CMT Level I key terms

The general direction in which price moves over a chosen time frame, described as up, down, or sideways. Identified by the sequence of successive highs and lows rather than by a single bar.

The stair-step pattern of peaks and troughs that defines an uptrend: each rally exceeds the prior peak and each pullback bottoms above the prior trough. The mirror image defines a downtrend.

A price area where buying interest has previously been strong enough to halt or reverse a decline. Traders watch it as a potential floor where demand may reappear.

A price area where selling pressure has previously stopped or reversed an advance. It acts as a potential ceiling where supply may emerge again on a retest.

A straight line drawn through at least two successive reaction lows in an uptrend or reaction highs in a downtrend, used to visualize direction and to spot acceleration or violation of the trend.

Two parallel trendlines that bracket price action, one connecting the highs and one connecting the lows. Price repeatedly rotating between the lines suggests a well-ordered trend.

A close beyond a defined boundary such as a trendline, chart pattern, or prior swing extreme. It suggests the balance of supply and demand has shifted and the prior range may be ending.

A move beyond a boundary that fails to hold and reverses back inside the prior range. Often treated as evidence that the breakout crowd was trapped rather than as a new trend signal.

A foundational framework stating that averages discount everything, that markets move in primary, secondary, and minor trends, and that a trend persists until a clear reversal appears, confirmed by related averages.

Independent evidence that supports a signal, such as a second index making the same new high, volume expanding behind a breakout, or a momentum indicator agreeing with price.

A disagreement between price and an indicator: price makes a new high while the indicator makes a lower high, or the reverse. It flags weakening momentum rather than an immediate reversal.

A continuously recalculated average of the last N closing prices, used to smooth noise and represent trend. A simple version weights each of the N observations equally; other versions weight recent data more heavily.

A moving average that applies a constant percentage weight to the latest price and a declining weight to older prices, so it reacts faster than a simple average of the same length.

The point where one line crosses another, such as a short moving average crossing a long one or price crossing its average. Often used as a mechanical entry or exit trigger.

The speed or rate of change of price, usually measured as the difference between the current price and the price N periods ago. It is not the same as price direction.

Momentum expressed as a percentage: the current price divided by the price N periods ago, minus one. It permits comparison of momentum across instruments with different price levels.

An indicator that fluctuates within a bounded range, typically used to identify overbought or oversold conditions and to compare momentum with price. Examples include the RSI and stochastic.

A bounded oscillator scaled from 0 to 100 that compares average gains with average losses over a lookback period. Readings above 70 or below 30 are commonly labeled overbought and oversold.

An indicator comparing the latest close with the high-low range of a lookback period, scaled from 0 to 100. It measures where price sits inside its recent range rather than its absolute level.

A condition in which an oscillator sits near the top of its range, indicating price has risen rapidly relative to recent history. It describes momentum, not a guaranteed reversal.

A condition in which an oscillator sits near the bottom of its range, indicating price has fallen rapidly relative to recent history. In strong downtrends it can persist for long stretches.

The number of shares, contracts, or units traded during a period. Analysts use it to gauge the conviction behind a price move and to confirm or question breakouts and patterns.

A cumulative volume series that adds volume on up-closing days and subtracts it on down-closing days. Its trend is compared with price to detect accumulation or distribution.

The process in which informed buyers absorb supply during a sideways or declining market, often visible as rising volume on rallies and diminishing downside volume. It typically precedes an advance.

The process in which informed sellers unload holdings into demand during a sideways or rising market, often visible as heavy volume on declines. It typically precedes a markdown.

A chart formation signaling that the prevailing trend may be ending and turning, such as a head-and-shoulders top or a double bottom. It becomes actionable only after its neckline or trigger is broken.

A consolidation formation that typically resolves in the same direction as the trend that preceded it, such as a flag, pennant, or triangle. Its duration is usually shorter than a reversal formation.

A reversal formation with three peaks, the middle one highest, flanked by two lower shoulders. A close below the line connecting the two intervening troughs completes the pattern.

The support or resistance line drawn across the reaction lows or highs of a reversal formation. A decisive close through it is the standard confirmation that the pattern is complete.

A sideways consolidation bounded by converging trendlines, classified as ascending, descending, or symmetrical depending on the slopes. It reflects shrinking volatility before a resolution.

A chart where each period is drawn as a body spanning open to close plus wicks marking the high and low. Body color and wick length convey the period's balance of buying and selling.

A candlestick whose open and close are essentially equal, leaving a horizontal line with wicks. It signals indecision, and its meaning depends on the trend and location in which it appears.

A two-candle formation in which the second body completely covers the first body, pointing to a shift in control. A bullish version appears after a decline and a bearish version after an advance.

A chart that records only price, plotting columns of X's for rising prices and O's for falling prices, with new marks added only after a set move. Time is ignored entirely.

A measure of crowd positioning or mood, such as put-call ratios, short interest, or survey bullishness. Extremes are watched as contrarian clues that a move may be crowded and vulnerable.

An approach that treats extreme consensus positioning as a warning sign, buying when sentiment is overwhelmingly bearish and selling when it is overwhelmingly bullish. It works best at extremes, not in the middle.

A rapid sequence of conflicting signals in which price breaks one way and then sharply reverses, producing losses for trend followers. Common in narrow ranges and around noisy moving-average crossovers.