topic 5. chart pattern analysis.pdf.financertraining.com/cmt2_2016_practiceexam.pdf · thomas n....

CMT II. 2016. Topic 5. Chart and Pattern Analysis.

Alexey De La Loma ©FINANCER TRAINING Pag. 143/419 CFA, CMT, CAIA, FRM, EFA, CFTe

TOPIC 5. CHART PATTERN

ANALYSIS.

CMT Level II Exam Topics, Learning Objectives and Question Weightings Exam

Weights

Exam

Questions

Topic 5. Chart and Pattern Analysis.

CMT Level II Exam Questions 15.3% 23

Financer Training Practice Questions 15.3% 161

Chapter 1 Charting

Added in 2016 Perry J. Kaufman, Trading Systems and Methods, 5th edition (Hoboken, New Jersey: John Wiley & Sons, 2013), Chapter 3 All sections included

Chapter 18 Understanding Chart Pattern Breaks

Thomas N. Bulkowski, Visual Guide to Chart Patterns (Hoboken, New Jersey: John Wiley & Sons, 2012), Chapters 4-6

All sections included

Chapter 19 Triangles, Pennants, and Flags



Chapter 20 Tops and Bottoms



Chapter 21 Head-and-Shoulders Patterns



Topic 5. Chart and Pattern Analysis. CMT II. 2016.

Pag. 144/419 ©FINANCER TRAINING Alexey De La Loma CFA, CMT, CAIA, FRM, EFA, CFTe

5.1. Questions.

1

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

a) Area

b) Runaway

c) Breakaway

d) Exhaustion.


2

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.


3

Identify the gap highlighted in the chart below:

a) Exhaustion.

b) Breakaway.

c) Measuring.

d) Area.




4

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.


5

Identify the chart pattern highlighted below:

a) Descending triangle.

b) Double top.

c) Triple top.

d) Rectangle.


6

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.




7

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.).


8

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.


9



b) Double top.

c) Triple top.

d) Rectangle.




10

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.


11

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.


12

Pennants typically take less than _______ weeks to form:

a) Two

b) Three

c) Four

d) Six.


13

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.


14

A double bottom pattern is confirmed only:

a) If the time between two bottoms is at least 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.




15

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.


16

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%.


17

Which of the following chart patterns is categorized as a major reversal formation?

a) Flag.

b) Pennant.

c) Head & Shoulders.

d) Symmetrical Triangle.


18

In a triple top pattern, ______ peaks are separated by ________ valleys:

a) Two, two.

b) Three, two.

c) Two, three.

d) Three, three.




19


a) Triple bottom.

b) Double bottom.

c) Ascending triangle.

d) Inverse Head & Shoulders.


20

In this NASDAQ Index monthly bar chart we have plotted the letter A to illustrate a _________.

a) Key reversal day.

b) Inside day.

c) Double top.

d) Outside day.

Perry J. Kaufman, Trading Systems and Methods, 5th edition (Hoboken, New Jersey: John Wiley & Sons, 2013), Chapter 3



21

In this weekly bar chart of GAP. The closing price of the bar illustrated with letter “A” represents:

a) The closing price of any Friday during the month.

b) The last price of the month.

c) The closing price of the last Friday of the month.

d) None of the above.


22

Where will you set the main resistance line in this bar chart of Burlington Resources?

a) 23.22.

b) 23.10.

c) 21.45.





23

In this chart we can see a monthly bar chart of Citigroup. Mark the correct statement.

a) The current trend is still bullish and there are no signs of exhaustion.

b) Citigroup is at the end of a prolonged bearish trend.

c) There is no clear trend in this chart.

d) Price has violated a relevant bullish trendline.

e) Price is still making new highs and new lows.




24

In this chart we can see a monthly bar chart of Microsoft. There are three trendlines marked with letters

“A”, “B”, and “C”.

a) “A” represents a long-term bullish trend, “B” represents a mid-term bearish trend, and “C” represents

a short-term bearish trend.

b) “A” represents a long-term bullish trend, “B” represents a mid-term bullish trend, and “C” represents a

short-term bearish trend.

c) The stock is still in a clear long-term trend.

d) All of the above are true.

e) B and C.




25

In this chart we can see a daily bar chart of Microsoft. Can you identify any chart pattern?

a) Head and Shoulders.

b) Inverted Head and Shoulders.

c) Triple top.

d) Triple bottom.




26

In this chart the minimum profit target of a reversal chart pattern can be established at _______:

a) 24.5.

b) 23.5.

c) 23.





27

In this chart there is a clear chart pattern appearing above the dotted line. Could you identify it?

a) Double top.

b) Wedge.

c) Inverted Head and Shoulders.

d) Head and Shoulders.




28

In this daily bar chart of Staples there are three horizontal lines representing the following price levels: 24,

21, and 17.5 respectively. Where could we set the minimum price target of a bearish reversal pattern after

price confirmation?

a) 14.5.

b) 13.

c) 11.





29

In this daily bar chart of Microsoft, there is a clear chart pattern that will be confirmed after a:

a) Close below 27.5

b) Close below 24.5.

c) Close above 27.5

d) Close above 24.5.




30

In this daily bar chart of Staples, determine the name of the chart pattern that has been signaled with an

oval.


b) Wedge.

c) Line in Dow terminology.

d) Triple top.

e) None of the above.




This chart (S&P 500 index in daily timeframe) is illustrated for the following two questions.

31

Determine the name of the chart pattern that is developing at the right part of this bar chart.

a) Inverted Head and Shoulders.

b) Double top.

c) Flag.


e) Ascending triangle.


32

What is the minimum price target of this chart pattern in case of a price confirmation?

a) 1930.

b) 1960.

c) 1990

d) 2020.





33



b) Double bottom.

c) Flag.




34

What is the minimum price target of this chart pattern in case of an upside breakout?

a) 1600.

b) 1700.

c) 1800

d) 1900.





35



b) Double bottom.

c) Flag.




36


a) 1430.

b) 1460.

c) 1490.

d) 1520.





37



b) Double bottom.

c) Flag.




38


a) 1305.

b) 1335.

c) 1365.

d) 1395.





39



b) Double bottom.

c) Flag.




40

What is the minimum price movement in case of a chart pattern breakout (price confirmation)?

a) 25.

b) 75.

c) 125.

d) 175.





41



b) Double top.

c) Wedge.

d) Rectangle.

e) Descending triangle.


42

What is the minimum price target in case of a breakout (price confirmation) from the upper side of the

chart pattern?

a) 172.

b) 174.

c) 176.

d) 178.





43



b) Double top.

c) Wedge.

d) Rectangle.



44

What is the minimum price target according to the breakout induced by price action?

a) 141.

b) 151.

c) 161.

d) 171.




This chart (Nasdaq Composite index in daily timeframe) is illustrated for the following two questions.

45



b) Double top.

c) Wedge.

d) Rectangle.



46

What will be the price target is price confirms the chart pattern?

a) 1950.

b) 1850.

c) 1750.

d) 1650.





47



b) Double top.

c) Wedge.

d) Rectangle.



48

What is the minimum price target of this chart pattern?

a) 2850.

b) 2950.

c) 3050.

d) 3150.




This chart (Ibex-35 index in daily timeframe) is illustrated for the following two questions.

49



b) Double top.

c) Wedge.

d) Rectangle.



50

What is the minimum price target of this chart pattern?

a) 12.300.

b) 11.300.

c) 10.300.

d) 8.300.




This chart (S&P-500 index in daily timeframe) is illustrated for the following two questions.

51


a) Symmetrical triangle.

b) Expanding triangle.

c) Descending tangle.

d) Ascending triangle.


52

What is the traditional configuration of this pattern?

a) As a top pattern.

b) As a bottom pattern.

c) As an intermediate pattern.






53

Determine the name of the chart pattern has been confirmed by price action.

a) Descending tangle.

b) Triple bottom.

c) Double bottom.



54

What is the traditional minimum price target established by this pattern?

a) 620 points.

b) 1,000 points

c) 1,140 points.

d) 1,280 points.





55


a) Inverted H&S.

b) H&S.

c) Descending triangle.

d) Triple bottom.


56

What is the traditional minimum price target established by this pattern?

a) 1,250 points.

b) 1,150 points

c) 1,350 points.

d) 1,050 points.





57



b) Triple bottom.

c) Triple top.

d) Head and shoulders.


58

What is the minimum price target established by this pattern?

a) The 2425 – 2450 zone.

b) The 2125 – 2150 zone.

c) The 2225 – 2250 zone.

d) The 2325 – 2350 zone.





59



b) Double top.

c) Head and shoulders.

d) Pennant.


60

What is the minimum price target established by this pattern?

a) 1950 points.

b) 2050 points.

c) 2015 points.

d) 2550 points.




5.2. Answers.

1

MTA Sample Exam D

An exhaustion gap appears at the end of a trend.


2

MTA Sample Exam B

A runaway gap is often found in the middle of a significant move.


3

MTA Sample Exam D

It is an area gap.


4

MTA Sample Exam B

From a chart pattern perspective, price breaks out upward in a throwback and downward in a pullback.


5

MTA Sample Exam D

Rectangle.


6

MTA Sample Exam D

Longer than six months.


7

MTA Sample Exam A

Similar even if direction is reversed.


8

MTA Sample Exam D

Market tops have price trending into a chart pattern from below, while market bottoms have price trending

out of a chart pattern from below.




9

MTA Sample Exam D

Busted ascending triangle.


10

MTA Sample Exam C

Descending triangle.


11

MTA Sample Exam C

A flag is generally formed by a correction in a bull market or a rally in a bear market.


12

MTA Sample Exam B

Pennants typically take less than three weeks to form..


13

MTA Sample Exam A

The move after the pattern will be equal to the move before the pattern.


14

MTA Sample Exam D

A double bottom pattern is confirmed only when price exceeds the highest peak between both the bottoms.


15

MTA Sample Exam D

It is probably a H&S bottom.


16

MTA Sample Exam B

3%.


17

MTA Sample Exam C

Head and Shoulders.




18

MTA Sample Exam B

Three, two.


19

MTA Sample Exam D

Inverse Head and Shoulders.


20

A

We can eliminate the double top pattern because we are referring to a one-bar pattern. We can also

eliminate both inside and outside bar because bar “A” neither engulfs the previous bar nor it is contained

in the previous bar. Therefore, the correct sentence is a Key Reversal Bar.


21

A

In a weekly bar, the closing price represents the last price of the week (Friday close if it is a conventional

week).


22

B


23,22

23,10



23

D

As it is clearly shown in this chart, in the last two bars the bullish trendline has been broken with a strong

volume.


24

E

Trendline A represents a long-term bullish trend, Trendline B represents a mid-term bullish trend, and

trendline C represents a short-term bearish trend.


25

C




26

B


27

D


23.5

Doble techo



28

C


29

A


30

C

This is a rectangle or “line” according to Dow terminology.


11

27.5




31

E

This pattern is a clear ascending triangle.


32

B

According to this chart pattern, the base of the ascending triangle has a measure of 70 points (1890 –

1820). Therefore, if this chart pattern breaks up, the minimum price target could be established at 1960

(1890 + 70).





33

C

This chart pattern is a “flag”.


34

D

As this chart pattern (flag) runs contrary to the bullish trend of the price. The minimum price target is

determined by measuring the previous trend movement (1680 – 1340 = 340) which is projected from the

lower part of the flat (1560). Keep in mind that flags appear in the middle of a trending movement, so the

minimum price target is 1900 points (1560 + 340).





35

A

This chart pattern is an “inverted head and shoulders”.


36

A

In both H&S and inverted H&S, the minimum price target is the distance from the neckline to the head,

projected from the neckline in the direction of the breakout. In our example, the distance from the neckline

to the head is 90 points (1340 – 1250), and the profit target is established in 1430 points (1340 + 90).





37

B

This chart pattern is a “double bottom”.


38

B

It is a double bottom. If price actions breaks up the intermediate high standing between both bottoms, the

chart pattern is confirmed and the minimum price target is the distance between the bottoms and this

intermediate high, projected from the intermediate high. The distance is 55 points (1280 – 1225) and the

profit target is established at 1335 points (1280 + 55).





39

D

This chart pattern is a “symmetrical triangle”.


40

B

It is a symmetrical triangle. In case of a chart pattern confirmation, the minimum distance expected from

the breakout point is equivalent to the triangle base. In our example, it is 75 points (1260 – 1185).





41

D

This chart pattern is a “rectangle”.


42

D

It is rectangle so it can break up or down. In case of an breakout on the upper side of the chart pattern, the

minimum price target is the width of the rectangle projected from the breakout point. In our example, the

width of the pattern is 8 points (170 – 162), and the profit target is settled at 178 points (170 + 8).





43

E

This chart pattern is a “descending triangle”.


44

C

It is a descending triangle that is breaking from the upper side. Therefore, the profit target is the base of

the triangle (10 points) projected from the breakout point, that is, 161 points (151 + 10).





45

A

This chart pattern is a “head and shoulders”.


46

D

It is a H&S so the chart pattern is confirmed if price breaks down the neckline and the minimum price

target is the distance from the head to the neckline, projected from the breakout point. The width of the

pattern is 450 points (2550 – 2100), and the profit target is 1650 points (2100 – 450).





47

B

This chart pattern is a “double top”.


48

A

It is a double top, in which prices have broken down the mid low price, so chart pattern is confirmed and

the minimum price target is the width of the pattern. The width of the pattern is 700 points (4250 – 3550),

and the profit target is located at 2850 points (3550 – 700).




This chart (Ibex-35 index in daily timeframe) is illustrated for the following two questions.

49

C

This chart pattern is a “wedge”.


50

C

It is a wedge that appears after a bearish trend. The minimum price target is determined as the previous

movement, that is 4,000 points (16,000 – 12,000), projected from the high level of the wedge, so the price

target is 10,300 points (14.300 – 4,000).





51

B

This chart pattern is an “expanding triangle” or “broadening formation.”


52

A

Expanding triangles are traditionally considered as top patterns.





53

B

It is a triple bottom that is confirmed when prices break the intermediate high level at 960 points.


54

C

Once the triple bottom has been confirmed, we have to project the width of the pattern (180 points), which

is the distance from the bottom (780) to the intermediate high level (960), and this distance is projected

from the price where the pattern is confirmed, so the price target is 1,140 points (960 + 180).





55

A

It is an inverted head and shoulders with a descending neckline.


56

A

Once the inverted H&S is confirmed, the price target is established at 1,250 points, which is the distance

from the head (675) to the neckline (975), projected from the neckline breakout at 950 points.





57

C

It is a triple top.


58

D

Once the triple top has been confirmed, the minimum price target established by this pattern is based on

the distance from the top to the low intermediate level of the pattern, projected from the breakout point. In

our example, the intermediate level is at 2,600 points and the top of the pattern at 2850 – 2875. Therefore,

the profit target is in the zone 2,350 – 2,325.





59

D

It is a pennant.


60

A

Pennants as flags are considered to be flying at half-mast, as the distance of the initial price movement is

thought to be roughly equal to the proceeding price move. In our example, the price target is projected

from the confirmation pattern, that is, approximately at 3,200 points. The previous movement is 1,250

points (4,250 – 3,000), so the price target is established at 1,950 points.


61

E

According to Thomas Bulkowski, neither whole numbers nor gaps work well as support or resistance

areas.


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