Chartered Market Technician (CMT) Level 2 Practice Test

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• When analyzing a moving average, which strategy may NOT yield a relevant result?
• What characterizes a Hikkake in trading?
• What is the purpose of the MAMA and FAMA indicators in trading?
• When should a trader buy according to the MACD trading signals?
• Which theory explains consumer behavior based on satisfaction from various combinations of goods?
• Cognitive dissonance often leads investors to what mistake?
• What is the Sibbett's Demand Index based on?
• What measures the risk from changes in implied volatility for option pricing?
• Which trading action is recommended after an initial breakout in an extended rectangle trading strategy?
• What is data mining primarily focused on?
• Which of the following explains a 3/4 cycle high?
• How is momentum calculated?
• What describes a Dragonfly Doji?
• What does the Intraday Intensity indicator measure?
• What is the primary use of divergences in technical analysis?
• In an outside bar trading setup, when should a trader consider buying?
• What is a consequence of technical analysis adopting the scientific method?
• What information do +DI and -DI provide traders?
• What indicates the resumption of a bull market?
• What does the Stochastic measure represent in trading analysis?
• What does path dependency refer to in economic behavior?
• What characterizes a bearish key reversal day?
• How is the RSI calculated?
• What is a key characteristic of the High Wave candle pattern?
• What distinguishes first-order autoregression from second-order autoregression?
• For a well-performing system, the efficiency factor should typically be in what range?
• Which statement is NOT an assumption of the Efficient Market Hypothesis (EMH)?
• Which factor is integral to identifying a cycle's amplitude relative to its period?
• Which of the following statements is true regarding the nature of prices in trend systems?
• What happens during a mid-cycle dip?
• According to trading principles, why do trend systems generally work?
• What percentage of trades should be profitable according to best practices?
• What is autoregression?
• What defines the V-Top pattern?
• Where is the ideal spot to go short from a cycle perspective?
• What follows the distribution phase in a bear market?
• Which of the following methods uses a 6-month lookback calculation to measure relative strength?
• What triggers a buy signal in a multi-moving average system?
• What is represented by Maximum Adverse Excursions (MAE)?
• What is the Relative Vigor Index primarily used for?
• What is considered the greatest risk to traders?
• What does Proportionality suggest about a cycle's period and amplitude?
• When should a trader consider selling based on linear regression trading signals?
• Which trends are considered the most reliable in trading?
• Which formula represents the Wilder Moving Average?
• What is the recommended trading strategy when the price breaks the outer band?
• What occurs when an investor forms beliefs based on outcomes derived from a limited sample size?
• What is an example of an exogenous signal system?
• During what phase do prices typically rise steadily in a bull market?
• What does the coefficient of determination represent?
• What does a long white candle with no upper wick signify in terms of market behavior?
• How is a swing high defined?
• In which scenario would cycles NOT be expected to behave as indicated by the principle of Cyclicality?
• Which of the following is NOT one of the five initial decisions for constructing a trading system?
• How is the ADX line calculated?
• What is the purpose of the information or price discovery premium?
• What is the primary purpose of ratio analysis in investing?
• What is highlighted in the principle of Variation regarding market behavior?
• What does a Confidence Interval provide?
• Which trading style is characterized by making several trades within a single day?
• What role do bonds play towards the end of an economic expansion?
• What defines a centered moving average (CMA)?
• What feature identifies a high wave candle?
• The concept of saliency refers to which aspect in decision-making?
• What is described as a positive directional movement day?
• What shape is associated with an Eve top or bottom?
• What indicates an upward spike on a price chart?
• Which of the following is NOT one of the 7 Principles of Commonality?
• Heteroscedasticity refers to which aspect of time-series data?
• Which indicator measures the slope of the Dow Jones 20 Bond Index over the short-term?
• What confirms major price moves in the market?
• Which method is regarded as aggressive for momentum mean reversion entry?
• What is the general form of the multiple regression equation?
• In a bull market, what is the typical investor behavior before a correction?
• Which type of bias describes how investors may undervalue new evidence due to their existing beliefs?
• Which of the following indicates that stocks with low price-to-earnings ratios tend to outperform those with high ratios?
• When seeking divergences of oscillators and cycles, what analysis technique is best?
• What do high TRIN readings indicate according to sentiment analysis?
• What can a trend-following approach help traders achieve?
• What two solutions can help control losses in a relative strength study?
• What characterizes the sunk-cost bias?
• What role does an independent variable play in a regression function?
• Which problem of time-series price data pertains to returns not being independent?
• The semi-strong form of EMH suggests that all of what type of information is priced in?
• What trend indicates low sentiments in a bear market?
• Which behavioral finance concept suggests that price trends observed over the last 6 to 12 months will likely continue?
• Which pattern consists of two opposite color candles with matching closes?
• What is one aspect that the Bias-Variance Tradeoff helps to address in trading models?
• What can be inferred about V-shaped lows from the principle of Synchronicity?
• What does the elimination of meaningless forecasts indicate in the context of using the scientific method in technical analysis?
• In the context of technical analysis, what does volume indicate?
• How often do markets trend according to historical data?
• Which variable in the regression equation is represented by 'x'?
• What is the primary purpose of using bands in trading?
• Which term describes the situation when price develops a swing high at an unexpected cycle low?
• What is a key characteristic of high volume in relation to market behavior?
• Which approach is commonly used to mitigate issues with price returns?
• What is the primary purpose of the Average Directional Index (ADX)?
• What is the general range of the Loss Aversion ratio?
• What is indicated by a “golden cross” within the Tape Component?
• What is the typical frequency of pullbacks after a breakout?
• What is the correlation needed for effective portfolio diversification?
• What does the rate of change measure in trading?
• What can cognitive biases in investing lead to?
• What are scallops in trading terminology?
• What does the signal line of the MACD represent?
• What does the Base Rate Fallacy illustrate?
• In trading extended rectangle bottoms, which is a key step in the strategy?
• What directional movement is recorded on an inside day?
• What does the term "Golden Cross" refer to in technical analysis?
• How do you calculate STARC Bands?
• Which type of technical system involves buying low and selling high within a trading range?
• What is the Short Interest Ratio?
• What does the term 'detrending' refer to in the context of ARIMA?
• In the Pivot Point Reverse Trading System, when should a trader buy?
• Which of the following is NOT considered a driving factor of market prices?
• What is the Status Quo Effect?
• What does Single Stock Beta measure in the context of portfolio management?
• What is the Ultimate Oscillator designed to combine?
• Which of the following is NOT a way to use moving averages?
• When should you trade long using DMI's?
• Which statement accurately describes harmonics in cycle variation?
• Which ARIMA trading strategy utilizes confidence bands to identify oversold conditions?
• The status quo effect tends to lead to what type of behavior?
• What is the significance of using bands in trading?
• What does the term 'random pricing errors' refer to in EMH?
• How is the market's overall health gauged using the Diffusion Index?
• What trading signal follows an inverted hammer?
• Which of the following describes how linear regression trading signals instruct buyers?
• What do extrapolation errors refer to?
• What is the significance of a Gravestone Doji?
• What signal is required for a trader to turn bearish after observing a hanging man pattern?
• What is the significance of the trade signal generated by MAMA and FAMA?
• What condition indicates a false signal in a Cup Pattern trade?
• What is the Significance Level (alpha) in hypothesis testing?
• What is a common risk associated with trading double and triple tops?
• What does correlation measure in statistics?
• What action should be taken when prices break back into a consolidation area after an initial breakout?
• What is the purpose of signal testing in technical analysis?
• What type of markets does the liquidity premium generally correlate with?
• When should you buy according to the ATR volatility trading rules?
• In a regression equation, what does the dependent variable represent?
• What should a trader do when momentum turns negative?
• Which of the following options describes the Adaptive Directional Movement Index (DMI)?
• What does the Stochastic indicator measure?
• What does the endowment effect lead individuals to do?
• Which scenario describes a Bearish Counterattack Line?
• Why are speculative trading activities important for hedging?
• What is the significance of a DRF measurement in trading signals?
• What happens after a High wave candle is observed in the market?
• What is the expected action if today's close is less than today's open in the Two Bar Breakout strategy?
• What is the purpose of the Alternate Hypothesis?
• Which of the following is considered an effect that EMH does not explain?
• Which of the following represents a sign of market optimism?
• Which concept describes situations where past price movements lead to further price changes in the same direction?
• What indicates a confirmation of a double bottom pattern in trading?
• In cycle analysis, which of the following is a fundamental step?
• What does the January Effect refer to?
• Which of the following statements about the Chaikin AD is correct?
• What is indicated by a positive momentum signal?
• What characterizes the long-term market trends developed from government policy?
• What is the recommended action when a pivot point top occurs?
• What typically causes a correction in a bull market?
• What length of period should be used for oscillators to provide overbought and oversold signals?
• When is a symmetrical triangle most likely to form?
• What is a Cup Pattern primarily used to identify?
• What does the principle of Cyclicality state about markets?
• What defines a bullish key reversal day?
• What is the weakness of a centered moving average (CMA)?
• Which measure is associated with risk management in relation to interest rates?
• What action should you take when the Bolton Tremblay Index ratio is greater than zero?
• What outcome is indicated by a rising slope in linear regression analysis?
• What does the Bandwidth Indicator measure?
• What type of bias involves seeking information that supports one's existing beliefs while ignoring opposing data?
• What does the liquidity premium compensate investors for?
• Which principle explains why broader cycles influence smaller cycles in market behavior?
• Which phase comes first in a bull market?
• What does the term "true range" relate to in DMI calculations?
• How can moving averages be utilized in conjunction with bands?
• What is a Counterattack line pattern?
• What effect does investor sentiment have on market prices?
• What does it indicate when the ADX line is below both DMI lines?
• How can the addition of uncorrelated assets benefit a portfolio?
• What describes a Shaven Head candlestick pattern?
• What is the formula for calculating the Money Flow Index (MFI)?
• Which of the following best characterizes the primary focus of sentiment reports?
• Which method is best known for calculating the correlation coefficient?
• When should a trader consider trading after momentum remains in the zone for a certain number of periods?
• What concept refers to the limitations in human rationality in the context of decision-making?
• What dynamic entails prices changing in the opposite direction from their current movement?
• According to the principle of Synchronicity, how do cycle lows behave?
• What defines a discretionary trading system?
• What is indicated by a higher likelihood for a reversal in market trends?
• Which concept illustrates market psychology through its shapes?
• In the context of model development, what can occur if a model is excessively fitting past data?
• What situation constitutes a swing low?
• What is the Chaikin AD primarily used to analyze?
• What does framing in decision-making psychology influence?
• In the context of cycle variation, what does proportionality refer to?
• What is a component used for major confirmation in momentum trading?
• What does the trend of free reserves indicate about the Fed's monetary policy?
• In a Falling Window pattern, where is the most important resistance level located?
• What type of moving average is used as a signal line in the Relative Vigor Index?
• What does the efficiency factor measure in a trading system?
• What is the role of money in the context of trend systems?
• What does the profit factor measure?
• How is the Tick Volume Indicator calculated?
• In the principle of Harmonicity, how are subcycles related to the dominant cycle?
• In which market condition is a Bullish Belt-Hold candle most significant?
• What is a common psychological barrier that hinders investment decisions?
• How is the New High-New Low Index calculated?
• What is the consequence of a falling valid trend line (VTL) breaking above?
• What is a major problem with using envelopes?
• What is a Northern Doji?
• When is volume expected to typically decline?
• What does meta-look-ahead bias stem from?
• In the context of breakout strategies, what does delaying an order mean?
• What commonly occurs when the volume of trading confirms the momentum of a stock's price?
• What situation describes a "Death Cross"?
• What is a key indicator to buy in the context of a trading cap pattern?
• What does Rho measure in the context of options?
• Which of the following is NOT a recommended solution to address the multiple testing fallacy?
• Which type of gap is characterized by a common gap formation?
• The Smart vs. Dumb Paradox demonstrates what economic principle?
• What is Portfolio Beta used to assess?
• What characterizes a Tweezers Top pattern?
• Which cognitive bias causes investors to overweight confirming information?
• What is indicated by System Robustness?
• Which of the following is an assumption of regression analysis?
• What should a trader set after buying on the break of today's high according to Two Bar Breakout rules?
• What should happen for a successful trade in the Pivot Point Reverse Trading System after a buy signal?
• What is the first step in applying an ARIMA model?
• When should trades be executed according to the Williams A/D Oscillator trading signals?
• Which component is NOT part of the Fab Five Model?
• The bias-variance tradeoff is concerned with which of the following?
• Which calculation is the first step in determining the DMI?
• What is a crucial component of a successful buy strategy during major price corrections?
• What is the first step in calculating Keltner Bands?
• On an outside day, what should be recorded?
• Which method can be used when analyzing the Volume Oscillator?
• What does the term Loss Aversion describe?
• What is a significant risk when trading an exhaustion gap?
• What characteristic does the Levy method use for analyzing relative strength?
• What does a small second candle in a Tweezers Bottom typically represent?
• What does the slope near zero in the True Strength Index indicate?
• What does data mining bias refer to?
• How is the Bolton Tremblay Index calculated?
• What does a Bearish Belt Hold candle indicate?
• When is the best time to employ Keltner Bands in trading?
• What term describes how a variable correlates with itself over time?
• In the Combo component, what does the phrase "Don't Fight the Tape or Fed" suggest?
• How does the availability heuristic relate to past events in decision making?
• What is an indicator of the end of a bear market according to Schabacker's Rules?
• What occurs during the distribution phase?
• How should tests be treated according to strategies to combat the multiple testing fallacy?
• Which analysis method is primarily indicated by a rising ADX line?
• What is indicated by a Bullish Counterattack Line?
• How is the Force Index calculated?
• Which of the following describes the basic exit strategy for mean reversion using momentum?
• What is the form of the regression equation often referred to?
• Which of the following is NOT one of the protective stops for momentum trading?
• What does the Deflated Sharpe Ratio (DSR) intend to measure?
• Which bias results in investors being slow to adjust their beliefs based on new information?
• What candle formation signals a potential reversal after a downtrend?
• What is the first rule to enter an order on a breakout from a band?
• Which of the following is NOT one of the stages of the Hypothetico-Deductive Method?
• When should a trader consider selling according to the Ultimate Oscillator?
• What does 'b' represent in the regression equation?
• What does William %R measure in technical analysis?
• What does the Herrick Payoff Index measure?
• What do the Positive Volume Index (PVI) and Negative Volume Index (NVI) primarily study?
• What is the formula for calculating the weight of the current price in an exponential moving average?
• Which form of Efficient Market Hypothesis (EMH) includes all public and private information?
• When should a trader buy according to TRIX signals?
• What do traders aim for when utilizing the Maximum Favorable Excursion (MFE) metric?
• What is the definition of a rising valid trend line (VTL)?
• Which direction should the ADX line be moving to implement a trend-following strategy?
• What is the primary characteristic of a variable exhibiting autocorrelation?
• How do you determine the optimum moving average length?
• What is a key indication to look for when using the Sibbett's Demand Index?
• What does a high Upside/Downside Ratio typically indicate about market conditions?
• Under which condition should a trader sell when using the divergence index?
• What is an essential factor to consider when using the Directional Movement Index (DMI)?
• What should be used along with momentum to reduce whipsaw effects?
• What happens to popular stocks at the end of a bull market, as per Schabacker's Rules?
• What does 'n' represent in the Wilder Moving Average calculation?
• What is the primary action recommended when trading a runaway gap?
• What is referred to when prior beliefs are weakened by contradictory information?
• How is a spike characterized in trading terms?
• Which is the first stage of top-down fundamental analysis?
• What is known as the effect where stocks with low price-to-book ratios outperform those with high price-to-book ratios?
• What does a trough in the ADX line often signal?
• Which condition indicates that the market is potentially oversold according to RSI?
• Which of the following is NOT a condition of the Two Bar Breakout rules?
• Which of the following methods involves using the alpha of a stock compared to a benchmark?
• What does misunderstanding randomness refer to in financial markets?
• In what scenario does buying interest typically diminish?
• What is the Sharpe Ratio primarily used to evaluate?
• When should a trader sell in a Cup Pattern?
• In the context of candlestick patterns, what does the term 'Doji' refer to?
• What does a Southern Doji signify?
• What is the primary use of the %D and %D-slow in Stochastic analysis?
• How is the True Strength Index calculated?
• What is indicated by the Tweezers Bottom pattern?
• What analytical approach is often used in conjunction with oscillators for cycle identification?
• Why is Pearson's correlation coefficient significant in statistics?
• What does the Money Flow Index (MFI) incorporate in its calculation?
• What is a primary challenge associated with data mining?
• Which factor is NOT one of the three factors for a better performing trending strategy?
• Which of the following is considered a type of external indicator?
• What is the defining characteristic of a Shaven Bottom pattern?
• What conflict does the Cost of Information Paradox present in the context of Efficient Market Hypothesis (EMH)?
• What is a good profit factor value in trading?
• What can indicate a warning of a cycle fracturing?
• What is represented by cycle inversion?
• How is the Sterling Ratio calculated?
• What does the Williams A/D Oscillator measure?
• What indicates a bullish signal after seeing an inverted hammer?
• What does normalized volume help traders determine?
• What does the supply of money with respect to M2 Money Supply measure in the monetary component?
• What is the most demanding exit strategy for mean reversion in momentum trading?
• What is the selling condition in the 10-Day Moving Average Rule?
• What is the definition of a negative directional movement day?
• What does the Volume Oscillator compare?
• Which cognitive bias involves excessively relying on initial information?
• Which ratio is used specifically for analyzing drawdown performance?
• What type of ARIMA trading strategy involves using a one-day forecast?
• When is the RSI equal to 70 typically interpreted?
• Which error leads investors to systematically underreact or overreact to market information?
• What is the best strategy for diversifying risk in a portfolio?
• What does the term “maximum drawdown” generally refer to?
• Which trading system type is characterized by buying high and selling higher?
• What does cognitive consonance indicate about an investor's behavior?
• What function does the moving average operator serve?
• Which correlation coefficient is based on ranked values rather than raw data?
• What is indicative of a V-Bottom formation?
• What does the Donchian Channel reflect?
• What likely occurs just after a symmetrical triangle breakout?
• Which type of candlestick indicates a possible continuation of an uptrend?
• What is a key concern when backtesting trading strategies?
• What is backtesting primarily used for in financial strategies?
• How is the MACD line calculated?
• What is a trend following indicator in the context of internal indicators?
• What does a Thrust Oscillator handle regarding stock volume?
• What phenomenon suggests that small capitalization stocks earn higher returns compared to large capitalization stocks?
• What is the purpose of measuring maximum loss in Maximum Adverse Excursions (MAE)?
• What are the two significant factors affecting the success of an ARIMA model?
• What is a sign of a multiple moving average buy signal?
• How would you characterize a Long-Legged Doji?
• How does the concept of Summation relate to technical analysis?
• Which of the following does NOT fall under inertial effects?
• Which method of optimization involves testing on small subsequent portions of data?
• What does a volume spike indicate about market activity?
• What is the definition of TRIX in technical analysis?
• Which is NOT a component of a risk control plan in trading?
• What does the Sortino Ratio measure?
• Which measure is used to assess the psychological sentiment of investors?
• What is the strategy for trading a common gap?
• In a nondiscretionary trading system, how are entries and exits determined?
• What does the Disposition Effect describe?
• What is the accumulation phase associated with?
• What do support and resistance levels represent in trading?
• What does a divergence between price and the divergence index suggest?
• What hypothesis suggests that investors may be overconfident about private research quality due to cognitive biases?
• How is a Dragonfly Doji typically interpreted in trading?
• What is the best ADX signal to enter a trade?
• What is the goal of the channel normalization operator?
• What does tolerance indicate in relation to multicollinearity?
• What does mean reversion suggest about stock prices?
• What does the equity market risk premium represent?
• What does Gamma specifically measure in relation to options?
• What does the Schultz Index measure?
• What method of trading typically involves holding positions for a few days to a couple of weeks?
• What does the Endowment Effect refer to in behavioral economics?
• What characterizes an Adam top or bottom?
• What defines multicollinearity in regression analysis?
• What does a peak in the ADX line typically indicate?
• When does a mid-cycle dip typically occur?
• When trading a breakaway gap, what should traders wait for before entering a trade?
• What does the divergence index measure?
• What comprises the band size in Keltner Bands?
• Which of the following indicators applies volume to daily percentage price change?
• How is +DI calculated in the DMI analysis?
• According to Schabacker's Rules, which of the following is a sign of the end of a bull market?
• What is the Maximum Cumulative Drawdown (MDD)?
• What defines a failed breakout?
• What type of market scenario does an advancing volume versus a declining volume signify?
• What type of pattern does a Rising Window indicate?
• What psychological concept refers to the tendency to treat losses as more significant than gains of the same magnitude?
• What is the first perception bias listed in the four types of perception biases?
• What is one drawback of the relative strength study?
• What does the principle of Summation describe about price movement?
• Volume is crucial for confirming which technical market activity?
• What is a Confidence Level?
• What does the least squares model help traders understand?
• What is the optimum period length for calculating momentum?
• What causes the commodity and currency hedge risk transfer premium?
• What does a drop in volume typically indicate?
• What occurs when multiple moving averages crossover?
• What does the amplitude of a cycle’s 2nd harmonic decreasing signify?
• What happens when the ADX line rises above both DMI lines?
• Why are envelopes used in trading?
• What is the purpose of creating channels in technical analysis?
• What is the primary function of oscillators in technical analysis?
• How is %K calculated in the Stochastic indicator?
• What happens to momentum signals as they move towards the zero line in exit strategies?
• Under the rules for using Bollinger, Keltner, and Chaikin indicators, when should you sell?
• What does a channel breakout operator help identify?
• What is the first method of optimization described?
• According to Prospect Theory, decisions are primarily made based on what factor?
• What is heteroscedasticity?
• Which principle is closely related to the observation that certain periods are statistically more frequent in price movements?
• How does one interpret the MACD histogram?
• How is a multiple moving average sell signal identified?
• What does homoscedasticity indicate in a regression analysis?
• What does a Thrust Oscillator value of +/-30 generally indicate?
• Which effect describes individuals tending to sell winning investments prematurely?
• What is the environmental model's approach to risk management?
• What is the primary use of the Positive and Negative Volume Indices?
• What does the Relative Strength Index (RSI) indicate?
• What does it mean when ARIMA's final forecast errors have low variance?
• What does the Arms Index (TRIN) measure?
• What does it imply if a correlation coefficient is close to 1?
• What does Maximum Favourable Excursions (MFE) track?
• What is the McClellan Oscillator based on?
• What does the MAR ratio measure?
• What is considered a good payoff ratio in trading?
• Alpha represents what type of investment return?
• What action should be taken after an inside bar day according to the Toby Crabel strategy?
• Which of the following factors drives market prices?
• What happens when many strategies are tested on the same data without proper controls?
• What is an important factor in executing trades based on gaps?
• In a Cap Pattern, what must the middle bar exhibit to signal a buy?
• Which of the following categories of investors involves buying stocks and holding them for a long period?
• What does the Null Hypothesis represent in hypothesis testing?
• What defines an episodic pattern in market trends?
• High volume is generally associated with which of the following?
• What does the Volume Weighted MACD use to perform its calculations?
• What typically initiates the lack of buying interest in a bear market?
• Which term measures the rate of change of Delta, representing the second derivative of price?
• What defines a swing low?
• What should be the strategy if a breakaway gap does not fill?
• How long does an average business cycle typically last?
• Which of the following is NOT a drawback of prospect theory?
• What does the term "trend identification" refer to in technical analysis?
• Which measure deals with the rate of time value decay of options?
• Which of the following factors does NOT directly influence Delta?
• What is the vividness bias in decision-making?
• Which method of measuring relative strength involves ranking stocks based on the slope of their trend line?
• What is the focus of the data-snooping bias?
• What does the principle of Nominality state about wave periods?
• What is the basic measure of how much an option price changes for a one point move in the underlying price?
• In which order do the financial instruments typically lead the downturn at the end of an economic expansion?