CMT Level 1 Study Guide Questions and Answers
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Terms in this set (246)
- Uptrend is when prices reach higher peaks and
higher troughs (VV for Downtrend)
Define what is meant by a
- Flat trend (sideways trend) is when a price trades in
trend in technical analysis
a range without significant underlying upward or
downward movement
Explain why determining o From a technical analysts perspective "a trend is a
the trend is important to directional movement of prices that remains in effect
analysts long enough to be identified and still be profitable."
o Primary Trend - measured in months or years
• Identify Primary,
o Secondary Trend - Measured in weeks or months
Secondary, short-term,
o Short-term Trend - measured in days
and intraday trends
o Intraday trend - measured in minutes or hours
, o 1. Freely Traded, market prices, in general, travel in
trends
o 2. Price is determined by the interaction of supply
and demand
o 3. Price discounts everything
• Describe the basic o 4. Prices are nonrandom
beliefs behind the art of o 5. History will repeat itself and humans will behave
technical analysis similarly to the way they have in the past
o 6. Patterns are fractal
o 7. Emotions are affected by earlier emotions
through emotional feedback (people telling other
people to buy because they made money and are
happy)
• Define "fractal" as used in Fractal - Ability for trends to act similarly over
describing price action different periods
o Charles Dow started it. Made an index to measure
overall price movement in U.S. stocks. He died.
Journalist coined "Dow Theory." Friend took over and
• Describe the history of
attempted to beat Market. People analyzed it and
Dow Theory
determined he failed. Later on, more people analyzed
it and determined he beat it according to risk
adjustment and timing market.
o 1. Ideal Market picture consists of an uptrend, top,
downtrend, and bottom, interspersed with
• Discuss the basic retracements and consolidations.
principles of Dow Theory o 2. Economic rationale should be used to explain
stock market action
o 3. Prices trend
, o Primary - Can be several years, longest of the three,
represents the overall broad long-term movement of
• Identify the three basic security prices.
types of trend identified in o Secondary - intermediate trend that runs counter to
Dow Theory as defined by the primary. Generally last a few weeks to a few
time: primary, secondary months. Price movement generally retraces from 33%
and minor (Refer to pg 20 to 66% of the primary price change.
for picture) o Minor - Check pg. 21 for clarity - A line is two to
three weeks of horizontal price movement in an
average within a 5% range.
• Describe the "ideal o consists of an uptrend, top, downtrend, and bottom,
market picture" according interspersed with retracements and consolidations
to Dow Theory (Ex. On P. 18)
o In Dow's time, confirmation was the consideration of
the Industrial Average and Railroad Average together.
Example is when there is a primary bullmarket but the
• Express the concept of
secondary trend fails to make a new high (i.e. turn
confirmation in Dow
back into a primary). Could be a warning that the
Theory
primary is going to Bull Market (a non-confirmation).
In today's day, Confirmation is usually confirmed
between the S&P500 and Russell 2000.
o Volume cannot itself signal a trend reversal, but it is
• Explain the role of an important secondary confirmation of a trend.
volume in Dow Theory However, price trend and confirmation overrode any
consideration of volume.
100% Correct
Save
Terms in this set (246)
- Uptrend is when prices reach higher peaks and
higher troughs (VV for Downtrend)
Define what is meant by a
- Flat trend (sideways trend) is when a price trades in
trend in technical analysis
a range without significant underlying upward or
downward movement
Explain why determining o From a technical analysts perspective "a trend is a
the trend is important to directional movement of prices that remains in effect
analysts long enough to be identified and still be profitable."
o Primary Trend - measured in months or years
• Identify Primary,
o Secondary Trend - Measured in weeks or months
Secondary, short-term,
o Short-term Trend - measured in days
and intraday trends
o Intraday trend - measured in minutes or hours
, o 1. Freely Traded, market prices, in general, travel in
trends
o 2. Price is determined by the interaction of supply
and demand
o 3. Price discounts everything
• Describe the basic o 4. Prices are nonrandom
beliefs behind the art of o 5. History will repeat itself and humans will behave
technical analysis similarly to the way they have in the past
o 6. Patterns are fractal
o 7. Emotions are affected by earlier emotions
through emotional feedback (people telling other
people to buy because they made money and are
happy)
• Define "fractal" as used in Fractal - Ability for trends to act similarly over
describing price action different periods
o Charles Dow started it. Made an index to measure
overall price movement in U.S. stocks. He died.
Journalist coined "Dow Theory." Friend took over and
• Describe the history of
attempted to beat Market. People analyzed it and
Dow Theory
determined he failed. Later on, more people analyzed
it and determined he beat it according to risk
adjustment and timing market.
o 1. Ideal Market picture consists of an uptrend, top,
downtrend, and bottom, interspersed with
• Discuss the basic retracements and consolidations.
principles of Dow Theory o 2. Economic rationale should be used to explain
stock market action
o 3. Prices trend
, o Primary - Can be several years, longest of the three,
represents the overall broad long-term movement of
• Identify the three basic security prices.
types of trend identified in o Secondary - intermediate trend that runs counter to
Dow Theory as defined by the primary. Generally last a few weeks to a few
time: primary, secondary months. Price movement generally retraces from 33%
and minor (Refer to pg 20 to 66% of the primary price change.
for picture) o Minor - Check pg. 21 for clarity - A line is two to
three weeks of horizontal price movement in an
average within a 5% range.
• Describe the "ideal o consists of an uptrend, top, downtrend, and bottom,
market picture" according interspersed with retracements and consolidations
to Dow Theory (Ex. On P. 18)
o In Dow's time, confirmation was the consideration of
the Industrial Average and Railroad Average together.
Example is when there is a primary bullmarket but the
• Express the concept of
secondary trend fails to make a new high (i.e. turn
confirmation in Dow
back into a primary). Could be a warning that the
Theory
primary is going to Bull Market (a non-confirmation).
In today's day, Confirmation is usually confirmed
between the S&P500 and Russell 2000.
o Volume cannot itself signal a trend reversal, but it is
• Explain the role of an important secondary confirmation of a trend.
volume in Dow Theory However, price trend and confirmation overrode any
consideration of volume.
