Free CMT Level 2 Questions and Answers — Questions and Answers
Question 1: Which of the following is not a disadvantage of the patterns that are formed by Broadening formations?
- They are hard to make the most of the profit
- They are often difficult to identify
- They are relatively common in occurrence (Correct answer)
- The breakout lines are moving permanently away from each other
Correct answer: They are relatively common in occurrence
Explanation: <br> For a variety of reasons, expansion shapes are the least useful forms. First, they occur relatively rarely and are often hard to identify. Second, and more importantly, they are hard to make the most of. Because with time the boundary trend lines separate, the breakout Lines pass away from each other all the time.
Question 2: If the upper breakout level is getting higher and higher along the upper trend line which of the following statements is not predicted correctly about this trend?
- It is using up much of any potential gain after a breakout
- It is also moving farther from any realistic protective stop level
- It is increasing the risk
- It is using up much of any potential gain just before a breakout (Correct answer)
Correct answer: It is using up much of any potential gain just before a breakout
Explanation: <br> This means the upper breakout level is getting higher and higher along the upper trend line in an upward-breaking broadening pattern. By going higher and higher, it not only uses up much of any possible gain after a breakdown, but it also moves further away from any practical degree of protective stoppage, increasing the risk.
Question 3: According to the raw performance statistics which of the following statements predicts the correct when the performance of a broadening pattern at its best and its failure rate?
- At best, the performance of an expanding pattern is average, and its rate of failure is above average (Correct answer)
- At best, the performance of an expanding pattern is average, and its rate of failure is below average
- At best, the performance of an expanding pattern is above average, and its rate of failure is above average
- At best, the performance of an expanding pattern is below average, and its rate of failure is above average
Correct answer: At best, the performance of an expanding pattern is average, and its rate of failure is above average
Explanation: <br> Raw performance statistics show that the performance of an expanding pattern is at best average and that its failure rate is above average. However, one of the most efficient patterns using an expanding pattern is when it is incorporated into a diamond top with a symmetric triangle.
Question 4: Which of the following statements is not true about the Diamond Top with regards to pattern analysis?
- It is a profitable pattern
- It consists of a combination of a broadening pattern and a symmetrical triangle
- It occurs at the top of a very sharp upward rise in prices
- It is not rare at price bottoms (Correct answer)
Correct answer: It is not rare at price bottoms
Explanation: <br> Diamond is one of the less common, but still lucrative patterns. It consists of a mixture of an increasing pattern and a symmetrical triangle, which typically occurs at the top of a very sharp price increase. It’s uncommon at the bottom of the market.
Question 5: Which of the following perfectly describes the pattern of a standard broadening formation with regard to pattern analysis?
- The upper trend line goes downwards and must have two peaks, the latter higher than the former
- The upper trend line goes upwards and must have two peaks, the latter higher than the former (Correct answer)
- The upper trend line goes upwards and must have a single peak
- The upper trend line goes upwards and must have two peaks, the latter lower than the former
Correct answer: The upper trend line goes upwards and must have two peaks, the latter higher than the former
Explanation: <br> The upper trend line slopes upwards in a typical expansion structure and must, therefore, have two peaks the latter higher than the former. Likewise, there must be two troughs in the lower trend line — the latter lower than the former one — and each line must be created at the same time as the other.
Question 6: Which of the following is the best combination that results with respect to the volume and pullback in the Diamond Top pattern?
- The best combination is when there is an upward breakout on less-than-normal breakout volume with no pullback
- The best mix is when there is a downward breakout on less than a normal breakout rate and with few pullbacks
- The best combination is when a downward breakout happens on an under-average amount of breakout with no pullback (Correct answer)
- The best combination is when there is a downward breakout at an above-average breakout rate with few pullbacks
Correct answer: The best combination is when a downward breakout happens on an under-average amount of breakout with no pullback
Explanation: <br> The best combination is when a downward breakout happens on an under-average amount of breakout with no pullback. The failure rate is fairly small at 4%-10%. To some degree, these low numbers correlate with risk.
Question 7: Which of the following methods is not used to portray the volume of trade?
- Point-and-Figure
- Equivolume
- Leaf and stem (Correct answer)
- Bar/candle
Correct answer: Leaf and stem
Explanation: <br> Volume is the number of shares or contracts exchanged in any stock market over a given timeframe, usually a day, but maybe one stock to months or years. Analysts display volume on a price chart in many ways, for instance, Bar/candle, Equivolume, and Point-and-Figure.
Question 8: When using the Bar/Candle method to portray volume what is the relationship defined between price and volume using this method?
- It has an indirect relationship between price and volume
- It has a direct relationship between price and volume
- It has no relationship between price and volume (Correct answer)
- The price is dependent on the volume
Correct answer: It has no relationship between price and volume
Explanation: <br> The most popular volume representation is a vertical bar at the bottom of the price chart which represents the total volume amount for that time. This approach is simple and does not take for granted any direct connection between price and volume. It just shows the details.
Question 9: If 300 shares traded at a certain price which of the following conclusions can be drawn from this given situation?
- Traders could determine the price at which supply and demand were equalized
- Traders would record four bars at that price (Correct answer)
- Traders could determine the support
- Traders could determine the resistance zones
Correct answer: Traders would record four bars at that price
Explanation: <br> If 300 shares were traded at a given price, the traders would record three shares bars to the price. A large number of bars at a given price showed that most operations took place at that level. From this chart, traders could determine the price at which the equalization of supply and demand, and thus the support and resistance zones.
Question 10: Using the Point-and-Figure method what is the standard method used to portray the volume on the chart?
- This is to multiply the volume occurring when each box was in operation
- This is to sum up the volume occurring when each box was in operation (Correct answer)
- This is to divide up the volume occurring by each box was in operation
- It is, to sum up, the volume that occurs when every box is not in use
Correct answer: This is to sum up the volume occurring when each box was in operation
Explanation: <br> The traditional approach is to add up the volume that occurred while each box was in operation and to represent it on the table. From this, the analyst can visualize quickly where volume occurred in the formation. Using the process, the individual analyst must decide if the information is helpful.
Question 11: Which of the following is the correct description of the law of percentages in the field of decision-making and selection?
- A relative loss of 20% can be made back with a relative gain of 20%, but an absolute 20% loss requires a 25% gain to break even (Correct answer)
- A relative loss of 20% can be made back with a relative gain of 20%, but an absolute 20% loss doesn't require a 25% gain to break even
- A relative loss of 20% can be made back with a relative gain of 20%, but an absolute 10% loss requires a 25% gain to break even
- A relative gain of 20% can be made back with a relative loss of 20%, but an absolute 20% loss requires a 25% gain to break even
Correct answer: A relative loss of 20% can be made back with a relative gain of 20%, but an absolute 20% loss requires a 25% gain to break even
Explanation: <br> With a relative gain of 20 percent, a relative loss of 20 percent may be made back, but an absolute loss of 20 percent requires only a 25 percent gain to split. This is called the “law of percentages.” It implies that all total losses will be held to a minimum when investing.
Free CMT Level 2 Questions and Answers
Which of the following is not a disadvantage of the patterns that are formed by Broadening formations?