CMT Level II Test with all Correct & 100% Verified
Answers |Actual Complete Exam |Already Graded A+
Momentum ✔Correct Answer-Difference between two prices over fixed interval.
Can Smooth Movement/act as trend
Can be a percentage
Overbought/oversold ✔Correct Answer-overbought- no longer sustain the strength of current
up trend
oversold- ready for upward move
MACD ✔Correct Answer-Momentum Smoothing Indicator
difference between two EMAs (12 and 26).
Further smoothed to get signal line (9day).
Histogram- subtracts slower signal line from MACD line (above zero confirms uptrend).
Trading MACD ✔Correct Answer-Buy when MACD crosses upward through signal line.
Sell when opposite
May want to create thresholds to avoid whipsaws
Divergence Index ✔Correct Answer-Volatility adjusted difference between two moving
averages.
Similar to MACD. Incorporates volatility (stdev).
Slow MA= 40
Fast MA = 10
Formula: (10-40)/stdev(diff,slow)^2
Trading Divergence Index ✔Correct Answer-Buy: When DI moves below lower band in
uptrend
Sell: when DI moves above upper band in downtrend
Oscillator ✔Correct Answer-Indicator that has bounds and floats above/below a 0 line.
Normalized as percentage.
Measures speed of surge and when momentum may break
Relative Strength Index (RSI) ✔Correct Answer-Oscillator. Scales values of momentum
between 0 and 100. Better because it uses all values rather than first and last. 14 days is used
because it is a half cycle
, AU=total upwards price movement over 14 days
AD= total downwards price movement over 14 days
RSI = 100*(RS/1+RS) where RS=AU/AD
Thresholds at 70 and 30
Stochastic Indicator ✔Correct Answer-Oscillator. measures relative position of price within a
past high-low range. Based on principle that Closing prices resist penetration of high prices over
last few days.
Example: if market is about to turn from up to down, it is often the case that highs or higher
than previous days, but close settles near low of the day. (moves faster than RSI and MACD)
Uses High, Low, Close.
%K = 100*(c-l(5)/range(5)).
%D= SMA(%K,3)
%D-Slow = SMA (%D,3)
Trading Stochastic ✔Correct Answer-Use %D and %D-slow as fast and slow similar to MACD.
Ignore %K. Also use threshold lines. 80-20
Williams A/D Oscillator ✔Correct Answer-accumulation/distribution.
Uses buying power and selling power (BP=high-open); (SP=Close-Low). Tries to measure implied
direction of the day's trading.
It then uses DRF [(bp+sp)/2*(h-l)]
Solves volatility problems. Completely adjusts to to higher or lower trading ranges. Sell when
penetrates Overbought.
Can be volatile because is day to day with no memory, so MA can be applied. Thresholds at 70-
30.
Williams %R-Method ✔Correct Answer-Often used to trade commodities. uses 10 days to fit
todays close into recent trading range.
=BP/Range.
Number is conceptually upside down. Do not enter trades if they contradict major direction
Ultimate Oscillator ✔Correct Answer-Combines A/D oscillator with wilders RSI. Sell when
oscillator moves above the 50% line, peaks at a high value, declines and then moves higher
buy when oscillator moves below 50% line troughs at a low, increases, and moves lower.
Relative Vigor Index ✔Correct Answer-Smoothed momentum. =(close-open)/(high-low)
Answers |Actual Complete Exam |Already Graded A+
Momentum ✔Correct Answer-Difference between two prices over fixed interval.
Can Smooth Movement/act as trend
Can be a percentage
Overbought/oversold ✔Correct Answer-overbought- no longer sustain the strength of current
up trend
oversold- ready for upward move
MACD ✔Correct Answer-Momentum Smoothing Indicator
difference between two EMAs (12 and 26).
Further smoothed to get signal line (9day).
Histogram- subtracts slower signal line from MACD line (above zero confirms uptrend).
Trading MACD ✔Correct Answer-Buy when MACD crosses upward through signal line.
Sell when opposite
May want to create thresholds to avoid whipsaws
Divergence Index ✔Correct Answer-Volatility adjusted difference between two moving
averages.
Similar to MACD. Incorporates volatility (stdev).
Slow MA= 40
Fast MA = 10
Formula: (10-40)/stdev(diff,slow)^2
Trading Divergence Index ✔Correct Answer-Buy: When DI moves below lower band in
uptrend
Sell: when DI moves above upper band in downtrend
Oscillator ✔Correct Answer-Indicator that has bounds and floats above/below a 0 line.
Normalized as percentage.
Measures speed of surge and when momentum may break
Relative Strength Index (RSI) ✔Correct Answer-Oscillator. Scales values of momentum
between 0 and 100. Better because it uses all values rather than first and last. 14 days is used
because it is a half cycle
, AU=total upwards price movement over 14 days
AD= total downwards price movement over 14 days
RSI = 100*(RS/1+RS) where RS=AU/AD
Thresholds at 70 and 30
Stochastic Indicator ✔Correct Answer-Oscillator. measures relative position of price within a
past high-low range. Based on principle that Closing prices resist penetration of high prices over
last few days.
Example: if market is about to turn from up to down, it is often the case that highs or higher
than previous days, but close settles near low of the day. (moves faster than RSI and MACD)
Uses High, Low, Close.
%K = 100*(c-l(5)/range(5)).
%D= SMA(%K,3)
%D-Slow = SMA (%D,3)
Trading Stochastic ✔Correct Answer-Use %D and %D-slow as fast and slow similar to MACD.
Ignore %K. Also use threshold lines. 80-20
Williams A/D Oscillator ✔Correct Answer-accumulation/distribution.
Uses buying power and selling power (BP=high-open); (SP=Close-Low). Tries to measure implied
direction of the day's trading.
It then uses DRF [(bp+sp)/2*(h-l)]
Solves volatility problems. Completely adjusts to to higher or lower trading ranges. Sell when
penetrates Overbought.
Can be volatile because is day to day with no memory, so MA can be applied. Thresholds at 70-
30.
Williams %R-Method ✔Correct Answer-Often used to trade commodities. uses 10 days to fit
todays close into recent trading range.
=BP/Range.
Number is conceptually upside down. Do not enter trades if they contradict major direction
Ultimate Oscillator ✔Correct Answer-Combines A/D oscillator with wilders RSI. Sell when
oscillator moves above the 50% line, peaks at a high value, declines and then moves higher
buy when oscillator moves below 50% line troughs at a low, increases, and moves lower.
Relative Vigor Index ✔Correct Answer-Smoothed momentum. =(close-open)/(high-low)
