CMT Level II Sample Exam PDF

SAMPLE
CMT LEVEL II EXAM
PREFACE:
The following document is a sample exam only, not an actual exam of current or former
designation in any way. The questions have been constructed/ phrased in a manner that is
similar to past exams, but none of these questions, to the knowledge of the MTA staff, have
ever appeared on an exam. The objective of this sample exam is to give as clear an
indication as possible of the question structure and language one can expect in the exam.
Every reasonable effort has been taken to make these exam questions representative of what
candidates will see in the exams, however the following caveats should be noted.
 Exam questions change constantly. There may be up to 25% variation in the question mix
in the Level II exams from one test cycle to the next. These sample questions are
patterned after a limited number of questions drawn from a much larger pool of actual
exam questions. This further increases the chances that the questions appearing in the
exam may be significantly different from those contained in this sample. Candidates are
cautioned not to expect the questions from the previous years’ exams to appear in the
current year.
 Candidate knowledge and experience will vary. The actual exam questions may be more
difficult than those represented here, though that is unintentional. A question may be
more difficult for one candidate and not another.
 The sample questions cover a variety of topics; however, in the actual exam the
weighting may vary, i.e. the proportion of questions drawn from different topics may be
different from the pattern followed in this sample paper.
 The actual exam consists of 170 questions of which 150 are scored items. Candidates are
allotted 4 hours, 15 minutes to take the Level II exam. This sample exam should be
completed in 4 hours to better simulate performance on the exam.
Please note that this sample question booklet has been prepared completely independently
from the exam to ensure that the questions that will appear in the actual exam paper remain
secure and confidential. The MTA maintains a discussion group forum for CMT candidates
on its web site. Candidates are encouraged to utilize this resource and to discuss and clarify
questions regarding the areas of the Body of Knowledge where they lack familiarity or seek
better understanding.
This book of practice exams is produced by

Market Technicians Association, Inc.,
61 Broadway, Suite 514
New York, NY 10006
CMT Level 2 Sample Questions – Candidate Answer Sheet
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1. James Blair manages an investment portfolio for Martin, one of the firm’s clients.
Martin’s portfolio is well diversified with a slight tilt toward capital appreciation as
Martin requires very little income from the portfolio. Recently, Martin’s brother, David,
has become a client of Blair. Blair proceeds to invest David’s portfolio in a similar
manner to Martin’s portfolio based on the fact that both brothers have a similar lifestyle
and are only two years apart in age. Which of the following statements is most likely
correct? Blair:
a) Violated the Code and Standards by knowingly creating a conflict of interest between
Martin’s and David’s portfolios.
b) Violated the Code and Standards by not disclosing the conflict of interest between
Martin’s and David’s portfolios.
c) Violated the Code and Standards by failing to determine David’s objectives and
constraints prior to investing his portfolio.
d) Did not violate the Code and Standards.
2. Agatti, an island nation, does not have any regulations relating to the use of nonpublic
information. Daniel Brown has a friend there, Thomas Walker, with whom he has shared
nonpublic information regarding firms outside his industry. The information concerns
several firms’ internal earnings and cash flow projections. Walker may:
a) Trade on the information if his firm’s code of conduct permits it.
b) Trade on the information under the laws of Agatti, which govern his behavior.
c) Not trade on the information under CFA Institute Standards, which govern his behavior.
d) Trade on the information under CFA Institute Standards since the firms concerned are
outside Brown’s industry.
3. NM Investment Corp. receives brokerage business from Pinnacle Asset Management in

exchange for referring prospective clients to Pinnace. Pinnacle advises clients—in
writing, before the relationship is established—of the nature of its arrangement with NM
Investment Corp. With regard to this practice, Pinnacle has:
a) Complied with the Code and Standards as the agreement is disclosed.
b) Violated the Code and Standards by entering into such an agreement.
c) Violated the Code and Standards by participating in an agreement that creates a conflict of
interest.
d) Violated the Code and Standards by failing to preserve the confidentiality of the
agreement with NM Corp.
4. Jones Miller, CFA, CMT, works full time for Clark & Company, an investment
management firm, as a fixed income security analyst. Jones has been asked by a business
contact at ABC Enterprises to accept some analytical work from ABC on a consulting
basis. The work would entail investigating potential distressed debt securities in the
small-cap market. Jones should most appropriately.
a) Not accept the work as it violates the Code and Standards by creating a conflict of interest.
b) Accept the work as long as she obtains written consent from ABC and does it on her own
time.
c) Accept the work as long as she obtains consent to all the terms of the engagement from
Clark & Company.
d) Not accept the work as it violates the Code and Standards with respect to the guidelines
under “Additional Compensation Arrangements”.
5. Scott Young is a principal at Harris Brothers, a leading regional investment bank

specializing in initial public offerings of small to mid-sized biotech firms. Just before
many of the IPOs are offered to the general public, Scott arranges for 10% of the shares
to be distributed to management of the firm going public. This action is a violation of the
Standard concerning:
a) Fair Dealing
b) Additional compensation
c) Disclosure of conflicts of interest
d) The Code of Ethics takes no position IPO affairs
6. Sara Rodriguez, CMT posts buy recommendations for ABC Ltd. on an internet chatroom
based on “conventional wisdom” and what the public is currently buying. Two days after
Sara posted the comment, ABC reported poor earnings and the stock declined 35%. Sara
has:
a) Not violated the Code of Ethics.
b) Not violated the Code of Ethics if independent and diligent research into the subject
company was made before the comment was posted.
c) Violated the Code of Ethics by posting comments on an internet chat room
d) Violated the Code of Ethics because she did not clarify her recommendation suitability for
different investor classes.
7. Which of the following statements clearly conflicts with the recommended procedures for
compliance presented in the CFA Institute Standards of Practice Handbook?
a) Firms should disclose to clients the personal investing policies and procedures established
for their employees.
b) Prior approval must be obtained for the personal investment transactions of all employees.
c) Prior approval need not be obtained for the personal investment transactions of all
employees unless securities are a part of the prohibited list.
d) For confidentiality reasons, personal transactions and holdings should not be reported to
employers unless mandated by regulatory organizations.
8. Which one of the following actions will help to ensure the fair treatment of brokerage
firm clients when a new investment recommendation is made?
a) Informing all people in the firm in advance that a recommendation is to be disseminated.
b) Distributing recommendations to institutional clients prior to individual accounts.
c) Minimizing the time between the decision and the dissemination of a recommendation.
d) Set departmental firewalls to ensure collective dissemination of a recommendation.
9. Which of the following is a correct statement of a member’s or candidate’s duty under

the Code and Standards?
a) In the absence of specific applicable law or other regulatory requirements, the Code and
Standards govern the member’s or candidate’s actions.
b) A member or candidate is required to comply only with applicable local laws, rules,
regulations, or customs, even though the Code and Standards may impose a higher degree
of responsibility or a higher duty on the member or candidate.
c) A member or candidate who trades securities in a securities market where no applicable
local laws or stock exchange rules regulate the use of material nonpublic information may
take investment action based on material nonpublic information.
d) A member or candidate who trades securities in a securities market where no applicable
local laws or stock exchange rules regulate the use of nonmaterial nonpublic information
may take investment action based on nonmaterial nonpublic information.
10. Implied volatility of an option may ________ while (when) all other pricing factors
impacting the price of an option may __________:
a) Change, change
b) Change, remain constant
c) Remain constant, change
d) Remain constant, remain unchanged
11. If ABC Corp. is scheduled to report quarterly earnings the evening of July 22 (after
market close), on which of the following days will stock options (calls/puts) of ABC
Corp. reflect highest implied volatility?
a) July 16 (a week prior to earnings)
b) June 22 (a month prior to earnings)
c) July 22 (the day of earnings)
d) July 23 (the day after earnings)
12. The inverse relationship between VIX and the direction of stock prices is a result of:
a) High (low) demand for call (put) options when the market is rising
b) Low (high) demand for call (put) options when the market is rising
c) High (low) demand for options (call/put) when the market is rising (falling)
d) Low (high) demand for options (call/put) when the market is rising (falling)
13. A CBOE VIX reading of 15 implies market expectations of a _____ move in the S&P
500 over the next 30 days:
a) 4.33%
b) 5.33%
c) 6.33%
d) 7.33%
14. The chart below shows the NYSE Composite index (top panel) and the NYSE New
Highs – New Lows index (in the bottom panel). Which of the following is a valid
interpretation of the chart?
a) Bullish divergence in the NH-NL indicator at price highs

b) Bearish divergence in the NH-NL indicator at price highs
c) Bullish confirmation with the NH-NL indicator at price highs
d) Bearish confirmation with the NH-NL indicator at price highs
15. The “Percentage of stocks above their 50-day MA” breadth indicator gives its trading
signals by:
a) Reaching oversold levels
b) Reaching overbought levels
c) Crossing through the centerline (50%)
d) Reversing off overbought/oversold levels
16. As per the contrary opinion theory, a high degree of consensus precedes:
a) Trend reversals
b) Sharp uptrends
c) Sharp downtrends
d) Major market highs
17. When tracking advisory opinion, it is important to remember that newsletter writers are
most bullish at ________ and most bearish at ________.
a) Market tops, market bottoms
b) Market bottoms, market tops
c) Short-term Lows, short-term highs
d) Short-term Highs, short-term lows
18. A combination of declining volume and rising price action is normally associated with:
a) A strong price trend
b) A weak throwback
c) A weak pullback
d) A weak rally
19. Which of the following observations in volume and open interests is valid when fresh
short selling has started emerging and prices are declining?
a) Volume declines while open interest rises
b) Volume rises while open interest declines
c) Both volume and open interest decline
d) Volume and open interest rise
20. A “triple witching day” occurs when we witness:

a) The S&P 500 futures, options on futures and options on individual stocks all expiring at
the same time
b) A breakout to 52 week new highs by the DJIA, SPX and RUT indices
c) A breakout to all-time new highs by the DJIA, SPX & RUT indices
d) All three of the DJIA, SPX500 & RUT registering 52 week lows
21. A consolidation in price action accompanied by a decline in on-balance volume is

suggestive of:
a) A possible accumulation period
b) A possible distribution period
c) Volatility compression
d) Volatility expansion
22. Which of the following can be classified as a breadth indicator?
a) Aspray’s Demand Oscillator
b) Arms Index
c) Tick Volume Indicator
d) On-balance Volume
23. Alpha measures:

a) Excess returns above the benchmark index
b) Excess returns below the benchmark index
c) Excess returns, either above or below the benchmark index
d) Excess returns earned by the benchmark, either above or below a synthetic portfolio
24. Extrapolation errors occur when investors:

a) Assume that current and recent conditions will prevail well into the future, also causing
them to ignore the evidence of changing circumstances.
b) Tend to be overconfident regarding their abilities and make major mistakes like too little
diversification and over trading.
c) Are tricked into thinking that they can foretell the future because they can easily observe
the past.
d) Try to identify patterns in financial markets that do not exist.
25. ___________ is a perception bias that arises when one is attempting to make a guess at
something despite having limited information:
a) Saliency
b) Framing
c) Anchoring
d) Confirmation
26. Volume spikes in downtrends reflect:

a) Retail investors are bottom-fishing
b) Exhaustion, and suggest an imminent reversal
c) Professionals are building fresh short exposure
d) Confirmation, and suggest further downside continuation
27. Reactions against a primary uptrend are normally accompanied with:

a) A pickup in volume due to profit taking
b) A decline in volume due to profit taking
c) A pickup in volume due to fresh longs getting built
d) A pickup in volume due to fresh shorts getting built
28. Which of the following conclusions correctly reflects the behavior of the A/D index
(Accumulation/Distribution) plotted beneath price action in the chart shown below?
a) Smart money is selling

b) Smart money is buying
c) Small investors are selling
d) Small investors are buying
29. Based on the graph shown below, the most likely degree of correlation between price
series 1 and 2 is:
a) No correlation
b) Perfect positive
c) Perfect negative
d) Somewhat positive
30. Confidence bands:
a) Utilize ATR in their calculation
b) Are similar in construction to Bollinger Bands
c) Help in measuring the accuracy of regression analysis
d) Utilize standard deviation of n values in their calculation
31. Which of the following claims of EMH refers to the weak EMH version?
a) The market is only efficient with respect to public information.
b) The market is only efficient with respect to non-public information.
c) The market is only efficient with respect to past price, volume and other technical data.
d) All investment strategies, based on public information of a fundamental or technical
nature will be useless in earning market-beating (excess) returns.
32. Which of the following statements is an important assumption of the Efficient Market
Hypothesis?
a) Investors as a group will act rationally
b) Investors as a group will act irrationally
c) Prices typically do not reflect all available information
d) Liquidity constraints may sometimes drive prices away from their intrinsic value
33. Which of the following factors results into impairment of an arbitrage strategy that
otherwise may have positive expectation?
a) Slippage
b) Overtrading
c) Over-leveraging
d) Under-leveraging
34. Which of the following predictability studies contradict the semistrong EMH version?
a) Small capitalization effect
b) Mean-reverting strategies
c) Momentum persistence
d) Momentum reversal
35. Which of the following statements correctly defines Conservatism Bias?

a) It is the tendency to give too little weight to new information
b) It causes investors’ beliefs to become more extreme over time
c) It is the tendency to seize on irrelevant anchors to justify trade positions
d) It is the tendency to ignore the size of small samples used to form a conclusion
36. Systematic risk:
a) Cannot be eliminated
b) Is different from a price shock
c) Can be reduced by using diversification
d) Occurs when a single trade generates a large loss
37. Which of the following represent the greatest risk for stock traders?
a) Slippage
b) Leverage
c) Regulation
d) Price shock
38. The Sharpe ratio is a measure of:

a) Risk
b) Volatility
c) Performance
d) Robustness of a system
39. Maximum drawdown represents:

a) The size of the largest losing trade
b) The size of the largest winning trade
c) The largest equity swing from peak to valley
d) The time period between two successive equity highs
40. Which of the following methods is used to anticipate future risk?

a) Ulcer index
b) Sortino ratio
c) Value at risk
d) Treynor ratio
41. Which of the following risk/return pattern most closely characterizes a trend system?
a) Smaller profits and even smaller losses
b) Smaller losses and fewer larger profits
c) Larger losses and even larger profits
d) Larger profits and smaller losses
42. A breakout system improves the reliability of a ________ system, but incorporates a
_______ risk in the process:
a) Mean reversion, larger
b) Moving average, larger
c) Mean reversion, smaller
d) Moving average, smaller
43. When a stop-loss price is triggered, the order becomes a:

a) Stop-Limit order
b) Fill-or-kill order
c) Market order
d) Limit order
44. Which of the following types of trailing stops only advance once triggered, but never
retreat?
a) ATR-based
b) Fixed percentage
c) Percentage of profits
d) Wilder’s Parabolic SAR
45. Maximum adverse excursion identifies:

a) Average loss size
b) Average win size
c) The largest losing trade
d) The largest profitable trade
46. If the ADX crosses below 45 after being higher, the market is most likely:
a) Rising
b) Trending
c) Declining
d) Consolidating
47. The compounding (pyramiding) structure that possesses high risk of an immediate loss
due to a small reversal in prices is referred to as:
a) An upright pyramid
b) A standard pyramid
c) An inverted pyramid
d) A reflecting pyramid
48. The “Profit factor” is:
a) The ratio of net profit to net loss
b) The ratio of gross profit to gross loss
c) The ratio of average profit to average loss
d) The absolute value of the ratio of gross profit to gross loss
49. A portfolio that has experienced a 25% loss will need to earn a profit of _____ to
breakeven:
a) 15%
b) 25%
c) 33%
d) 50%
50. The Chi-Square Test is used to measure:

a) Risk
b) Variance
c) Correlation
d) Performance
51. Stocks in which of the following industry groups normally exhibit high beta?
a) Consumer Discretionary
b) Consumer Staples
c) Pharmaceuticals
d) Utilities
52. A top-down fundamental analysis approach begins with:

a) Sector analysis
b) Industry analysis
c) Economic analysis
d) Industry group analysis
53. Stocks with superior fundamentals will normally decouple and start outperforming on an
relative basis during:
a) A rampant bull market
b) A market consolidation
c) The last legs of an uptrend
d) A market correction (bear market)
54. Adaptive market hypothesis:
a) Analyzes investor emotions and their impact on securities pricing
b) Emphasizes a high level of rationality in investor behavior and aggregate market outcomes
c) Analyzes the concept of market efficiency and concludes that price action is always
random
d) Studies the interactions among investors, securities, markets and institutions as a
dynamically evolving ecosystem
55. Which of the following characteristics is an important consideration when choosing

systems to trade?
a) A longer time to recovery than short-term drawdowns
b) Time in markets: Choose the one that trades more frequently
c) Gradual increases in equity line instead of downward surges
d) Larger profits rather than smaller profits to leave more room for execution error
56. A technical analyst was at a convention in which a long-term bar chart of the Dow Jones
Industrial Average was being discussed. He noticed that low-price action did not appear
as active as high-price action on the chart. To correct this, his suggestion should be to:
a) Increase the time-frame on the chart
b) Change the scale to logarithmic
c) Change the scale to arithmetic
d) Use a line chart instead
57. Strong price moves generally initiate from ___________ trendlines:

a) Horizontal
b) Shallow
c) Curved
d) Steep
58. During a declining price trend, the simplest way to detect a trend change (from down to
up) is to:
a) Draw trendlines along the peaks
b) Draw trendlines along the troughs
c) Draw a best-fit line through the downtrend
d) Use the slope of a long-term moving average
59. Which of the following types of trendlines normally slices through price action?
a) Uptrend line
b) Downtrend line
c) Curved trendline
d) Internal trendline
60. A curved trendline is normally useful for:

a) Stable uptrends
b) Stable downtrends
c) Price consolidations
d) Parabolic price moves
61. A/an __________ gap appears at the end of a trend:

a) Area
b) Runaway
c) Breakaway
d) Exhaustion
62. A runaway gap is often found:

a) At the end of a significant move
b) In the middle of a significant move
c) At the beginning of a significant move
d) After the announcement of a surprising but rumored news release
63. Identify the gap highlighted in the chart below:
a) Exhaustion
b) Breakaway
c) Measuring
d) Area
64. From a chart pattern perspective, price breaks out ________ in a throwback and
________ in a pullback:
a) Upward, upward
b) Upward, downward
c) Downward, upward
d) Downward, downward
65. A system in which entries and exits are completely determined by programmed software
without any human intervention is classified as a:
a) Nondiscretionary system
b) Discretionary system
c) Black box system
d) Gray box system
66. The MACD Histogram is a/an:

a) Trend-following indicator
b) Momentum indicator
c) Breadth indicator
d) Oscillator
67. When analyzing macro trends, which of the following indicators can provide an insight
into the intensity of bullish or bearish camps?
a) On-balance volume
b) Accumulation/Distribution
c) New High/New Low index
d) Slope of the 200 day moving average
68. An ideal moving average length is ______ the value of the dominant market cycle:
a) Half
b) Equal to
c) One-third
d) One-fourth
69. The fast MACD line in the traditional MACD indicator is:
a) A simple moving average
b) An exponential moving average
c) The difference between 12 and 26-day EMA
d) The difference between 26 and 12-day EMA
70. A buy signal using the MACD indicator is generated when:

a) The MACD line crosses below the signal line
b) The MACD line crosses above the signal line
c) The MACD line turns negative
d) The MACD line turns positive
71. Which of the following conditions is an absolute must for a true divergence based on the
MACD histogram?
a) Breaking of the centerline
b) Confirmation from the MACD fast line and signal line
c) Price action must be extended above/below the 26 week moving average
d) The MACD histogram has to record atleast a 200 bar low/high on the first trough/peak
72. Which of the following rules can be utilized as an entry strategy for a long trade based
bullish MACD histogram divergence?
a) Go long when the MACD fast line turns higher
b) Go long when the MACD slow line turns higher
c) Go long when the histogram ticks up from the second bottom
d) Go long when the MACD line crosses above the signal line for the second time
confirming the divergence
73. When calculating Directional Movement, an inside-day results in:
a) Both the Plus and Minus DM increasing
b) Both the Plus and Minus DM decreasing
c) Only the Minus DM remaining unchanged
d) Both the Plus and Minus DM remaining unchanged
74. The triple screen trading system allows ________ trades based on the stochastic indicator
in the daily chart if the trend on the weekly chart is ________:
a) Long, up
b) Short, up
c) No, down
d) Long, down
75. In the chart shown below, when analyzing price action at peaks “A” and “B” in
conjunction with the RSI, we can observe:
a) Bullish divergence
b) Bearish divergence
c) Bullish confirmation
d) Bearish confirmation
76. When using the RSI as an overbought/oversold indicator, a buy signal is generated when:
a) RSI declines below its lower reference line and then rallies above it
b) RSI rises above its upper reference line and then crosses below it
c) RSI crosses beneath the midpoint (50 level)
d) RSI crosses above the midpoint (50 level)
77. Which of the following types of moving averages allows for changes in the significance
of individual or groups of data?
a) Accumulative Average
b) Weighted Moving Average
c) Geometric Moving Average
d) Truncated Moving Average
78. In swing trading, the expected duration of a position is normally measured in:
a) Minutes
b) Hours
c) Days/Weeks
d) Months
79. Exponential smoothing is:

a) A front loaded moving average that minimizes the drop-off effect
b) A back loaded moving average that minimizes the drop-off effect
c) Another method of double smoothing linearly weighted averages
d) Just another form of an unweighted moving average
80. The presence of a “fat tail” suggests that:

a) Prices are normally distributed
b) Prices are not normally distributed
c) Trend following systems do not work
d) The price action of major financial instruments can be explained by random distribution
81. Which of the following traits aligns with a simple trend following system?
a) The percentage of profitable trades is low
b) The percentage of profitable trades is high
c) The average winning trades are held less longer than losing trades
d) There is a low frequency of losing trades, therefore short sequences of losing trades
82. A simple method of improving the reliability of signals in a trend following system is to
employ:
a) Oscillators
b) Momentum indicators
c) Standard deviation readings
d) Bands/Channels around the average
83. The choice of two standard deviations when plotting Bollinger bands equates to a
confidence band of:
a) 87.0%
b) 92.0%
c) 95.4%
d) 96.0%
84. Which of the following strategies of trading the Bollinger Bands constitutes the highest
risk?
a) Buy (close out shorts and go long) when the prices close above the upper band; close out
longs when the prices close below the lower band.
b) Sell short when the prices close below the moving average; close out short positions when
prices recapture the moving average.
c) Buy (go long) when prices close above the upper band. Close out longs when prices
reverse and close below the moving average value (the center of the band).
d) Sell short when prices close below the lower band. Cover your shorts when prices close
above the moving average value.
85. To implement an entry system that responds to new events, it would be valid to use a
trend-based trading system where signals are generated as the current price reaches a new
high / low based on:
a) A simple moving average
b) The linear regression slope
c) Exponential smoothing
d) An n-day breakout rule
86. Which of the following trading systems can be categorized as “event driven”?
a) Price channel
b) Swing Breakout
c) Percentage channel
d) Exponential Smoothing
87. Which of the following is an important necessity to ensure robust testing of trading
systems?
a) Tests may start on different dates but should end on same dates.
b) The range of trend speed should be the same for various systems.
c) Trading costs should not be considered, only the reliability of trading signals matter.
d) All markets under review should utilize the same test periods for consistency of results.
88. When using a two moving averages (MA) system, which of the following rules can be
utilized to generate a buy signal?
a) Buy when the faster moving average crosses the slower moving average from above
b) Buy when the faster moving average hooks the slower moving average from above
c) Buy when the faster moving average hooks the slower moving average from below
d) Buy when the current price crosses above both moving averages
89. A system can take advantage of momentum extremes by:

a) Trading with the trend at extremes
b) Fading the price movements at extremes
c) Waiting for pullbacks to the zero line to initiate new trades
d) Waiting for a cross below / above the zero line to initiate new trades
90. If a system entry intends to capture profits by fading at a momentum extreme, the most
reasonable exit would be signaled:
a) By a return to the opposite extreme
b) When the zero line is crossed
c) By using a n-day time based stop
d) By a return to the zero line
91. Identify the stochastic pattern shown in the chart:
a) Hinge
b) Failure
c) Warning
d) Setup (bearish)
92. The William’s % R oscillator is a complement of the:
a) RSI
b) CCI
c) ROC
d) Stochastic
93. Which of the following indicators weigh each day by volume in its calculation?
a) TRIX
b) Moneyflow Index
c) True Strength Index
d) Herrick Payoff Index
94. A bullish divergence occurs when:

a) Both prices and momentum values are rising
b) Both prices and momentum values are falling
c) Prices are falling while momentum values are rising
d) Prices are rising while momentum values are falling
95. Identify the chart pattern highlighted below:
a) Descending triangle
b) Double top
c) Triple top
d) Rectangle
96. When referring to trend lengths, a primary trend normally lasts:
a) For three weeks
b) Three weeks to three months
c) Between three and six months
d) Longer than six months
97. What is the danger of setting bullish entry points, below the 95% confidence bands
established by an ARIMA process?
a) That a mean-reversion trade is riskier than a trend following trade.
b) That an ARIMA trend forecast is less reliable with each further day forward.
c) That the price may penetrate the expected high for the day
d) That the price will continue to move counter to the forecast.
98. The price velocity leading to and exiting from a chart pattern are:
a) Similar even if direction is reversed
b) Similar if direction remains the same
c) Different based on the duration of the chart pattern
d) Defined based on the type of chart pattern (reversal, continuation etc.)
99. Market tops have price trending into a chart pattern from ______, while/and market
bottoms have price trending out of a chart pattern from _______.
a) Above, below
b) Below, above
c) Above, above
d) Below, below
a) Pennant
b) Double top
c) Ascending triangle
d) Busted ascending triangle
101. Increasing supply at lower prices coupled with demand at a constant price results into
the formation of a/an:
a) Rectangle
b) Ascending triangle
c) Descending triangle
d) Symmetrical triangle
102. A flag is generally formed by a _____________ in a bull market or a ____________

in a bear market:
a) Rally, pullback
b) Rally, correction
c) Correction, rally
d) Correction, throwback
103. Pennants typically take less than _______ weeks to form:

a) Two
b) Three
c) Four
d) Six
104. What is the measuring objective for flags and pennants?
a) The move after the pattern will be equal to the move before the pattern
b) No objective as flags and pennants normally occur near the end of major price moves
c) Flags fly at half-mast while pennants are considered reversal patterns
d) Half the distance of the preceding move added to the breakout point
105. A double bottom pattern is confirmed only:

a) If the time between two bottoms is atleast three months
b) If volume is higher on the second bottom than the first
c) If both the bottoms are exactly at the same price (within 1%)
d) When price exceeds the highest peak between both the bottoms
106. If the middle trough of an alleged triple bottom pattern is significantly (greater than
5%) below the other two, then:
a) Additional volume confirmation maybe required to confirm the pattern on a breakout
b) There is a high likelihood of a long-term base building process that might unfold
c) A 3% filter should be used to confirm the breakout above overhead resistance
d) It is probably a head & shoulders bottom
107. When identifying a potential double top pattern, one needs to ensure that the two
peaks are within ______ of each other:
a) 1%
b) 3%
c) 4%
d) 5%
108. Which of the following chart patterns is categorized as a major reversal formation?
a) Flag
b) Pennant
c) Head & Shoulders
d) Symmetrical Triangle
a) Triple bottom
b) Double bottom
c) Ascending triangle
d) Inverse Head & Shoulders
110. The only effective method of diversifying a portfolio is by including asset classes
with ________ correlation to stocks such as cash, foreign exchange or commodities.
a) Positive
b) Meaningful
c) Low/negative
d) Moderately positive
111. Historical evidence suggests that periods of ____________ were associated with
high, rather than low correlations between the S&P 500 and emerging markets.
a) Market consolidations
b) Sharp bull market advances
c) Moderate bull market advances
d) Negative shocks/poor market performance
112. Near the end of an economic expansion, _____ are usually the first to turn lower:
a) Commodities
b) Currencies
c) Stocks
d) Bonds
113. During periods of economic contractions/recessions, which of the following are likely
to outperform equity markets on a relative as well as absolute basis?
a) Bonds
b) Precious metals
c) Industrial metals
d) Emerging market stocks
114. Based on the correlation matrix, identify the two instruments that can be combined
with the S&P 500 to reduce overall portfolio risk by diversification:
a) FTSE, Hang Seng

b) Pound, Gold
c) FTSE, Pound
d) Crude oil, Pound
115. A correlation coefficient of 0.75 between two variables suggests ______ relationship:
a) Extremely strong
b) Strong
c) Low
d) Non-existent
116. The main advantage of using the Spearman coefficient is that it is:
a) It requires the assumption that variables are normally distributed
b) No information is lost even if prices are converted to ranks
c) Very sensitive to outliers
d) Not sensitive to outliers
117. The following scatter plot of the S&P 500 and the British FTSE 100 index depicts:
a) Linear relationship, as the Best Fit line is curvilinear

b) Linear relationship, as points fall generally along a straight line
c) Non-linear relationship, as points fall generally along a straight line
d) Non-linear relationship, as points deviate significantly from the Best Fit line
118. One of the key problems associated with approximating the S&P 500 returns with the
normal distribution model is that:
a) The vast majority of the returns tend to be located near the bottom left of the distribution
b) The vast majority of the returns tend to be located near the bottom right of the distribution
c) The actual distribution does not have fatter tails
d) The actual distribution has fatter and longer tails
119. Open interest in a futures market remains unchanged when:

a) A new buyer meets a new seller
b) A new seller meets an old seller
c) An old buyer meets an old seller
d) A new seller meets a new buyer
120. When open interest rises as prices falls, it shows that:

a) Bottom fishers are active
b) New shorts are getting created
c) Old shorts are getting squeezed
d) The downtrend is in the last stages
121. In the chart shown below, the behavior of the OBV indicator (On-balance volume) is
hinting at:
a) Bullish divergence
b) Bearish divergence
c) Bullish confirmation
d) Bearish confirmation
122. Seasonality is a cycle that occurs:

a) Monthly
b) Quarterly
c) Half-yearly
d) Yearly
123. When identifying seasonal tendencies in unadjusted cash data, a simple way to adjust
for price differences over time is:
a) To index price data
b) To detrend price data
c) To using average prices
d) To use median price value
124. The method of First Differences is simply a way of:
a) Indexing price data
b) Removing the trend from prices
c) Isolating seasonal tendencies in prices
d) Normalizing a data series for comparison
125. The January Barometer suggests that:

a) Small-cap stocks typically outperform during the month of January
b) Small-cap stocks typically underperform during the month of January
c) Large-cap stocks typically outperform during the month of January
d) Monthly returns for January set the market tone for the rest of the year
126. _________ refers to a measurement of the starting point or offset of the cycle relative
to the benchmark wave:
a) Wave
b) Phase
c) Period
d) Frequency
127. Fourier analysis is a:

a) Method of using moving averages to detrend price data
b) Method of filtering noise from a time series to expose useful cycles
c) Method of finding the proper series frequency estimators for cosine waves
d) Method of expressing a dataset as a series of sine and cosine waves of the same type
128. How can one identify the existence of a cycle?

a) Switch time frames
b) Remove price trend
c) Remove volume trend
d) Use n period extremes
129. Which of the following cycles is the shortest by duration?

a) Decennial Pattern
b) Kondratieff Wave
c) Presidential Cycle
d) 34-year Historical Cycle
130. Period refers to:
a) The number of times a peak was recorded when a trough was expected
b) The number of time units necessary to complete one wavelength
c) The number of wavelengths that repeat every 360 degrees
d) The offset of a cycle relative to a benchmark wave
131. Which of the following group of industries are represented by the Manufacturing
sector?
a) Cars, TVs, Furniture
b) Wholesale, Retail, Repair shops
c) Chemicals, Office Furniture, Paper
d) Telephone and Television Transmission
132. The biggest drawback of a relative strength system is that:

a) High transaction costs are involved in regular rebalancing
b) Rebalancing and matching benchmark returns is a painful exercise
c) The starting point of a system test has a massive influence on final results
d) The portfolio is long only and fully invested, hence it is exposed to risks of that particular
asset beta
133. Market breadth is a measure of the:

a) Change in total open interest during a particular trading day
b) Total number of active stocks during a particular trading day
c) Total number of stocks that have traded during a particular day
d) Total number of stocks that have risen or fallen during a particular day
134. Tick volume refers to:

a) The number of contracts traded at each price tick
b) The number of contracts traded at each time interval
c) The change in open interest during a particular time interval
d) The number of recorded price changes during a particular time interval
135. Which of the following indicators can be utilized to trade in a market with an ADX
reading that has just crossed beneath 20?
a) Moving Averages
b) Parabolic SAR
c) Stochastic
d) MACD
136. The McClellan Oscillator is calculated by:
a) Taking the sum of two exponential moving averages of advances plus declines
b) Taking the sum of two exponential moving averages of advances minus declines
c) Taking the difference between two exponential moving averages of advances plus declines
d) Taking the difference between two exponential moving averages of advances minus
declines
137. Which of the following factors is least likely to affect the degree of data mining bias?
a) Variation in expected returns among the rules
b) Correlation among rule returns
c) Number of rules backtested
d) Optimization of input data
138. From a sentiment perspective, when the crowd has become extraordinarily bullish:
a) Prices are likely to consolidate recent gains
b) Prices are likely to experience a strong uptrend
c) Demand is saturated, and there aren’t enough buyers to support a bull market
d) Supply is saturated and the underlying primary uptrend is strongly reinforced
139. Which of the following measures of sentiment can be classified as a price-based

metric?
a) Put-Call Ratio
b) New High-New Low Index
c) Consumer Confidence Index
d) Purchasing Manager’s Index
140. Which of the following is the most likely use of an oscillator in a trading system?
a) To forecast future price levels
b) To determine position sizes
c) To confirm volume trend
d) As a timing tool
141. Which of the following is a diversification technique in trading?

a) Balance risk across multiple uncorrelated markets and trading systems
b) Trade multiple securities in markets with high correlation
c) Ensure low risk: high reward trades
d) Stick to a single trading system
142. A breakaway gap is:
a) Accompanied by high volume
b) Accompanied by low volume
c) The same as an area gap
d) Closed quickly
143. Behavioral finance:

a) Emphasizes on market efficiency and rational investor behavior
b) Emphasizes on the effectiveness of arbitrage players to ensure market efficiency
c) Recognizes the impact of numerous cognitive errors committed by investors on market
prices
d) Recognizes the dynamic aspects of investor behavior that enable them to remain
competitive in financial markets
144. When analyzing price action and volume, low activity (or a drop in volume) is
normally associated with:
a) A weak price trend
b) A strengthening price trend
c) Greater fluctuations in price
d) Lack of conviction on the part of traders
145. If the annualized implied volatility of a call option is 95% with a single trading day
left to expiry, the market is anticipating a one-day move of around:
a) 7.76%
b) 8.76%
c) 5.98%
d) 6.98%
146. In the chart shown below, the OBV indicator is:
a) Confirming bullish price action

b) Confirming bearish price action
c) Diverging negatively from price action
d) Diverging positively from price action
147. If a trader is attempting to trade MACD divergences based on the chart shown below,
which of the following statements would reflect the most appropriate line of action from
a trade setup perspective?
a) Go short on the bar marked by vertical line “A” as the MACD turns lower.
b) Go short on the bar marked by vertical line “B” as momentum is not at previous highs
while price action is.
c) Go short on the bar marked by vertical line “C”, as it is the point when the MACD
divergence is confirmed with a lower high and the MACD fast line crossing beneath the
MACD signal line.
d) Despite the negative MACD divergence, refrain from going short as prices are retesting a
support level (uptrend line).
148. At what point in the following chart is a bullish divergence in RSI observed?
a) Vertical line “A”

b) Vertical line “B”
c) Vertical line “C”
d) Vertical line “D”
149. To create a continuous data series from monthly individual future contracts, it is
necessary to:
a) Close the price gap between the old futures contract and the new one 15 days prior to the
roll and then adjust all the data backwards to reflect the gap
b) Close the price gap between the old futures contract and the new one on the day of the roll
and then adjust all the data backwards to reflect the gap
c) Close the price gap between the old futures contract and the new one within 15 days of the
roll and then adjust all the data backwards to reflect the gap
d) Calculate the difference between cash and futures pricing (premium/discount) and adjust
the raw futures data on a daily basis to arrive at the correct value on each roll date
150. In a triple top pattern, ______ peaks are separated by ________ valleys:
a) Two, two
b) Three, two
c) Two, three
d) Three, three
CMT Level II
Sample Exam
Answers
1. James Blair manages an investment portfolio for Martin, one of the firm’s clients. Martin’s portfolio
is well diversified with a slight tilt toward capital appreciation as Martin requires very little income
from the portfolio. Recently, Martin’s brother, David, has become a client of Blair. Blair proceeds to
invest David’s portfolio in a similar manner to Martin’s portfolio based on the fact that both brothers
have a similar lifestyle and are only two years apart in age. Which of the following statements is most
likely correct? Blair:
c. Violated the Code and Standards by failing to determine David’s objectives and constraints prior to
investing his portfolio.
This question involves Standard III (C) – Suitability.
Reference: Code of Ethics and Standards of Professional Conduct
2. Agatti, an island nation, does not have any regulations relating to the use of nonpublic information.
Daniel Brown has a friend there, Thomas Walker, with whom he has shared nonpublic information
regarding firms outside his industry. The information concerns several firms’ internal earnings and
cash flow projections. Walker may:
c. Not trade on the information under CFA Institute Standards, which govern his behavior.
This question involves Standard II (A) – Material Nonpublic Information
3. NM Investment Corp. receives brokerage business from Pinnacle Asset Management in exchange for
referring prospective clients to Pinnace. Pinnacle advises clients—in writing, before the relationship
is established—of the nature of its arrangement with NM Investment Corp. With regard to this
practice, Pinnacle has:
a. Complied with the Code and Standards as the agreement is disclosed.
This question involves Standard VI (C) – Referral Fees.
4. Jones Miller, CFA, CMT, works full time for Clark & Company, an investment management firm, as
a fixed income security analyst. Jones has been asked by a business contact at ABC Enterprises to
accept some analytical work from ABC on a consulting basis. The work would entail investigating
potential distressed debt securities in the small-cap market. Jones should most appropriately.
c. Accept the work as long as she obtains consent to all the terms of the engagement from Clark &
Company.
This question involves Standard IV (A) – Loyalty.
5. Scott Young is a principal at Harris Brothers, a leading regional investment bank specializing in
initial public offerings of small to mid-sized biotech firms. Just before many of the IPOs are offered
to the general public, Scott arranges for 10% of the shares to be distributed to management of the firm
going public. This action is a violation of the Standard concerning:
a. Fair Dealing
This question involves Standard III (B) – Fair Dealing.
6. Sara Rodriguez, CMT posts buy recommendations for ABC Ltd. on an internet chatroom based on
“conventional wisdom” and what the public is currently buying. Two days after Sara posted the
comment, ABC reported poor earnings and the stock declined 35%. Sara has:
b. Not violated the Code of Ethics if independent and diligent research into the subject company was
made before the comment was posted.
This question involves Standard V (A) – Diligence and Reasonable Basis
7. Which of the following statements clearly conflicts with the recommended procedures for compliance
presented in the CFA Institute Standards of Practice Handbook?
d. For confidentiality reasons, personal transactions and holdings should not be reported to employers
unless mandated by regulatory organizations.
8. Which one of the following actions will help to ensure the fair treatment of brokerage firm clients
when a new investment recommendation is made?
c. Minimizing the time between the decision and the dissemination of a recommendation.
9. Which of the following is a correct statement of a member’s or candidate’s duty under the Code and
Standards?
a. In the absence of specific applicable law or other regulatory requirements, the Code and Standards
govern the member’s or candidate’s actions.
This question involves Standard I (A) – Knowledge of the Law
10. Implied volatility of an option may ________ while (when) all other pricing factors impacting the
price of an option may __________:
b. Change, remain constant
Reference: MTA, CMT Level II Curriculum (2015), Chapter 1, pp.20
11. If ABC Corp. is scheduled to report quarterly earnings the evening of July 22 (after market close), on
which of the following days will stock options (calls/puts) of ABC Corp. reflect highest implied
volatility?
c. July 22 (the day of earnings)
12. The inverse relationship between VIX and the direction of stock prices is a result of:
d. Low (high) demand for options (call/put) when the market is rising (falling)
13. A CBOE VIX reading of 15 implies market expectations of a _____ move in the S&P 500 over the
next 30 days:
a. 4.33%
14. The chart below shows the NYSE Composite index (top panel) and the NYSE New Highs – New
Lows index (in the bottom panel). Which of the following is a valid interpretation of the chart?
b. Bearish divergence in the NH-NL indicator at price highs
15. The “Percentage of stocks above their 50-day MA” breadth indicator gives its trading signals by:
d. Reversing off overbought/oversold levels
16. As per the contrary opinion theory, a high degree of consensus precedes:
a. Trend reversals
17. When tracking advisory opinion, it is important to remember that newsletter writers are most bullish
at ________ and most bearish at ________.
a. Market tops, market bottoms
18. A combination of declining volume and rising price action is normally associated with:
d. A weak rally
19. Which of the following observations in volume and open interests is valid when fresh short selling
has started emerging and prices are declining?
d. Volume and open interest rise
20. A “triple witching day” occurs when we witness:

a. The S&P 500 futures, options on futures and options on individual stocks all expiring at the same
time
21. A consolidation in price action accompanied by a decline in on-balance volume is suggestive of:
b. A possible distribution period
22. Which of the following can be classified as a breadth indicator?

b. Arms Index
23. Alpha measures:
c. Excess returns, either above or below the benchmark index
24. Extrapolation errors occur when investors:

a. Assume that current and recent conditions will prevail well into the future, also causing them to
ignore the evidence of changing circumstances.
25. ___________ is a perception bias that arises when one is attempting to make a guess at something
despite having limited information:
c. Anchoring
26. Volume spikes in downtrends reflect:

b. Exhaustion, and suggest an imminent reversal
27. Reactions against a primary uptrend are normally accompanied with:

a. A pickup in volume due to profit taking
28. Which of the following conclusions correctly reflects the behavior of the A/D index
(Accumulation/Distribution) plotted beneath price action in the chart shown below?
b. Smart money is buying
29. Based on the graph shown below, the most likely degree of correlation between price series 1 & 2 is:
a. No correlation
30. Confidence bands:

c. Help in measuring the accuracy of regression analysis
31. Which of the following claims of EMH refers to the weak EMH version?
c. The market is only efficient with respect to past price, volume and other technical data.
32. Which of the following statements is an important assumption of the Efficient Market Hypothesis?
a. Investors as a group will act rationally
33. Which of the following factors results into impairment of an arbitrage strategy that otherwise may
have positive expectation?
c. Over-leveraging
34. Which of the following predictability studies contradict the semistrong EMH version?
a. Small capitalization effect
35. Which of the following statements correctly defines Conservatism Bias?

a. It is the tendency to give too little weight to new information
36. Systematic risk:

c. Can be reduced by using diversification
37. Which of the following represent the greatest risk for stock traders?
d. Price shock
38. The Sharpe ratio is a measure of:

c. Performance
39. Maximum drawdown represents:

c. The largest equity swing from peak to valley
40. Which of the following methods is used to anticipate future risk?

c. Value at risk
41. Which of the following risk/return pattern most closely characterizes a trend system?
b. Smaller losses and fewer larger profits
42. A breakout system improves the reliability of a ________ system, but incorporates a _______ risk in
the process:
b. Moving average, larger
43. When a stop-loss price is triggered, the order becomes a:
c. Market order
44. Which of the following types of trailing stops only advance once triggered, but never retreat?
d. Wilder’s Parabolic SAR
45. Maximum adverse excursion identifies:

c. The largest losing trade
46. If the ADX crosses below 45 after being higher, the market is most likely:
d. Consolidating
47. The compounding (pyramiding) structure that possesses high risk of an immediate loss due to a small
reversal in prices is referred to as:
c. An inverted pyramid
48. The “Profit factor” is:

d. The absolute value of the ratio of gross profit to gross loss
49. A portfolio that has experienced a 25% loss will need to earn a profit of _____ to breakeven:
c. 33%
50. The Chi-Square Test is used to measure:

c. Correlation
51. Stocks in which of the following industry groups normally exhibit high beta?
a. Consumer Discretionary
52. A top-down fundamental analysis approach begins with:

c. Economic analysis
53. Stocks with superior fundamentals will normally decouple and start outperforming on an relative
basis during:
d. A market correction (bear market)
54. Adaptive market hypothesis:

d. Studies the interactions among investors, securities, markets and institutions as a dynamically
evolving ecosystem
55. Which of the following characteristics is an important consideration when choosing systems to trade?
d. Larger profits rather than smaller profits to leave more room for execution error
56. A technical analyst was at a convention in which a long-term bar chart of the Dow Jones Industrial
Average was being discussed. He noticed that low-price action did not appear as active as high-price
action on the chart. To correct this, his suggestion should be to:
b. Change the scale to logarithmic
57. Strong price moves generally initiate from ___________ trendlines:

b. Shallow
58. During a declining price trend, the simplest way to detect a trend change (from down to up) is to:
a. Draw trendlines along the peaks
59. Which of the following types of trendlines normally slices through price action?
d. Internal trendline
60. A curved trendline is normally useful for:

d. Parabolic price moves
61. A/an __________ gap appears at the end of a trend:

d. Exhaustion
62. A runaway gap is often found:

b. In the middle of a significant move
63. Identify the gap highlighted in the chart below:
d. Area
64. From a chart pattern perspective, price breaks out ________ in a throwback and ________ in a
pullback:
b. Upward, downward
65. A system in which entries and exits are completely determined by programmed software without any
human intervention is classified as a:
c. Black box system
66. The MACD Histogram is a/an:

d. Oscillator
67. When analyzing macro trends, which of the following indicators can provide an insight into the
intensity of bullish or bearish camps?
c. New High/New Low index
68. An ideal moving average length is ______ the value of the dominant market cycle:
a. Half
69. The fast MACD line in the traditional MACD indicator is:
c. The difference between the 12 and 26-day EMA
70. A buy signal using the MACD indicator is generated when:

b. The MACD line crosses above the signal line
71. Which of the following conditions is an absolute must for a true divergence based on the MACD
histogram?
a. Breaking of the centerline
72. Which of the following rules can be utilized as an entry strategy for a long trade based bullish MACD
histogram divergence?
c. Go long when the histogram ticks up from the second bottom
73. When calculating Directional Movement, an inside-day results in:
d. Both the Plus or Minus DM remaining unchanged
74. The triple screen trading system allows ________ trades based on the stochastic indicator in the daily
chart if the trend on the weekly chart is ________:
a. Long, up
75. In the chart shown below, when analyzing price action at peaks “A” and “B” in conjunction with the
RSI, we can observe:
c. Bullish confirmation
76. When using the RSI as an overbought/oversold indicator, a buy signal is generated when:
a. RSI declines below its lower reference line and then rallies above it
77. Which of the following moving averages allow for the significance of individual or groups of data to
be changed?
b. Weighted Moving Average
78. In swing trading, the expected duration of a position is normally measured in:
c. Days/Weeks
79. Exponential smoothing is:

a. A front loaded moving average that minimizes the drop-off effect
80. The presence of a “fat tail” suggests that:

b. Prices are not normally distributed
81. Which of the following traits aligns with a simple trend following system?
a. The percentage of profitable trades is low
82. A simple method of improving the reliability of signals in a trend following system is to employ:
d. Bands/Channels around the average
83. The choice of two standard deviations when plotting Bollinger bands equates to a confidence band of:
a. 87.0%
84. Which of the following strategies of trading the Bollinger Bands constitutes the highest risk?
a. Buy (close out shorts and go long) when the prices close above the upper band; close out longs
when the prices close below the lower band.
85. A trend-based trading system where signals are generated when the current price reaches a new high /
low:
d. N-day breakout
86. Which of the following trading systems can be categorized as “event driven”?
b. Swing breakout
87. Which of the following is an important necessity to ensure robust testing of trading systems?
d. All markets under review should utilize the same test periods for consistency of results.
88. When using a two moving averages (MA) system, which of the following rules can be utilized to
generate a buy signal?
d. Buy when the current price crosses above both moving averages
89. A system can take advantage of momentum extremes by:

b. Fading the price movements at extremes
90. The most reasonable exit for fading at momentum extremes would be:
d. A return to the zero line
91. Identify the stochastic pattern shown in the chart:

b. Failure
92. The William’s % R oscillator is a complement of the:

d. Stochastic
93. Which of the following indicators weigh each day by volume in its calculation?
b. Moneyflow
94. A bullish divergence occurs when:

c. Prices are falling while momentum values are rising

d. Rectangle
96. When referring to trend lengths, a primary trend normally lasts:

d. Longer than six months
97. The volume pattern in a rectangle bottom formation:

d. Tends to track the direction of the breakout
98. The price velocity leading to and exiting from a chart pattern are:
a. Similar even if direction is reversed
99. Market tops have price trending into a chart pattern from ______, while/and market bottoms have
price trending out of a chart pattern from _______.
d. Below, below

d. Busted ascending triangle
101. Increasing supply at lower prices coupled with demand at a constant price results into the
formation of a/an:
c. Descending triangle
102. A flag is generally formed by a _____________ in a bull market or a ____________ in a bear

market:
c. Correction, rally
103. Pennants typically take less than _______ weeks to form:
b. Three
104. What is the measuring objective for flags and pennants?

a. The move after the pattern will be equal to the move before the pattern
105. A double bottom pattern is confirmed only:

d. When price exceeds the highest peak between both the bottoms
106. If the middle trough of an alleged triple bottom pattern is significantly (greater than 5%) below
the other two, then:
d. It is probably a head & shoulders bottom
107. When identifying a potential double top pattern, one needs to ensure that the two peaks are within
______ of each other:
b. 3%
108. Which of the following chart patterns is categorized as a major reversal formation?
c. Head & Shoulders

d. Inverse Head & Shoulders
110. The only effective method of diversifying a portfolio is by including asset classes with ________
correlation to stocks such as cash, foreign exchange or commodities.
c. Low/negative
111. Historical evidence suggests that periods of ____________ were associated with high, rather than
low correlations between the S&P 500 and emerging markets.
d. Negative shocks/poor market performance
112. Near the end of an economic expansion, _____ are usually the first to turn lower:
d. Bonds
113. During periods of economic contractions/recessions, which of the following are likely to
outperform equity markets on a relative as well as absolute basis?
b. Precious metals
114. Based on the correlation matrix, identify the two instruments that can be combined with the S&P
500 to reduce overall portfolio risk by diversification:
d. Crude oil, Pound
115. A correlation coefficient of 0.75 between two variables suggests __ relationship:

b. Strong
116. The main advantage of using the Spearman coefficient is that it is:
d. Not sensitive to outliers
117. The following scatter plot of the S&P 500 and the British FTSE 100 index depicts:
b. Linear relationship, as points fall generally along a straight line
118. One of the key problems associated with approximating the S&P 500 returns with the normal
distribution model is that:
d. The actual distribution has fatter and longer tails
119. Open interest in a futures market remains unchanged when:

b. A new seller meets an old seller
120. When open interest rises as prices falls, it shows that:

a. Bottom fishers are active
121. In the chart shown below, the behavior of the OBV indicator (On-balance volume) is hinting at:
b. Bearish divergence
122. Seasonality is a cycle that occurs:

d. Yearly
123. When identifying seasonal tendencies in unadjusted cash data, a simple way to adjust for price
differences over time is:
a. To index price data
124. The method of First Differences is simply a way of:

b. Removing the trend from prices
125. The January Barometer suggests that:

d. Monthly returns for January set the market tone for the rest of the year
126. _________ refers to a measurement of the starting point or offset of the cycle relative to the
benchmark wave:
b. Phase
127. Fourier analysis is a:

d. Method of expressing a dataset as a series of sine and cosine waves of the same type
128. How can one identify the existence of a cycle?

b. Remove price trend
129. Which of the following cycles is the shortest by duration?

c. Presidential Cycle
130. Period refers to:

b. The number of time units necessary to complete one wavelength
131. Which of the following group of industries are represented by the Manufacturing sector?
c. Chemicals, Office Furniture
132. The biggest drawback of a relative strength system is that:

d. The portfolio is long only and fully invested, hence it is exposed to risks of that particular asset
beta
133. Market breadth is a measure of the:
d. Total number of stocks that have risen or fallen during a particular day
134. Tick volume refers to:

d. The number of recorded price changes during a particular time interval
135. Which of the following indicators can be utilized to trade in a market with an ADX reading that
has just crossed beneath 20?
c. Stochastic
136. The McClellan Oscillator is calculated by:

d. Taking the difference between two exponential moving averages of advances minus declines
137. Which of the following factors is least likely to affect the degree of data mining bias?
d. Optimization of input data
138. From a sentiment perspective, when the crowd has become extraordinarily bullish:
c. Demand is saturated, and there aren’t enough buyers to support a bull market
139. Which of the following measures of sentiment can be classified as a price-based metric?
b. New High-New Low Index
140. Which of the following is the most likely use of an oscillator in a trading system?
d. As a timing tool
141. Which of the following is a diversification technique in trading?

a. Balance risk across multiple uncorrelated markets and trading systems
142. A breakaway gap is:

a. Accompanied by high volume
143. Behavioral finance:

c. Recognizes the impact of numerous cognitive errors committed by investors on market prices
144. When analyzing price action and volume, low activity (or a drop in volume) is normally
associated with:
d. Lack of conviction on the part of traders
145. If the annualized implied volatility of a call option is 95% with a single trading day left to expiry,
the market is anticipating a one-day move of around:
c. 5.98%
146. In the chart shown below, the OBV indicator is __________ price action:
a. Confirming bullish
147. If a trader is attempting to trade MACD divergences based on the chart shown below, which of
the following statements would reflect the most appropriate line of action from a trade setup
perspective?
d. Despite the negative MACD divergence, refrain from going short as prices are retesting a support
level (uptrend line).
148. At what point in the following chart is a bullish divergence in RSI observed?
a. Vertical line “A”
149. To create a continuous data series from monthly individual future contracts, it is necessary to:
b. Close the price gap between the old futures contract and the new one on the day of the roll and then
adjust all the data backwards to reflect the gap
150. In a triple top pattern, ______ peaks are separated by ________ valleys:
b. Three, two

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SAMPLE

CMT LEVEL II EXAM

This book of practice exams is produced by

3. NM Investment Corp. receives brokerage business from Pinnacle Asset Management in

5. Scott Young is a principal at Harris Brothers, a leading regional investment bank

9. Which of the following is a correct statement of a member’s or candidate’s duty under

a) Bullish divergence in the NH-NL indicator at price highs

20. A “triple witching day” occurs when we witness:

21. A consolidation in price action accompanied by a decline in on-balance volume is

23. Alpha measures:

24. Extrapolation errors occur when investors:

26. Volume spikes in downtrends reflect:

27. Reactions against a primary uptrend are normally accompanied with:

a) Smart money is selling

35. Which of the following statements correctly defines Conservatism Bias?

38. The Sharpe ratio is a measure of:

39. Maximum drawdown represents:

40. Which of the following methods is used to anticipate future risk?

43. When a stop-loss price is triggered, the order becomes a:

45. Maximum adverse excursion identifies:

50. The Chi-Square Test is used to measure:

52. A top-down fundamental analysis approach begins with:

55. Which of the following characteristics is an important consideration when choosing

57. Strong price moves generally initiate from ___________ trendlines:

60. A curved trendline is normally useful for:

61. A/an __________ gap appears at the end of a trend:

62. A runaway gap is often found:

66. The MACD Histogram is a/an:

70. A buy signal using the MACD indicator is generated when:

79. Exponential smoothing is:

80. The presence of a “fat tail” suggests that:

89. A system can take advantage of momentum extremes by:

91. Identify the stochastic pattern shown in the chart:

94. A bullish divergence occurs when:

95. Identify the chart pattern highlighted below:

102. A flag is generally formed by a _____________ in a bull market or a ____________

103. Pennants typically take less than _______ weeks to form:

105. A double bottom pattern is confirmed only:

a) FTSE, Hang Seng

a) Linear relationship, as the Best Fit line is curvilinear

119. Open interest in a futures market remains unchanged when:

120. When open interest rises as prices falls, it shows that:

122. Seasonality is a cycle that occurs:

125. The January Barometer suggests that:

127. Fourier analysis is a:

128. How can one identify the existence of a cycle?

129. Which of the following cycles is the shortest by duration?

132. The biggest drawback of a relative strength system is that:

133. Market breadth is a measure of the:

134. Tick volume refers to:

139. Which of the following measures of sentiment can be classified as a price-based

141. Which of the following is a diversification technique in trading?

143. Behavioral finance:

a) Confirming bullish price action

a) Vertical line “A”

20. A “triple witching day” occurs when we witness:

22. Which of the following can be classified as a breadth indicator?

24. Extrapolation errors occur when investors:

26. Volume spikes in downtrends reflect:

27. Reactions against a primary uptrend are normally accompanied with:

30. Confidence bands:

35. Which of the following statements correctly defines Conservatism Bias?

36. Systematic risk:

102. A flag is generally formed by a _ in a bull market or a

102. A flag is generally formed by a _ in a bull market or a in a bear