Chartered Market Technician (CMT) – Level
III Practice Exam Questions And Correct
Answers (Verified Answers) Plus Rationales
2025/2026 Q&A | Instant Download Pdf
1. Which of the following is a key focus of CMT Level III
compared to Level II?
A) Identifying chart patterns
B) Portfolio management and trading strategies
C) Technical indicators only
D) Market microstructure
Answer: B) Portfolio management and trading strategies
Rationale: Level III emphasizes applying technical analysis to
portfolio management, trading, and risk management
decisions rather than solely pattern recognition.
2. Risk-adjusted performance measurement most
commonly uses which metric?
A) Price-to-earnings ratio
B) Sharpe ratio
C) Moving averages
D) Relative strength index
Answer: B) Sharpe ratio
Rationale: The Sharpe ratio evaluates return per unit of risk, a
key concept for CMT Level III’s focus on portfolio
management.
,3. A "head and shoulders" top pattern typically signals:
A) Continuation
B) Reversal
C) Consolidation
D) Gap filling
Answer: B) Reversal
Rationale: Head and shoulders top patterns indicate a
potential reversal from an uptrend to a downtrend.
4. Which of the following is considered a leading indicator?
A) Moving average
B) Bollinger Bands
C) Relative strength index (RSI)
D) Trend line
Answer: C) Relative strength index (RSI)
Rationale: RSI can indicate overbought or oversold conditions
before price changes, making it a leading indicator.
5. Portfolio optimization in technical analysis often
incorporates which approach?
A) Fundamental analysis
B) Mean-variance optimization
C) Elliott wave counts
D) Fibonacci retracement
Answer: B) Mean-variance optimization
Rationale: Mean-variance optimization (Markowitz
framework) helps maximize returns for a given level of risk.
6. Market breadth analysis is used primarily to:
A) Determine interest rate trends
,B) Confirm the strength of a trend
C) Identify fundamental valuation
D) Calculate moving averages
Answer: B) Confirm the strength of a trend
Rationale: Market breadth, like the number of advancing vs.
declining stocks, helps assess trend sustainability.
7. The primary purpose of a trailing stop in trading is to:
A) Maximize leverage
B) Lock in profits
C) Reduce trading fees
D) Identify support levels
Answer: B) Lock in profits
Rationale: Trailing stops automatically adjust to secure gains
as a position moves favorably.
8. Which of the following describes a “bullish divergence”?
A) Price makes higher highs, indicator makes higher highs
B) Price makes lower lows, indicator makes higher lows
C) Price makes higher highs, indicator makes lower highs
D) Price moves sideways, indicator declines
Answer: B) Price makes lower lows, indicator makes higher
lows
Rationale: A bullish divergence signals potential trend
reversal to the upside.
9. Which cycle theory focuses on repeating time intervals in
markets?
A) Elliott Wave Theory
B) Fibonacci retracement
, C) Kondratieff cycles
D) Dow Theory
Answer: C) Kondratieff cycles
Rationale: Kondratieff cycles examine long-term economic
cycles of 40–60 years affecting markets.
10. A high short interest ratio typically indicates:
A) Market bullishness
B) Potential short squeeze
C) Stable prices
D) Low volatility
Answer: B) Potential short squeeze
Rationale: High short interest can lead to rapid price spikes if
shorts are forced to cover.
11. Which technical tool is most useful in identifying
overbought and oversold conditions?
A) Fibonacci retracement
B) RSI
C) Bollinger Bands
D) MACD
Answer: B) RSI
Rationale: RSI quantifies momentum and signals potential
reversal zones.
12. In Dow Theory, confirmation of a trend requires:
A) At least one moving average crossover
B) Both industrial and transportation indices moving together
C) RSI divergence
D) A head and shoulders pattern
III Practice Exam Questions And Correct
Answers (Verified Answers) Plus Rationales
2025/2026 Q&A | Instant Download Pdf
1. Which of the following is a key focus of CMT Level III
compared to Level II?
A) Identifying chart patterns
B) Portfolio management and trading strategies
C) Technical indicators only
D) Market microstructure
Answer: B) Portfolio management and trading strategies
Rationale: Level III emphasizes applying technical analysis to
portfolio management, trading, and risk management
decisions rather than solely pattern recognition.
2. Risk-adjusted performance measurement most
commonly uses which metric?
A) Price-to-earnings ratio
B) Sharpe ratio
C) Moving averages
D) Relative strength index
Answer: B) Sharpe ratio
Rationale: The Sharpe ratio evaluates return per unit of risk, a
key concept for CMT Level III’s focus on portfolio
management.
,3. A "head and shoulders" top pattern typically signals:
A) Continuation
B) Reversal
C) Consolidation
D) Gap filling
Answer: B) Reversal
Rationale: Head and shoulders top patterns indicate a
potential reversal from an uptrend to a downtrend.
4. Which of the following is considered a leading indicator?
A) Moving average
B) Bollinger Bands
C) Relative strength index (RSI)
D) Trend line
Answer: C) Relative strength index (RSI)
Rationale: RSI can indicate overbought or oversold conditions
before price changes, making it a leading indicator.
5. Portfolio optimization in technical analysis often
incorporates which approach?
A) Fundamental analysis
B) Mean-variance optimization
C) Elliott wave counts
D) Fibonacci retracement
Answer: B) Mean-variance optimization
Rationale: Mean-variance optimization (Markowitz
framework) helps maximize returns for a given level of risk.
6. Market breadth analysis is used primarily to:
A) Determine interest rate trends
,B) Confirm the strength of a trend
C) Identify fundamental valuation
D) Calculate moving averages
Answer: B) Confirm the strength of a trend
Rationale: Market breadth, like the number of advancing vs.
declining stocks, helps assess trend sustainability.
7. The primary purpose of a trailing stop in trading is to:
A) Maximize leverage
B) Lock in profits
C) Reduce trading fees
D) Identify support levels
Answer: B) Lock in profits
Rationale: Trailing stops automatically adjust to secure gains
as a position moves favorably.
8. Which of the following describes a “bullish divergence”?
A) Price makes higher highs, indicator makes higher highs
B) Price makes lower lows, indicator makes higher lows
C) Price makes higher highs, indicator makes lower highs
D) Price moves sideways, indicator declines
Answer: B) Price makes lower lows, indicator makes higher
lows
Rationale: A bullish divergence signals potential trend
reversal to the upside.
9. Which cycle theory focuses on repeating time intervals in
markets?
A) Elliott Wave Theory
B) Fibonacci retracement
, C) Kondratieff cycles
D) Dow Theory
Answer: C) Kondratieff cycles
Rationale: Kondratieff cycles examine long-term economic
cycles of 40–60 years affecting markets.
10. A high short interest ratio typically indicates:
A) Market bullishness
B) Potential short squeeze
C) Stable prices
D) Low volatility
Answer: B) Potential short squeeze
Rationale: High short interest can lead to rapid price spikes if
shorts are forced to cover.
11. Which technical tool is most useful in identifying
overbought and oversold conditions?
A) Fibonacci retracement
B) RSI
C) Bollinger Bands
D) MACD
Answer: B) RSI
Rationale: RSI quantifies momentum and signals potential
reversal zones.
12. In Dow Theory, confirmation of a trend requires:
A) At least one moving average crossover
B) Both industrial and transportation indices moving together
C) RSI divergence
D) A head and shoulders pattern
