TOPIC 6. CHART AND PATTERN ANALYSIS.pdf.financertraining.com/CMT1_2016_PracticeExam.pdf · Topic 6. Chart and Pattern Analysis. Alexey De La Loma ©FINANCER TRAINING Pag. 155/360

CMT I. 2016. Topic 6. Chart and Pattern Analysis.

Alexey De La Loma ©FINANCER TRAINING Pag. 153/360 CFA, CMT, CAIA, FRM, EFA, CFTe

TOPIC 6. CHART AND PATTERN

ANALYSIS.

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

Weights

Exam

Questions

Topic 6. Chart and Pattern Analysis.

CMT Level I Exam Questions 23.3% 28

Financer Training Practice Questions 23.3% 196

Chapter 47 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 48 Triangles, Pennants, and Flags



Chapter 49 Tops and Bottoms



Chapter 50 Head-and-Shoulders Patterns



Additional

Reading

Charting

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

Topic 6. Chart and Pattern Analysis. CMT I. 2016.

Pag. 154/360 ©FINANCER TRAINING Alexey De La Loma CFA, CMT, CAIA, FRM, EFA, CFTe

6.1. Questions.

1

Which of the following formations is often called a coil?

a) Flag

b) Diamond Top

c) Wedge

d) Symmetrical Triangle.


2

A descending triangle has:

a) Sloping support and resistance lines.

b) A horizontal resistance line.

c) A horizontal support line.

d) A sloping support line.


3

Symmetrical triangles shorter than three weeks in duration are more likely to be categorized as:

a) Flags.

b) Wedges.

c) Pennants.

d) Consolidations.


4

Flags and pennants always require ______________ leading to them:

a) breakaway gap.

b) A strong advance/decline.

c) A major top/bottom formation.

d) An Intermediate top/bottom formation.


5

In a Head & Shoulders pattern, volume is generally:

a) Consistent throughout the pattern.

b) Light as prices approach the peak.

c) Highest on a breakout from the neckline.

d) Heaviest during the formation of the left shoulder.




6

Which of the following would be a valid confirmation of the Head & Shoulders chart formation?

a) Sell when the head penetrates the neckline.

b) Sell when the right shoulder penetrates the neckline.

c) Sell when the right shoulder completes a 50% retracement of the ‘head’ formation.

d) Sell only if the right shoulder manages a greater than 50% retracement of the ‘head’ formation.


7

Which of the following chart types does not show price gaps?

a) Bar.

b) Line.

c) Candlestick.

d) Equivolume.


8

As a continuation variation, the rising wedge pattern would appear in:

a) An uptrend.

b) A downtrend.

c) A consolidation.

d) The right shoulder of a Head & Shoulder bottom.


9

A __________ gap occurs at a point of clear resistance or support:

a) Area.

b) Runaway.

c) Breakaway.

d) Exhaustion.


10

The basic purpose of a channel line is to:

a) Identify a trend reversal

b) Establish basic direction

c) Identify likely reversal points

d) Assess the probable direction of the trend




11

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

a) Area

b) Runaway

c) Breakaway

d) Exhaustion.


12

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.


13

Identify the gap highlighted in the chart below:

a) Exhaustion.

b) Breakaway.

c) Measuring.

d) Area.




14

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.


15

Identify the chart pattern highlighted below:

a) Descending triangle.

b) Double top.

c) Triple top.

d) Rectangle.


16

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.




17

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.).


18

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.


19



b) Double top.

c) Triple top.

d) Rectangle.




20

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.


21

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.


22

Pennants typically take less than _______ weeks to form:

a) Two

b) Three

c) Four

d) Six.


23

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.


24

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.




25

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.


26

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%.


27

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

a) Flag.

b) Pennant.

c) Head & Shoulders.

d) Symmetrical Triangle.


28

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

a) Two, two.

b) Three, two.

c) Two, three.

d) Three, three.




29


a) Triple bottom.

b) Double bottom.

c) Ascending triangle.

d) Inverse Head & Shoulders.




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

30

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.

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

31

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

a) 1930.

b) 1960.

c) 1990

d) 2020.





32



b) Double bottom.

c) Flag.




33

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

a) 1600.

b) 1700.

c) 1800

d) 1900.





34



b) Double bottom.

c) Flag.




35


a) 1430.

b) 1460.

c) 1490.

d) 1520.





36



b) Double bottom.

c) Flag.




37


a) 1305.

b) 1335.

c) 1365.

d) 1395.





38



b) Double bottom.

c) Flag.




39

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

a) 25.

b) 75.

c) 125.

d) 175.





40


a) Head and Shoulders.

b) Double top.

c) Wedge.

d) Rectangle.

e) Descending triangle.


41

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.





42



b) Double top.

c) Wedge.

d) Rectangle.



43

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.

44



b) Double top.

c) Wedge.

d) Rectangle.



45

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

a) 1950.

b) 1850.

c) 1750.

d) 1650.





46



b) Double top.

c) Wedge.

d) Rectangle.



47

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.

48



b) Double top.

c) Wedge.

d) Rectangle.



49

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.

50


a) Symmetrical triangle.

b) Expanding triangle.

c) Descending tangle.

d) Ascending triangle.


51

What is the traditional configuration of this pattern?

a) As a top pattern.

b) As a bottom pattern.

c) As an intermediate pattern.

d) None of the above.





52

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

a) Descending tangle.

b) Triple bottom.

c) Double bottom.

d) None of the above.


53

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.





54


a) Inverted H&S.

b) H&S.

c) Descending triangle.

d) Triple bottom.


55

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.





56



b) Triple bottom.

c) Triple top.

d) Head and shoulders.


57

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.





58



b) Double top.

c) Head and shoulders.

d) Pennant.


59

What is the minimum price target established by this pattern?

a) 1950 points.

b) 2050 points.

c) 2015 points.

d) 2550 points.




6.2. Answers.

1

MTA Sample Exam D

Symmetrical triangle.


2

MTA Sample Exam C

A horizontal support line.


3

MTA Sample Exam C

Pennants.


4

MTA Sample Exam B

A strong advance/decline.


5

MTA Sample Exam D

Heaviest during the formation of the left shoulder.


6

MTA Sample Exam B

Sell when the right shoulder penetrates the neckline


7

MTA Sample Exam B

Line


8

MTA Sample Exam B

A downtrend




9

MTA Sample Exam C

Breakaway


10

MTA Sample Exam C

Identify likely reversal points


11

MTA Sample Exam D

An exhaustion gap appears at the end of a trend.


12

MTA Sample Exam B

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


13

MTA Sample Exam D

It is an area gap.


14

MTA Sample Exam B

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


15

MTA Sample Exam D

Rectangle.


16

MTA Sample Exam D

Longer than six months.


17

MTA Sample Exam A

Similar even if direction is reversed.




18

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.


19

MTA Sample Exam A

Busted ascending triangle.


20

MTA Sample Exam C

Descending triangle.


21

MTA Sample Exam C

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


22

MTA Sample Exam B

Pennants typically take less than three weeks to form..


23

MTA Sample Exam A

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


24

MTA Sample Exam D

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


25

MTA Sample Exam D

It is probably a H&S bottom.


26

MTA Sample Exam B

3%.




27

MTA Sample Exam C

Head and Shoulders.


28

MTA Sample Exam B

Three, two.


29

MTA Sample Exam D

Inverse Head and Shoulders.





30

E

This pattern is a clear ascending triangle.


31

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).





32

C

This chart pattern is a “flag”.


33

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).





34

A

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


35

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).





36

B

This chart pattern is a “double bottom”.


37

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).





38

D

This chart pattern is a “symmetrical triangle”.


39

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).





40

D

This chart pattern is a “rectangle”.


41

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).





42

E

This chart pattern is a “descending triangle”.


43

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).





44

A

This chart pattern is a “head and shoulders”.


45

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).





46

B

This chart pattern is a “double top”.


47

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.

48

C

This chart pattern is a “wedge”.


49

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).





50

B

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


51

A

Expanding triangles are traditionally considered as top patterns.





52

B

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


53

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).





54

A

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


55

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.





56

C

It is a triple top.


57

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.





58

D

It is a pennant.


59

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.


60

E

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

areas.


TOPIC 6. CHART AND PATTERN ANALYSIS.pdf.financertraining.com/CMT1_2016_PracticeExam.pdf · Topic 6. Chart and Pattern Analysis. Alexey De La Loma ©FINANCER TRAINING Pag. 155/360

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