Chartered Market Technician (CMT) – Level III Practice Exam Questions
And Correct Answers (Verified Answers) Plus Rationales 2025/2026
Q&A | Instant Download Pdf
Question 1: In classic intermarket analysis, what is the typical leading
relationship between the Treasury bond market and the stock market
during economic transitions?
• A) The stock market always leads the bond market by 6 to 12
months.
• B) The bond market typically leads the stock market, as bond
yields and prices shift in response to monetary policy changes
before equity trends reverse.
• C) Bonds and stocks move in perfect synchronization with zero
lead-lag relationship.
• D) The stock market leads the bond market only during periods of
hyperinflation.
Correct Answer: B
Rationale: In intermarket analysis, the bond market often serves as a
leading indicator for equities. Changes in interest rates and bond prices
reflect shifting credit conditions and Federal Reserve policy before they
fully manifest in corporate earnings and stock prices.
Question 2: According to behavioral finance principles, which cognitive
bias causes a trader to hold onto a losing position far longer than
justified by their technical stop-loss rules, hoping the price will return to
breakeven?
, • A) Confirmation bias
• B) Recency bias
• C) Loss aversion (Prospect Theory)
• D) Hindsight bias
Correct Answer: C
Rationale: Loss aversion describes the psychological phenomenon
where individuals feel the pain of a loss more acutely than the pleasure
of an equivalent gain, leading them to take excessive risks and avoid
realizing losses.
Question 3: When constructing a portfolio using relative strength
analysis against a benchmark index, what does an upward-sloping
relative strength line (Asset Price divided by Benchmark Price) signify?
• A) The asset is underperforming the benchmark regardless of its
absolute trend.
• B) The asset is outperforming the benchmark, meaning it is
gaining more in a bull market or declining less in a bear market.
• C) The asset has zero correlation with the benchmark index.
• D) The asset's volatility is lower than the benchmark's volatility.
Correct Answer: B
Rationale: A rising relative strength ratio indicates that the numerator
(asset) is outperforming the denominator (benchmark). This holds true
whether both are rising or falling.
Question 4: In Market Profile analysis, what does the Point of Control
(POC) represent?
, • A) The price level at which the lowest volume of transactions
occurred during the session
• B) The price level at which the greatest amount of trading volume
occurred during the session, representing fair value
• C) The absolute high price of the trading day
• D) The opening price of the market session
Correct Answer: B
Rationale: The Point of Control (POC) is the single price level within a
profile where the most volume was traded, indicating the market's
consensus of "fair value" for that session.
Question 5: Which risk management metric measures the largest single
peak-to-trough decline experienced by a trading strategy or portfolio
prior to a new peak?
• A) Sharpe Ratio
• B) Profit Factor
• C) Maximum Drawdown
• D) Value at Risk (VaR)
Correct Answer: C
Rationale: Maximum drawdown quantifies the worst historical loss a
strategy suffered from an equity peak to a trough, serving as a critical
measure of capital preservation risk.
Question 6: How does a strengthening U.S. Dollar (USD) typically impact
global commodity prices denominated in dollars, according to
intermarket relationships?
, • A) It has no measurable effect on commodities.
• B) It typically puts downward pressure on dollar-denominated
commodities because foreign buyers face higher purchasing costs.
• C) It causes an automatic surge in crude oil and gold prices.
• D) It causes commodity prices to decouple completely from
currency movements.
Correct Answer: B
Rationale: Most global commodities are priced in U.S. Dollars. An
inverse relationship generally exists between the USD and commodities;
a stronger dollar makes commodities more expensive for holders of
other currencies, dampening demand.
Question 7: In Elliott Wave Theory, which core rule states that Wave 4
cannot overlap with the price territory of Wave 1?
• A) The Alternation Rule
• B) The Equality Rule
• C) The Principle of Wave Overlap (Impulse Wave Rule)
• D) The Channeling Rule
Correct Answer: C
Rationale: A foundational rule of impulse waves in Elliott Wave Theory
is that Wave 4 cannot retrace so far as to overlap with the price range of
Wave 1. Violation of this rule invalidates the impulse count.
Question 8: How are extreme readings from investor sentiment surveys
(such as the American Association of Individual Investors bullish
sentiment index) typically interpreted by technical analysts?
And Correct Answers (Verified Answers) Plus Rationales 2025/2026
Q&A | Instant Download Pdf
Question 1: In classic intermarket analysis, what is the typical leading
relationship between the Treasury bond market and the stock market
during economic transitions?
• A) The stock market always leads the bond market by 6 to 12
months.
• B) The bond market typically leads the stock market, as bond
yields and prices shift in response to monetary policy changes
before equity trends reverse.
• C) Bonds and stocks move in perfect synchronization with zero
lead-lag relationship.
• D) The stock market leads the bond market only during periods of
hyperinflation.
Correct Answer: B
Rationale: In intermarket analysis, the bond market often serves as a
leading indicator for equities. Changes in interest rates and bond prices
reflect shifting credit conditions and Federal Reserve policy before they
fully manifest in corporate earnings and stock prices.
Question 2: According to behavioral finance principles, which cognitive
bias causes a trader to hold onto a losing position far longer than
justified by their technical stop-loss rules, hoping the price will return to
breakeven?
, • A) Confirmation bias
• B) Recency bias
• C) Loss aversion (Prospect Theory)
• D) Hindsight bias
Correct Answer: C
Rationale: Loss aversion describes the psychological phenomenon
where individuals feel the pain of a loss more acutely than the pleasure
of an equivalent gain, leading them to take excessive risks and avoid
realizing losses.
Question 3: When constructing a portfolio using relative strength
analysis against a benchmark index, what does an upward-sloping
relative strength line (Asset Price divided by Benchmark Price) signify?
• A) The asset is underperforming the benchmark regardless of its
absolute trend.
• B) The asset is outperforming the benchmark, meaning it is
gaining more in a bull market or declining less in a bear market.
• C) The asset has zero correlation with the benchmark index.
• D) The asset's volatility is lower than the benchmark's volatility.
Correct Answer: B
Rationale: A rising relative strength ratio indicates that the numerator
(asset) is outperforming the denominator (benchmark). This holds true
whether both are rising or falling.
Question 4: In Market Profile analysis, what does the Point of Control
(POC) represent?
, • A) The price level at which the lowest volume of transactions
occurred during the session
• B) The price level at which the greatest amount of trading volume
occurred during the session, representing fair value
• C) The absolute high price of the trading day
• D) The opening price of the market session
Correct Answer: B
Rationale: The Point of Control (POC) is the single price level within a
profile where the most volume was traded, indicating the market's
consensus of "fair value" for that session.
Question 5: Which risk management metric measures the largest single
peak-to-trough decline experienced by a trading strategy or portfolio
prior to a new peak?
• A) Sharpe Ratio
• B) Profit Factor
• C) Maximum Drawdown
• D) Value at Risk (VaR)
Correct Answer: C
Rationale: Maximum drawdown quantifies the worst historical loss a
strategy suffered from an equity peak to a trough, serving as a critical
measure of capital preservation risk.
Question 6: How does a strengthening U.S. Dollar (USD) typically impact
global commodity prices denominated in dollars, according to
intermarket relationships?
, • A) It has no measurable effect on commodities.
• B) It typically puts downward pressure on dollar-denominated
commodities because foreign buyers face higher purchasing costs.
• C) It causes an automatic surge in crude oil and gold prices.
• D) It causes commodity prices to decouple completely from
currency movements.
Correct Answer: B
Rationale: Most global commodities are priced in U.S. Dollars. An
inverse relationship generally exists between the USD and commodities;
a stronger dollar makes commodities more expensive for holders of
other currencies, dampening demand.
Question 7: In Elliott Wave Theory, which core rule states that Wave 4
cannot overlap with the price territory of Wave 1?
• A) The Alternation Rule
• B) The Equality Rule
• C) The Principle of Wave Overlap (Impulse Wave Rule)
• D) The Channeling Rule
Correct Answer: C
Rationale: A foundational rule of impulse waves in Elliott Wave Theory
is that Wave 4 cannot retrace so far as to overlap with the price range of
Wave 1. Violation of this rule invalidates the impulse count.
Question 8: How are extreme readings from investor sentiment surveys
(such as the American Association of Individual Investors bullish
sentiment index) typically interpreted by technical analysts?
