CMT LEVEL 1 EXAMINATION TEST 2026
COMPLETE QUESTIONS AND CORRECT
ANSWERS GRADED A+
◉ Explain why determining the trend is important to analysts. Answer: o
From a technical analysts perspective "a trend is a directional movement
of prices that remains in effect long enough to be identified and still be
profitable."
◉ • Identify Primary, Secondary, short-term, and intraday trends.
Answer: o Primary Trend - measured in months or years
o Secondary Trend - Measured in weeks or months
o Short-term Trend - measured in days
o Intraday trend - measured in minutes or hours
◉ • Describe the basic beliefs behind the art of technical analysis.
Answer: 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
o 4. Prices are nonrandom
o 5. History will repeat itself and humans will behave 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 describing price action. Answer: Fractal -
Ability for trends to act similarly over different periods
◉ • Describe the history of Dow Theory. Answer: 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 attempted to
beat Market. People analyzed it and determined he failed. Later on, more
people analyzed it and determined he beat it according to risk adjustment
and timing market.
◉ • Discuss the basic principles of Dow Theory. Answer: o 1. Ideal
Market picture consists of an uptrend, top, downtrend, and bottom,
interspersed with retracements and consolidations.
o 2. Economic rationale should be used to explain stock market action
o 3. Prices trend
◉ • Identify the three basic types of trend identified in Dow Theory as
defined by time: primary, secondary and minor (Refer to pg 20 for
picture). Answer: o Primary - Can be several years, longest of the three,
represents the overall broad long-term movement of security prices.
,o Secondary - intermediate trend that runs counter to the primary.
Generally last a few weeks to a few months. Price movement generally
retraces from 33% to 66% of the primary price change.
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 market picture" according to Dow Theory.
Answer: o consists of an uptrend, top, downtrend, and bottom,
interspersed with retracements and consolidations (Ex. On P. 18)
◉ • Express the concept of confirmation in Dow Theory. Answer: 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 secondary trend fails to make a new high (i.e.
turn back into a primary). Could be a warning that the primary is going
to Bull Market (a non-confirmation). In today's day, Confirmation is
usually confirmed between the S&P500 and Russell 2000.
◉ • Explain the role of volume in Dow Theory. Answer: o Volume
cannot itself signal a trend reversal, but it is an important secondary
confirmation of a trend. However, price trend and confirmation overrode
any consideration of volume.
◉ • List advantages of reviewing price information in chart format.
Answer: o 1. Provide price history
o 2. Provide good sense of Market's volatility
, o 3. Useful for the fundamental analyst - Analyst can find big price
move on chart, determine what fundamentals were changed at this time,
and then construct a price behavioral model
o 4. Serve as a timing tool for those who base their decisions on other
info
o 5. Used as a money management tool by defining meaningful stop
points
o 6. Reflects market behavior that is subject to certain repetitive patterns
◉ • Review the data points required to construct the line, bar, and
candlestick charts. Answer: o Line - Price and Time
o Bar - High, low, and closing price for each time interval (some contain
the opening price, as well)
o Candlestick - High, Low, Closing, and Opening,
◉ • Describe how to construct line, bar, and candlestick charts. Answer:
o Line - Price data is on the vertical axis, time data is on the horizontal
o Bar - Each bar represents a certain time period (for example one bar
may represent one day of data). Price is on the vertical and time is on the
horizontal
o Candlestick - Low and High prices are plotted on a thin bar and a box
represents opening and closing prices. Box is called the Real Body; if
the security closed at a higher price than it opened, the body is white or
open; VV = black or closed.
COMPLETE QUESTIONS AND CORRECT
ANSWERS GRADED A+
◉ Explain why determining the trend is important to analysts. Answer: o
From a technical analysts perspective "a trend is a directional movement
of prices that remains in effect long enough to be identified and still be
profitable."
◉ • Identify Primary, Secondary, short-term, and intraday trends.
Answer: o Primary Trend - measured in months or years
o Secondary Trend - Measured in weeks or months
o Short-term Trend - measured in days
o Intraday trend - measured in minutes or hours
◉ • Describe the basic beliefs behind the art of technical analysis.
Answer: 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
o 4. Prices are nonrandom
o 5. History will repeat itself and humans will behave 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 describing price action. Answer: Fractal -
Ability for trends to act similarly over different periods
◉ • Describe the history of Dow Theory. Answer: 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 attempted to
beat Market. People analyzed it and determined he failed. Later on, more
people analyzed it and determined he beat it according to risk adjustment
and timing market.
◉ • Discuss the basic principles of Dow Theory. Answer: o 1. Ideal
Market picture consists of an uptrend, top, downtrend, and bottom,
interspersed with retracements and consolidations.
o 2. Economic rationale should be used to explain stock market action
o 3. Prices trend
◉ • Identify the three basic types of trend identified in Dow Theory as
defined by time: primary, secondary and minor (Refer to pg 20 for
picture). Answer: o Primary - Can be several years, longest of the three,
represents the overall broad long-term movement of security prices.
,o Secondary - intermediate trend that runs counter to the primary.
Generally last a few weeks to a few months. Price movement generally
retraces from 33% to 66% of the primary price change.
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 market picture" according to Dow Theory.
Answer: o consists of an uptrend, top, downtrend, and bottom,
interspersed with retracements and consolidations (Ex. On P. 18)
◉ • Express the concept of confirmation in Dow Theory. Answer: 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 secondary trend fails to make a new high (i.e.
turn back into a primary). Could be a warning that the primary is going
to Bull Market (a non-confirmation). In today's day, Confirmation is
usually confirmed between the S&P500 and Russell 2000.
◉ • Explain the role of volume in Dow Theory. Answer: o Volume
cannot itself signal a trend reversal, but it is an important secondary
confirmation of a trend. However, price trend and confirmation overrode
any consideration of volume.
◉ • List advantages of reviewing price information in chart format.
Answer: o 1. Provide price history
o 2. Provide good sense of Market's volatility
, o 3. Useful for the fundamental analyst - Analyst can find big price
move on chart, determine what fundamentals were changed at this time,
and then construct a price behavioral model
o 4. Serve as a timing tool for those who base their decisions on other
info
o 5. Used as a money management tool by defining meaningful stop
points
o 6. Reflects market behavior that is subject to certain repetitive patterns
◉ • Review the data points required to construct the line, bar, and
candlestick charts. Answer: o Line - Price and Time
o Bar - High, low, and closing price for each time interval (some contain
the opening price, as well)
o Candlestick - High, Low, Closing, and Opening,
◉ • Describe how to construct line, bar, and candlestick charts. Answer:
o Line - Price data is on the vertical axis, time data is on the horizontal
o Bar - Each bar represents a certain time period (for example one bar
may represent one day of data). Price is on the vertical and time is on the
horizontal
o Candlestick - Low and High prices are plotted on a thin bar and a box
represents opening and closing prices. Box is called the Real Body; if
the security closed at a higher price than it opened, the body is white or
open; VV = black or closed.
