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RichardCox

CMT Certification: The First Steps

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Technical analysis traders looking to develop and solidify their knowledge of charting techniques should consider the Chartered Market Technician (CMT) certification. Studying the body of knowledge required to achieve the certification will not only help you to improve your trading skills but will also show potential employers that your knowledge is comprehensive, formally approved by a reputable organization, and ready for active markets. Here, we will look at some of the key elements of the certification process, including an overview of the body of knowledge you will need in order to pass the initial levels of the exam.

 

CMT Certification Defined

 

The CMT exam is regulated by the Market Technicians Association (MTA), and is designed to test knowledge of technical analysis terms, strategy, and analytical skills. Additional elements of the exams include tests of the code of ethics, but the majority of the information centers on theory and history, pattern and trend analysis, trade selection, and technical indicators. The overall exam is broken down into three parts, each with differing levels of advanced knowledge and strategy application. Each portion of the exam will also grant a different level title characterization once completed:

 

CMT Level 1: Focus is placed on term definitions, and the test aims to certify basic, entry-level competence of commonly used chartist terminology. According to MTA’s website, The CMT Level 1 candidate must demonstrate “a working knowledge of the basic tools of the technical analyst.” The MTA’s recommended reading list for Level 1 qualification can be found here.

CMT Level 2: Focus is placed on advanced definition and strategy application. The CMT Level 2 examination requires candidates to display a larger depth of analysis and chartist competency. CMT Level 2 candidates are required to show proficiency in applying more advanced analytical techniques, and “is responsible for the theory and application of those concepts and techniques.” The MTA’s recommended reading list for Level 2 qualification can be found here.

CMT Level 3: Focuses on the integration of techniques and theories learned in the previous sections. The Level 3 Candidate is tested on the “development of logical and consistent research opinions, portfolio strategies and trading decisions” using a series of charted examples and technical data. The CMT 3 candidate is also required to successfully complete the ethics portion of this exam. The MTA’s recommended reading list for Level 3 qualification can be found here.

 

Exam Preparation and Time to Completion

 

The CMT program is designed for self-study, and the MTA gives candidates a comprehensive reading list and a variety of study aids (flash cards, sample exams, webinars, etc) to accomplish this. One of the unique features of the CMT exam is its emphasis on classic literature in the chartist field and its relationship for more modern techniques. Nearly all aspects of technical analysis are addressed: Identification and measuring chart patterns, indicators and oscillators, Gann angles, Elliott wave theory, and candlestick strategies make of a majority of the topics required.

 

Since the certification is split up into three parts, the first two sections are given in multiple choice format while the final section is a much more intensive 4-hour exam in essay form. Each section is offered twice a year, which makes the minimum time to completion 18 months. Most successful candidates take about three years to finish all the required work. The MTA recommends 150 hours of preparation for each segment, but many candidates eventually find more time is needed.

 

Section Descriptions

 

The CMT Level I costs $500 in fees: $250 for the comprehensive program fee (which gives candidates five years to finish all exam components), and $250 for the first test section itself. The level 1 portion consists of 120 multiple choice questions, and must be completed in two hours. The CMT Level 2 exam has 150 questions, is taken over a 4-hour period and costs $450 (offered twice each year). Candidates that pass the first two sections can qualify for the Series 86 exemption, which gives the Research Analyst designation. Candidates will no longer be required to take the Series 86 test, and this designation is suited for those that need certification in conducting market research.

 

The third part of the exam consists of individual essay questions, worth 240 points in total. These questions are broken down further into sub-questions, but the primary focus is on the ethical application of integrated technical analysis methods. The exam questions require candidates to articulate research opinions, conduct portfolio analysis, demonstrate an understanding of theory, and implement an integrated approach to technical analysis. The test is comprehensive, building on the elements needed for the previous sections, and roughly 75% of test applications successfully complete the third section of the exam. And while ethics topics do not make up a large portion of the test, a score of at least 70% must be achieved in order to receive the certification. The third exam also costs $450 (offered twice a year), and the final CMT certification will be conferred if the candidate has three years of verifiable work experience, joins the MTA, and pays $300 in annual dues to the organization.

 

Skills Developed

 

Over the course of each exam, candidates will develop the skills to understand and implement chartist techniques (both classical and modern), conduct and present market research, make trading recommendations, design portfolios and investment programs (for all markets and asset classes), and improve win/loss percentages in personal trading accounts. So, as we can see, the CMT certification does require more than the ability to read a chart or understand an indicator reading. In addition to being able to identify and interpret signals found on point and figure charts, line charts, and candlestick charts, CMT candidates will be required to understand the relationship between price levels and price patterns, spot trends and know what those trends imply, and have an understanding of how to determine whether momentum moves are likely to continue or begin to stall.

 

Candidates must not only know how to interpret indicators but to understand the specifics of their calculations and the intended focus of those measurements. Aspects of market behavior that are often missed by technical analysts -- such as put/call ratios, implied volatility, inferential statistics (T-tests, correlation analysis, regression analysis) -- are covered as well. The importance of volume, inter-market analysis, breadth and sentiment gauges make up some of the other areas that are often ignored by most chartist traders. But topics like these will need to be understood in order to successfully complete the CMT programs.

 

Conclusion: CMT Certification Helps to Hone Skills and Creates an Attractive Resume Component for Employers

 

CMT certification can help traders understand aspects of technical analysis that are often missed by less advanced traders. Once certification is completed, many CMTs are able to land positions are large financial institutions, create unique approaches to trading, or even invent chart indicators of their own. The certification programs offered by the MTA allow traders to improve trading success rates and become active members of an advanced trading community. Achieving the certification is a time-consuming and difficult process, but the rewards are great and many new opportunities are opened for those willing to put in the effort. Today, the MTA has nearly 5,000 members in over 85 countries, so there are essentially no limitations in who is able to achieve this heralded financial designation.

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