CMT Level 1 - Part 1 Flash Card

What is the primary purpose of technical analysis in finance?

• To examine company financial statements

• To predict future price movements of securities

• To evaluate management performance

• To assess economic conditions

Answer explanation

The primary purpose of technical analysis is to predict future price movements of securities by analyzing historical price data and market trends, rather than focusing on company fundamentals or economic conditions.

What is a core assumption of technical analysis?

• Markets are always efficient

• Freely traded markets generally display price trends

• Prices are random and unpredictable

• All investors have the same goals

Answer explanation

A core assumption of technical analysis is that freely traded markets generally display price trends, allowing analysts to predict future price movements based on historical data.

What is required to create a daily line chart?

• The last price of the stock traded each day

• The opening price of the stock

• The highest price of the stock

• The average price of the stock

Answer explanation

To create a daily line chart, you need the last price of the stock traded each day. This price reflects the final transaction and is essential for accurately plotting the stock's performance over time.

What is the duration of a Primary Trend according to technical analysts?

• Measured in days

• Measured in weeks or months

• Measured in months or years

• Measured in minutes or hours

Answer explanation

According to technical analysts, a Primary Trend is typically measured in months or years, indicating its long-term nature. This distinguishes it from shorter trends, which are measured in days or weeks.

What is a downtrend characterized by?

• Higher peaks and higher troughs

• Lower peaks and lower troughs

• Prices move within a range

• No significant movement

Answer explanation

A downtrend is characterized by lower peaks and lower troughs, indicating that prices are consistently declining over time. This pattern shows that each high and low is lower than the previous ones.

What arises from the interplay between supply and demand?

• Market volatility

• Economic growth

• Trends

• Inflation

Answer explanation

Trends arise from the ongoing interaction of supply and demand, reflecting changes in consumer preferences and market conditions. This dynamic relationship shapes how markets evolve over time.

How is a Secondary or Intermediary Trend measured?

• Measured in days

• Measured in weeks or months

• Measured in months or years

• Measured in minutes or hours

Answer explanation

A Secondary or Intermediary Trend is typically measured in weeks or months, as it reflects a medium-term movement in the market, distinguishing it from shorter trends measured in days or longer trends measured in months or years.

How is a trend defined in Dow Theory?

• A random movement in prices

• The general direction in which something tends to move

• A temporary fluctuation in the market

• A fixed pattern in stock prices

Answer explanation

In Dow Theory, a trend is defined as the general direction in which something tends to move. This reflects the overall movement of prices over time, distinguishing it from random fluctuations or temporary changes.

What characterizes an uptrend in technical analysis?

• Higher peaks and higher troughs

• Lower peaks and lower troughs

• Prices move within a range

• No significant movement

Answer explanation

An uptrend is characterized by higher peaks and higher troughs, indicating that prices are consistently rising. This pattern shows increasing demand and bullish market sentiment.

Which of the following is a commonly used type of chart?

• Pie chart

• Line chart

• Scatter plot

• Histogram

Answer explanation

A line chart is commonly used to display data trends over time, making it a popular choice for visualizing continuous data. While pie charts, scatter plots, and histograms are also used, the line chart is particularly well-known.