CMT Level 2 Practice Exam PDF: How to Prepare for the Test
If you are planning to take the CMT Level 2 exam, you might be wondering how to prepare for it. The CMT Level 2 exam is a challenging test that covers advanced topics in technical analysis, such as market indicators, chart patterns, trend analysis, intermarket relationships, behavioral finance, and risk management. To pass the exam, you need to demonstrate your ability to apply these concepts to real-world scenarios and interpret complex charts and data.
One of the best ways to prepare for the CMT Level 2 exam is to practice with sample questions that are similar to those you will encounter on the actual test. Practicing with sample questions can help you familiarize yourself with the exam format, assess your strengths and weaknesses, identify areas where you need to improve, and boost your confidence and speed.
Fortunately, there are many resources available online that offer CMT Level 2 practice exam PDFs for free or at a low cost. These PDFs contain multiple-choice questions that cover various topics from the CMT Level 2 curriculum and provide detailed explanations for the correct and incorrect answers. Some of these resources also include tips and strategies on how to approach the exam and avoid common pitfalls.
In this article, we will review some of the best sources of CMT Level 2 practice exam PDFs that you can use to prepare for the test. We will also give you some advice on how to use these PDFs effectively and efficiently.
One of the topics that you need to master for the CMT Level 2 exam is market indicators. Market indicators are quantitative tools that use statistical formulas and ratios to analyze data from multiple securities or indexes and forecast market movements. Market indicators are a subset of technical indicators, but they differ in that they focus on the overall market rather than a single security.
There are many types of market indicators, but some of the most common ones are:
Market Breadth indicators: These indicators compare the number of stocks moving in the same direction as the larger trend. For example, the Advance-Decline Line looks at the number of advancing stocks versus the number of declining stocks.
Market Sentiment indicators: These indicators compare price and volume to determine whether investors are bullish or bearish on the overall market. For example, the Put-Call Ratio looks at the number of put options versus call options during a given period.
Moving Averages indicators: These indicators smooth out price data by calculating the average price over a certain period of time. For example, the 50-day moving average shows the average price of a security over the past 50 days.
Market indicators can help you identify trends, reversals, divergences, and breakouts in the market. They can also help you measure the strength, momentum, and volatility of the market. By using market indicators, you can gain a better understanding of the market dynamics and make more informed trading decisions.
Another topic that you need to master for the CMT Level 2 exam is on balance volume (OBV). OBV is a momentum indicator that uses volume flow to predict changes in stock price. OBV was developed by Joseph Granville and introduced in his 1963 book Granville's New Key to Stock Market Profits.
OBV is calculated by adding the volume of a period when the price closes higher than the previous period, and subtracting the volume of a period when the price closes lower than the previous period. The result is a cumulative total of positive and negative volume that shows the buying and selling pressure in the market.
OBV can help you identify trends, divergences, and breakouts in the market. A rising OBV indicates that buyers are more active than sellers, which can lead to higher prices. A falling OBV indicates that sellers are more active than buyers, which can lead to lower prices. A divergence between OBV and price occurs when they move in opposite directions, which can signal a potential reversal. A breakout occurs when OBV moves above or below a trendline or a resistance or support level, which can confirm a new trend.
A third topic that you need to master for the CMT Level 2 exam is average directional index (ADX). ADX is a momentum indicator that measures the strength of a trend, not the direction. ADX was developed by J. Welles Wilder Jr. and introduced in his 1978 book New Concepts in Technical Trading Systems.
ADX is calculated by using the positive directional indicator (+DI) and the negative directional indicator (-DI), which are derived from the directional movement (+DM and -DM) and the average true range (ATR). The formula for ADX is:
ADX = 100 x EMA of |(+DI - -DI) / (+DI + -DI)|
where EMA is the exponential moving average and | | is the absolute value.
ADX ranges from 0 to 100, with higher values indicating stronger trends. Wilder suggested that a value above 25 indicates a trending market, while a value below 20 indicates a non-trending or ranging market. ADX can also be used to identify potential trend reversals when it diverges from the price or when it crosses above or below certain levels.
A fourth topic that you need to master for the CMT Level 2 exam is Aroon oscillator. Aroon oscillator is a trend-following indicator that uses the Aroon up and the Aroon down indicators to measure the strength and direction of a trend. Aroon oscillator was developed by Tushar Chande and introduced in his 1995 book The New Technical Trader.
Aroon up and Aroon down are calculated by measuring the number of periods since a new high or low was reached within a given time frame. For example, a 14-period Aroon up measures the number of periods since a 14-period high, while a 14-period Aroon down measures the number of periods since a 14-period low. The values range from 0 to 100, with higher values indicating a stronger trend.
The Aroon oscillator is simply the difference between Aroon up and Aroon down. The formula for Aroon oscillator is:
Aroon oscillator = Aroon up - Aroon down
The Aroon oscillator ranges from -100 to +100, with zero as the centerline. A positive value indicates an uptrend, while a negative value indicates a downtrend. The higher the absolute value, the stronger the trend. Traders can use the Aroon oscillator to identify trend changes, trend strength, and trend direction.
A fifth topic that you need to master for the CMT Level 2 exam is MACD. MACD stands for moving average convergence divergence and is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of a security's price. MACD was developed by Gerald Appel in the late 1970s and is one of the most widely used technical indicators in trading.
MACD is calculated by subtracting the 26-period EMA from the 12-period EMA. The result is called the MACD line and is plotted on a chart along with a signal line, which is a nine-period EMA of the MACD line. The difference between the MACD line and the signal line is called the MACD histogram, which shows the momentum and direction of the trend.
MACD can help traders identify trend changes, trend strength, and trend direction. Traders can use MACD to generate buy or sell signals based on crossovers, divergences, and overbought or oversold conditions. A crossover occurs when the MACD line crosses above or below the signal line, indicating a bullish or bearish momentum shift. A divergence occurs when the MACD line moves away from the price, indicating a potential reversal. An overbought or oversold condition occurs when the MACD histogram reaches extreme values, indicating a possible exhaustion of the trend.
A sixth topic that you need to master for the CMT Level 2 exam is accumulation/distribution line (A/D). A/D is a volume-based indicator that measures the cumulative flow of money into and out of a security. A/D was developed by Marc Chaikin and is based on the concept of money flow.
A/D is calculated by using the money flow multiplier and the volume for each period. The money flow multiplier is a value between -1 and +1 that depends on the relationship between the close, high, and low of the period. The money flow multiplier is positive when the close is in the upper half of the range and negative when the close is in the lower half of the range. The money flow multiplier is then multiplied by the volume to get the money flow volume. A running total of the money flow volume forms the A/D line.
A/D can help traders identify the general trend, trend changes, and divergences in the market. A rising A/D line indicates that buying pressure is stronger than selling pressure, which implies an uptrend. A falling A/D line indicates that selling pressure is stronger than buying pressure, which implies a downtrend. A crossover between the A/D line and its moving average can signal a trend change. A divergence between the A/D line and the price can indicate a potential reversal.
A seventh topic that you need to master for the CMT Level 2 exam is chart patterns. Chart patterns are the shapes formed by the price movements of a security on a chart. Chart patterns are the foundation of technical analysis and can help traders identify trends, reversals, breakouts, and targets. Chart patterns can be classified into three categories: continuation, reversal, and bilateral.
Continuation patterns indicate that the existing trend is likely to resume after a period of consolidation. Some of the common continuation patterns are flags, pennants, wedges, and triangles. These patterns usually have a measured move that can be used to estimate the target price after the breakout.
Reversal patterns indicate that the existing trend is likely to change direction after a period of exhaustion. Some of the common reversal patterns are head and shoulders, double tops and bottoms, rounding tops and bottoms, and cup and handle. These patterns usually have a neckline or a support or resistance level that can be used to confirm the reversal and estimate the target price after the breakout.
Bilateral patterns indicate that the price can move either way after a period of uncertainty. Some of the common bilateral patterns are symmetrical triangles, rectangles, and diamonds. These patterns usually have two trendlines or boundaries that can be used to identify the breakout direction and estimate the target price after the breakout.
In this article, we have covered some of the most important topics that you need to master for the CMT Level 2 exam. These topics include market indicators, MACD, A/D, and chart patterns. By understanding these concepts and applying them to your technical analysis, you can improve your trading skills and prepare for the exam. However, this is not an exhaustive list of topics, and you should also study other aspects of technical analysis, such as behavioral finance, intermarket analysis, risk management, and trading systems. We hope that this article has given you a useful overview of some of the key topics for the CMT Level 2 exam and has inspired you to learn more. 4aad9cdaf3