CMT Level II flashcards
CMT Level II · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Dow Theory confirmation
- Both the industrial and transport averages (or comparable composite indices) must signal the same trend direction; a new high in one unconfirmed by the other is a non-confirmation and warns of trend weakness.
- Primary trend
- The broad, long-term directional movement of prices lasting from many months to years, which Dow Theory treats as the dominant trend that shorter fluctuations should be interpreted against.
- Secondary reaction
- A counter-trend pullback within a primary trend, typically lasting weeks to months and retracing roughly one-third to two-thirds of the prior primary swing before the trend resumes.
- Accumulation phase
- The early phase of a bull market in which informed buyers absorb supply at low prices while sentiment is still negative and volume may be quietly rising.
- Distribution phase
- The early phase of a bear market in which informed sellers unload positions into still-positive sentiment, often producing a topping pattern with heavy volume and little price progress.
- Simple moving average
- The arithmetic mean of the last n closing prices, recalculated each period; it lags price and gives equal weight to every observation in the window.
- Exponential moving average
- A moving average that weights recent prices more heavily using a smoothing factor of 2 divided by (n+1), so it responds faster to new price information than a simple average.
- Golden cross
- A shorter-period moving average (commonly 50-period) crossing above a longer-period average (commonly 200-period); a lagging bullish confirmation signal rather than a leading one.
- Death cross
- A shorter-period moving average crossing below a longer-period average, conventionally the 50-period below the 200-period, signaling a shift toward a longer-term downtrend.
- Bollinger Band squeeze
- A contraction of Bollinger Band width to unusually low levels, indicating compressed volatility that historically precedes an expansion move whose direction is not predicted by the squeeze itself.
- Bollinger %B
- A normalized location of price within the bands, calculated as (price minus lower band) divided by (upper band minus lower band); values above 1 or below 0 mean price is outside the bands.
- RSI calculation
- Wilder's Relative Strength Index equals 100 minus 100 divided by (1 plus average gain divided by average loss) over the lookback, with averages smoothed using Wilder's method.
- RSI divergence
- Price makes a new high while RSI fails to make a new high (bearish), or price makes a new low while RSI holds above its prior low (bullish); a momentum warning, not a standalone entry.
- MACD line
- The difference between a 12-period exponential moving average and a 26-period exponential moving average of price; crossing zero indicates a shift in intermediate trend direction.
- MACD histogram
- The MACD line minus its 9-period signal line; a rising histogram shows momentum accelerating, and a shrinking histogram warns that the current momentum is fading.
- Stochastic oscillator
- Calculates where the close sits within the recent high-low range as (close minus lowest low) divided by (highest high minus lowest low) times 100, bounded 0 to 100.
- Fibonacci retracement
- Horizontal levels at 23.6%, 38.2%, 50%, 61.8%, and 78.6% of a completed swing, used as potential support or resistance areas during a counter-trend pullback.
- Volume confirmation
- A price breakout accompanied by volume expanding above its recent average is considered more reliable than one on light volume, which raises the odds of a failed move.
- On-balance volume
- A cumulative volume indicator that adds volume on up-closing days and subtracts it on down-closing days, tracking whether buying or selling pressure dominates over time.
- Relative strength ratio line
- The security's price divided by a benchmark's price, plotted over time; a rising line indicates outperformance of the benchmark, independent of the absolute market direction.
- Support and resistance roles
- Support is a price area where demand historically halts declines; resistance is where supply halts advances; once broken, each commonly reverses role in subsequent tests.
- Trendline validity
- A trendline requires at least two touch points to draw and a third test to confirm; steeper lines break more easily, and a close beyond the line is the standard break signal.
- Head and shoulders top
- A reversal pattern with three peaks where the middle is highest; the neckline connects the two troughs, and a close below it on expanding volume completes the pattern.
- Pattern price target
- The measured move: for a head and shoulders, project the head-to-neckline distance from the breakout point; for a rectangle or flag, project the prior range or pole length.
- Candlestick doji
- A candle whose open and close are nearly equal, producing a very small body; it signals indecision and gains meaning only in the context of the preceding trend.
- Engulfing pattern
- A two-candle reversal pattern in which the second candle's real body completely covers the prior candle's body, bullish after a decline and bearish after an advance.
- Point and figure chart
- A chart plotting only price changes of a fixed box size, adding X columns on rises and O columns on falls; it filters time and small moves and defines targets by column counts.
- Ichimoku Kumo cloud
- The area between the two leading spans plotted ahead of price; price above the cloud is bullish, below is bearish, and the cloud's thickness reflects support or resistance strength.
- Average true range
- Wilder's volatility measure: true range is the greatest of high minus low, high minus prior close, or prior close minus low, then smoothed over n periods; used for stop placement.
- Rate of change
- Momentum expressed as a percentage: current price minus price n periods ago, divided by price n periods ago, times 100; it measures speed and is not bounded.
- Sentiment contrarian indicator
- Extreme bullish sentiment readings (for example very high put-call ratios inverse or low cash allocations) are treated as bearish warnings because the crowd is already fully positioned.
- Intermarket analysis
- Comparing related markets such as bonds, commodities, and currencies to infer the direction of equities; for example, rising yields or commodity prices can pressure stock valuations.