchain network functions
 Discuss what on-chain data is and the different types of on-chain data
 Outline some ways in which technical analysis is perfectly suited for cryptocurrencies and
digital assets
16
CMT LEVEL I

8 Options
 Explain the purpose of options markets
 List the major terms of an option contract
 Describe “the Greeks”
 Define implied volatility
 Explain the importance of implied volatility for a technician

9 Introduction to Relative Strength

 Define relative strength
 Explain the principles behind relative strength analysis
 Distinguish between absolute trend and relative trend
 Explain three methods of assessing relative strength
 Identify the considerations when using relative strength analysis
 Describe two approaches to ranking a universe of securities
 Summarize the uses of relative strength by portfolio managers and individual investors

10 Relative Strength and its Uses

 Describe how to use various ratios to assess the market environment
 Explain how to use a top-down approach to find market-leading securities
 Express how to use the “beach ball effect” to find market-leading securities
 Discuss using relative strength as a leading indicator

17
CMT LEVEL I

Section Eleven: Volatility Analysis

1 The Meaning of Volatility to a Technician
 Define volatility
 Describe price movement of an asset with low
volatility versus high volatility
 State why it is important to track volatility
 Define historical volatility
 Define implied volatility
 State what volatility skew refers to

2 Measuring Historical Volatility

 List the three measurements Wilder used to
determine True Range
 Describe Bollinger Bands
 Recall how volatility cycles
 State Keltner’s original calculation of his channels
 Describe how Keltner Channels differ from Bollinger
Bands

3 Options Derived Volatility

 Describe how an option-pricing model may be used
to derive implied volatility
 State what causes elevated implied volatility
 Express what VIX measures
 Recall how the 30-day implied volatility is expressed
 Summarize how VIX generally moves in relation to
the S&P 500 index
 State the implications of both high and low VIX
“base values”
 Explain the challenge of using VIX spikes to
determine market bottoms

18
CMT LEVEL I

Section Twelve: Systems and Quantitative Methods

1 Introduction to Quantitative Methods
 Outline the investment process
 Describe quantitative analysis
 Outline the steps of the scientific method
 Express how an analyst can apply the scientific method to the investment process
 Explain how survivorship bias can impact quantitative test results
 Review when to use trigger rules, filter rules, and value rules
 Summarize signals, strategies, and models
 Explain the issues with using a backtest first, and explain the benefit of a signal test

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19
Consulting
CMT LEVEL II
2025
Application of Technical Analysis Methods
Application of the Concepts, Tools, And Methods of Technical Analysis To Identify
Opportunities And Manage Risk

20
CMT LEVEL II
Application of Technical Analysis Methods
Application of the Concepts, Tools, And Methods Of Technical Analysis To Identify Opportunities And Manage Risk

I. Theory and History

i. Evolution of Technical Analysis
ii. Key Concepts in Technical Analysis and Market Analysis
iii. Behavioral Finance
II. Classical Techniques
i. Chart Types and Construction
ii. Trend Analysis
iii. Chart Pattern Analysis
iv. Internal and External Technical Indicators
v.Cycles
III. Advanced Techniques
i. Statistical Analysis
ii.Volatility Analysis
iii. Systematic Trading
iv. Cross-asset Analysis
v.Principles of Risk Management
IV. Application of Technical Analysis
i. Analyze and interpret charts for entries and exits using classical charts, patterns, and indicators.
ii. Develop plans to address risk using, e.g., technical, behavioral, quantitative analysis, leverage.
iii. Analyze the output from models to determine their suitability for implementation.
iv. Establish weighting of assets and securities using, e.g., relative strength, trend, momentum.
v.Integrate volatility measures into price forecasting and trade management.
V. Ethics

Important points to note

• The CMT Level II exam tests on the theory and analysis of applied technical analysis.
• The actual exam consists of 170 multiple-choice questions of which 150 are scored items. The remaining 20 questions
are under trial for future use.
• Candidates have four hours to complete the 170 questions on the exam.
• The exam is delivered on a computer in Prometric
testing facilities, or through Prometric’s ProProctor Application Theory and
Ethics
of History
remote-proctoring service. Please be sure to
Technical
schedule your exam well in advance.
Analysis
• Questions on the Code of Ethics and Standards of
Professional Conduct appear on all three levels of
the CMT exams. The Standards of Practice
Handbook is a valuable study guide for the Code
and Standards. Please use those documents as Classical
Techniques
ethics are not otherwise included in the CMT
Program textbooks. Advanced
The CMT Association maintains a discussion forum for Techniques
CMT candidates. Candidates are encouraged to
utilize this resource to discuss and clarify their
understanding of the subject KNOWLEDGE DOMAINS BREAKDOWN

21
CMT LEVEL II

Please find the complete Table of Contents for the candidate body of knowledge in CMT Level II
below. Each Section contains one or more units. Each unit lists multiple Learning Objective
Statements (LOS). These LOS are your explicit guide to preparing for your exam. They are listed at
the start of each unit in the digital LMS and will guide your reading. Comprehension and fluency with
each LOS by the end of each unit should give you high confidence in moving on to the next unit and
section.

Section One: Theory and History of Technical Analysis

1 Alpha and Beta - Outperforming the Benchmarks
 Compare the terms “alpha” and “beta”
 Compare and contrast the EMH, AMH, and FMH
 Analyze possible anomalous supply-demand scenarios that may be opportunities

2 Fusion Analysis: Technical Analysis as Part of a Team Approach

 Contrast the roles of a fundamental analyst and a technical analyst
 Outline ways technicians can work with fundamentalists

22
CMT LEVEL II

Section Two: Behavioural Finance

1 Anatomy of Market Bubbles
 Explain what a market bubble is
 Outline the five stages of a market bubble
 Identify several charts that can be used to assess the stages of a market bubble

Section Three: Charts: Organizing Market Data

1 Charting Multiple Data Sets and Multiple Data Intervals
 Employ a sequence of multiple data intervals to identify trends
 Review challenges related to consistent data sampling using time-based intraday intervals
 Interpret general trend relationships in charts with multiple price-data sets

2 Market Profile
 State the basic principles behind Market Profile

23
CMT LEVEL II

Section Four: Chart Pattern Analysis

1 Classical Chart Patterns
 Calculate price targets for reversal and continuation patterns
 Contrast confirming breakouts and breakdowns using the 3% rule and the ATR multiple rule
 Employ rangebound mean-reversionary trading tactics and breakout tactics

2 Candlestick Patterns in the Real World

 Identify various candlestick patterns
 Examine the psychological insights revealed in various candlestick patterns
 Relate the meaning of candlesticks patterns with their volume characteristics
 Distinguish between various types of doji candlesticks

3 Candlestick Analysis in the Real World

 Examine the difference between single-candle patterns and multi-candle patterns
 Summarize the implications for candlestick patterns when they occur at potential support or resistance
zones
 Differentiate between unconfirmed and confirmed candlestick patterns
 Learn to identify complete and incomplete patterns and their implications for trading decisions
 Compare the abandoned baby reversal and the island reversal patterns
 Outline guidelines for interpreting imperfect candlestick patterns
 Develop the ability to integrate candlestick patterns into broader chart pattern analysis for better
decision making

4 Point-and-Figure Pattern Analysis

 Identify complex point-and-figure chart patterns
 Calculate price projections using vertical and horizontal counts
 Summarize additional uses for point-and-figure charts

24
CMT LEVEL II

Section Five: Trend Analysis

1 Price Trend 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

2 Market Internals
 Examine basic indicators such as the advance-decline line and up and down volume
 Describe various breadth indicators
 Explain how breadth indicators are commonly used
 Contrast different ways to calculate and use leadership indicators
 Interpret several advanced indicators
 Examine ways of using qualitative analysis when examining market internals

25
CMT LEVEL II

Section Six: Volatility Analysis

1 Extrapolating Price from Volatility
 State what the VIX measures
 State how the VIX expresses that measurement
 Calculate expected volatility and price ranges for various look-ahead periods using VIX
 Express a limitation of VIX-based forecasts

2 Volatility Risk Premium

 Examine the relationship between implied and realized volatility
 Define the Volatility Risk Premium (VRP)
 Explain how to capture the VRP using options

3 Volatility Indexes and VIX Complex

 Examine the term structure shapes of backwardation and contango
 Interpret what a shift in the VIX futures term structure shape from contango to backwardation suggests
 Explain how the shape of the VIX futures term structure and the intermonth spreads can provide early
warning signals for deploying risk management tools against long SPX positions
 Point out two methods for managing downside risk in the S&P 500®
 Contrast using VIX calls with using S&P 500 puts to manage downside risk
 State the key objective of risk management strategies

26
CMT LEVEL II

Section Seven: Sentiment

1 Analysing 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

2 Analyzing Sentiment in the Derivatives Market

 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

Section Eight: Statistics for Technicians

1 Inferential Statistics
 Define hypothesis testing
 Describe the steps in hypothesis testing
 Compare the possible errors in hypothesis testing
 Demonstrate the use of hypothesis testing to frame statistical tests

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CMT LEVEL II

Section Nine: Technical Indicators

1 Momentum and Indicator Interpretation Part 1
 Express what technical momentum is
 Distinguish between technical momentum conditions using velocity and acceleration
 Compare overbought and oversold conditions in uptrends, downtrends, and rangebound markets
 Identify momentum divergences
 Outline momentum from the beginning to the end of directional trends
 Interpret the significance of various variables of divergences

2 Momentum and Indicator Interpretation Part 2

 Describe the difference between reversals in price and reversals in momentum
 Identify ways to recognize trend changes in momentum
 Interpret several momentum indicators
 Discover buy and sell signals on different momentum indicators
 Outline the three steps of a valid signal

3 Volume Weighted Average Price

 State the original purpose of the VWAP
 Interpret order execution as “good” or “bad” based on price and VWAP
 Express why VWAP is a “true dollar average”
 Use VWAP to determine whether buyers or sellers are in control of a market
 Describe how VWAP is calculated
 Outline VWAP can be referred to as the “ultimate sentiment indicator”
 Diagram the typical intraday volume pattern

4 Practical Applications of Bollinger Bands

 Relate what %b illustrates about Bollinger Bands
 Relate what BandWidth illustrates about Bollinger Bands
 Describe the cyclical nature of volatility
 Identify Two-Bar Reversals in the context of Bollinger Bands and %b
 Identify Squeezes and Bulges using BandWidth

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CMT LEVEL II

Section Ten: Comparative Market Analysis

1 Advanced Applications of Relative Strength
 Explain two major issues in relative strength analysis
 Compare and contrast the JdK RS-Ratio and JdK RS-Momentum
 Outline the roles of JdK RS-Ratio and JdK RS-Momentum as building blocks for the RRG chart
 Illustrate the role of the benchmark in the RRG chart
 Diagram the ideal sequence of rotation for securities in the RRG chart

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CMT LEVEL II

Section Eleven : Cycle Analysis

1 Concepts in Cycle Theory
 Illustrate the causes of the mid-cycle dip and ¾-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 trendline (VTL)

2 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

3 Analysis of Seasonal Cycles

 Explain how the annual cycle conforms to cycle theory
 Describe two methods of detrending price data
 Restate common seasonal tools

4 The Elliott Wave Principle Part 1

 Describe the basic operating theory of the Wave Principle
 Label waves using standard Elliott Wave notation
 Compare motive waves and corrective waves
 Diagram types of motive waves such as impulse, extension, and diagonal
 Identify types of corrective waves such as zigzag, flat, and triangle

5 The Elliott Wave Principle Part 2

 Describe characteristics of corrective waves such as alternation and depth
 Analyze how Elliott Wave analysis reflects investor psychology
 Compute Fibonacci relationships as applied to Elliott Wave analysis

6 The Elliott Wave Principle Part 3

 Diagram the observations of several market cycle experts
 Infer the potential benefits of using time-based tools with traditional price-based tools

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CMT LEVEL II

Section Twelve: Systems and Quantitative Methods

1 Trading Systems
 Compare five common trading models
 Outline the go/no-go metrics
 Explain the four ways of generating trading signals
 Analyze the seven stops to a consistently profitable trading system

2 Applying Quantitative Techniques

 Outline each step of the quantitative process
 Compare the use of trigger rules, filter rules and value rules
 Contrast signal test results and select the most appropriate
 Interpret trade measures, performance measures, and accounting measures, including annualized
return, annualized volatility, total return, CAGR, maximum drawdown, profit factor, and expected value
 Contrast the performance measures (Sharpe ratio, Information ratio, Sortino ratio, and Calmar ratio)
 Explain the different calculations that can be used for stops
 Define robustness when selecting parameter values using optimization

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CMT LEVEL III
2025
The Work of a Technical Analyst
Integrating Concepts and Tools into Methods for Analyzing Market Action and Managing
Positions and Risk

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CMT LEVEL III
The Work of a Technical Analyst
Integrating Concepts and Tools into Methods for Analyzing Market Action and Managing Positions and Risk

I. Application of Technical Analysis

i. Analyze and interpret charts for entries and exits using
classical charts, patterns, and indicators.
ii. Develop plans to address risk using, e.g., technical,
behavioral, quantitative analysis, and leverage.
iii. Analyze the output from models to determine their suitability
for implementation.
iv. Establish weighting of assets and securities using, e.g.,
relative strength, trend, momentum.
v. Integrate volatility measures into price forecasting and trade
management.
II. Ethics

Important points to note

• The CMT Level III exam tests the candidate’s ability to integrate a wide range of concepts and tools into the
application of technical analysis.
• The Level III exam is organized into groups, most of which weave together two or more knowledge domains. In turn,
each of those groups contains from three to seven items requiring a response. Some items will be multiple choice;
most will be short answer and require that you make a list, state and justify your analysis, or supply a similar written
response.
• Candidates have four hours to complete the exam.
• The exam is delivered on a computer in Prometric testing facilities, or through Prometric’s ProProctor remote-
proctoring service. Please be sure to schedule your
exam well in advance. Ethics
• Questions on the Code of Ethics and Standards of
Professional Conduct appear on all three levels of the
CMT exams. The Standards of Practice Handbook is a
valuable study guide for the Code and Standards.
Please use those documents as ethics are not otherwise
included in the CMT Program textbooks.
• The CMT Association maintains a discussion forum for
CMT candidates. Candidates are encouraged to utilize Application
this resource to discuss and clarify their understanding of Technical
of the subject matter. Analysis

KNOWLEDGE DOMAINS BREAKDOWN

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CMT LEVEL III

Please find the complete Table of Contents for the candidate body of knowledge in CMT Level III
below. Each Section contains one or more units. Each unit lists multiple Learning Objective
Statements (LOS). These LOS are your explicit guide to preparing for your exam. They are listed at
the start of each unit in the digital LMS and will guide your reading. Comprehension and fluency with
each LOS by the end of each unit should give you high confidence in moving on to the next unit and
section.

Section One: Quantifying and Managing Risk

1 Perspectives on Risk
 Assess the utility of a gamble for risk-seeking, risk-neutral, and risk-averse investors
 Explain why risk appetite diminishes inversely with portfolio growth
 Summarize the better approaches to trading and the professional approach to trading
 Calculate volatility from one period to another
 Explain the concepts of VaR and CVaR
 Interpret the effect leverage has on risk and reward
 Describe methods that can be used to target risk levels
 Summarize the different types of diversification
 Explain common diversification mistakes made by investors
 Summarize how to select uncorrelated securities for a portfolio

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CMT LEVEL III

Section Two: Classical Chart Analysis

1 Classical Chart Patterns
 Design trades by generating price objectives, entry prices, and protective stop-loss prices using both
the 3% and ATR multiple rules
 Assess trades by calculating the reward-to-risk ratios
 Devise plans to trade failed classical chart patterns

2 Candlesticks within a Broader Technical Analysis Framework

 Explain how blending Western technical analysis tools and candlestick pattern analysis can lead to
more confident and well-rounded decisions
 Assess various ways Western technical analysis tools can confirm candlestick patterns
 Contrast scenarios where candlestick analysis is more relaible versus less reliable
 Evaluate various ways to blend candlestick analysis within a broader technical analysis framework
 Summarize ways to integrate candlestick analysis into risk management strategies
 Appraise conditions that enhance the reliability and effectiveness of candlestick patterns for trade
entries

3 Case Studies in Point-and-Figure Analysis

 Summarize Davis’s approach to organizing and testing point-and-figure patterns
 Describe Davis’s method for gauging volatility and his general findings
 Construct a top-down process for stocks using point-and-figure
 State several ways to identify stop levels using point-and-figure
 Explain how stop levels and price targets may be used in determining position size
 Summarize the author’s three “first principles” about trading

Section Three: Trend Analysis

1 Market Internals
 Interpret various internal indicators in relation to price
 Defend the use of internals when assessing market health

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CMT LEVEL III

Section Four: Technical Indicators

1 Anchored Volume Weighted Average Price Part 1
 Explain the difference between VWAP and AVWAP
 Explain the advantage of AVWAP as compared to the conventional VWAP
 Summarize the general principles for interpreting VWAP and AVWAP

2 Anchored Volume Weighted Average Price Part 2

 Define anchoring bias
 Describe individual and market psychology behind selecting anchors
 Explain what time and price anchors are and how they are derived
 List important time anchors
 List important event anchors
 Describe drawbacks and challenges in using AVWAP

3 Bollinger Bands Advanced Implementation

 Explain a core goal of technical analysis tools in general
 Combine Bollinger Bands and other technical analysis tools to determine when a tag of a Bollinger
Band is a reversal or continuation signal
 Combine Bollinger Bands and other technical analysis tools to determine the trending environment
 Explain multicollinearity and its importance in selecting indicators
 Assess M tops and W bottoms with Bollinger Bands and %b

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CMT LEVEL III

Section Five: Volatility Analysis

1 Volatility Indexes Advanced Concepts
 Explain what VVIX measures
 Compare the term structures of VIX and VVIX
 Explain what the SKEW Index measures
 Conclude what the movements of VIX and SKEW imply about tail risk
 Explain what the MOVE Index measures
 Describe why VIX is more of a diversification tool than a hedge to S&P 500® holdings
 Summarize the three types of strategies that harness implied volatility in portfolio management
 Assess the three rules for improving the probability of success in financial markets

Section Six: Comparative Market Analysis

1 Relative Rotation Graphs (RRG) - Advanced Concepts
 Identify and explain the indicators derived from the RRG and their applications
 Explain the difference between an open universe and a closed universe
 Summarize the importance of open and closed universes in the RRG
 Describe how RRGs can be used in portfolio management
 Develop a plan for using RRGs in top-down stock selection
 Contrast the use of a traditional RRG with an RRG for FX

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CMT LEVEL III

Section Seven: Systems and Quantitative Methods

1 Statistics of Backtesting
 Explain the statistical challenges faced when backtesting
 Analyse four important statistical features of time-series price data
 Explain why log returns are often used in backtesting
 Compare signal testing and backtesting
 Describe four statistical concerns in backtesting

2 Systematic Approaches, Development, and Risk

 Explain systematic trading
 Appraise the elements of systematic trading
 Describe important topics related to developing trading models
 Define financial risk
 Summarize mark-to-market
 Contrast risk-per-trade with risk-per-unit-of-time

3 Systematic Counter-Trend Trading and Position Sizing

 Explain the two ways to think about counter-trend trading
 Summarize a basic counter-trend model
 Describe how and why the author uses volatility to size positions

4 Systematic Tactical Asset Allocation

 Describe some weaknesses of the All-Weather portfolio
 Explain the author’s improvements to the All-Weather portfolio
 Discuss ways to improve the presented dynamic All-Weather portfolio

5 Trading Systems
 Summarize the expectancy formula
 Contrast trading systems

6 Advanced Quantitative Concepts

 Summarize the expectancy formula
 Contrast trading systems

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CMT LEVEL III

Section Eight: Topics in Portfolio Management

1 Bridging the Fundamental Gap Fusion Analysis
 Explain the concept represented by the formula P = (F * V)S
 Summarize the criteria to select stocks, and their relative
importance, for a portfolio that combines fundamentals, trend,
and relative outperformance
 Explain the importance of the expectancy formula
 Evaluate long-term trend following versus swing-trading
 Justify why the author calls the market “the best fundamental
analyst on the planet”
 Relate how the author takes a top-down approach to finding
ideas for long-term trend following

2 Portfolio Construction Employing Relative Strength and

Sector Rotation Strategies
 Summarize tactical asset allocation
 Discriminate between absolute and relative prices
 Describe various ways to analyze relative prices
 Explain the potential benefits of using a sector rotation strategy
 Set up the steps in constructing and running sector rotation
strategies

3 A Practitioner's Perspective on Portfolio Management

 Summarize three ways technical analysis can be used in
portfolio management
 Describe the four types of indicators the author describes
 Explain various ways to assess risk from a top-down perspective
 Summarize dynamic portfolio management

4 Digital Assets - Applying Technical Analysis

 Explain why Bitcoin is considered the benchmark of digital
assets
 Describe the portfolio implications of Bitcoin’s long-term
correlation with various asset classes and decreasing historical
volatility
 Interpret results of adding a Bitcoin allocation to an S&P
500® buy and hold portfolio
 Discuss various macro drivers for Bitcoin including currency
debasement, economic cycles, and the U.S. Dollar Index
 Summarize how on-chain metrics are to digital assets what
traditional metrics are to fundamental analysis
 Identify foundational on-chain metrics
 Define what reflexivity is in the context of digital assets
 Defend the use of sector analysis and traditional relative
strength and market breadth analysis on digital assets
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CMT LEVEL III

5 Fusion Analysis: Technicians and Fundamentalists

Working Together
 Recall the year that Ralph Acampora and CMTA were able to
have Rule 344 amended
 Assess the best practices for working with fundamental analysts
 Justify why fundamental and technical analysts should work
together
 Explain what to do when technicals and fundamentals diverge

6 Contrarianism, Crowd Behavior, and Overcoming Group

Biases
 Contrast contrarian investor behavior at market tops and
bottoms
 Explain contrarian strategy
 Describe groupthink
 Assess situations where groupthink is likely to occur
 Describe the negative consequences of groupthink
 Summarize approaches to mitigating the effects of group biases
and groupthink

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 CMT PROGRAM GUIDE 2025

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