CMT Level III 2014

Exam length: 4 hours

Exam format: Essay
Number of points: 240
Exam date: Spring and Fall
Estimated passing score: Not disclosed
Exam reading assignments 1639 pages
Course study notes: 390 pages
Course preparation exams: 6

Financial Certifications Series

2 CMT Level III 2014

What is the CMT?

The Chartered Market Technician (CMT) Program is a certification process in which
candidates are required to demonstrate proficiency in a broad range of technical
analysis subjects. Administered by the Market Technicians Association
(www.mta.org). The Program consists of three levels. CMT Level 1 and CMT Level 2
are multiple choice exams while CMT Level 3 is in essay form. The exams for all 3 lev-
els are administered twice a year, once during the Spring and again in the Fall. The
objectives of the CMT Program are:

 To guide candidates in mastering a professional body of knowledge and in devel-

oping analytical skills.
 To promote and encourage the highest standards of education.
 To grant the right to use the professional designation of Chartered Market Tech-
nician (CMT) to those members who successfully complete the Program and
agree to abide by the MTA Code of Ethics.

Value of the CMT:

The Chartered Market Technician (CMT) program offers a structured approach to
study technical analysis and ensure all key areas are covered. The CMT can help to
open doors that may lead to job opportunities. The CMT demonstrates to Wall Street
that you are a professional in the field of technical analysis. For those seeking a
more traditional Wall Street analyst job, passing the first two CMT exams provides a
significant step towards attaining the "Registered Research Analyst" designation
from FINRA. Even if you're not looking for a FINRA exemption but rather just to learn
technical analysis, the CMT Program offers a structured, organized, and comprehen-
sive way to do so.

CMT Level 3:
Level 3 is the last step for your CMT charterholder. The principal difference with level
1 and level 2 is that you are taking an essay test, so no multiple choice questions will
appear on the examination day. Due to this you will see no questions along the study
notes. At the end of this course you will face a complete book devoted to essay-type
questions.
Another crucial difference with level 2 is the reading assignment burden. In level 2,
CMT candidate is responsible for approximately 2300 pages. In level 3, you are re-
sponsible for approximately 1600. In terms of percentages, this means that reading
assignments for level 3 are 70 percent of reading assignments for level 2. Notice that,
in terms of readings, level 2 is the most difficult of the three levels you need to com-
plete your CMT charterholder.

Study Notes:
All the information needed to take the test is included in our Study Notes. Besides, we
include six complete exams like the one you are encountering the day of the test. One
of this preparation exams is an old MTA publication. Study Notes and Practice Tests
can be purchased independently or in the same pack, with a discount of 78€
(approximately 15%).

 Study Notes (theory). 286€.

 Practice Notes (essay-type questions). 286€.
 Study Notes + Practice Notes. 572€.
494€.
3 CMT Level III 2014

CMT Level 3 Exam Reading Assignments:

Technical Analysis for the trading professional.
Constance Brown.
15%.

The definitive guide to Point and Figure. Elliott wave principle.

Jeremy Du Plessis. Frost & Prechter.
25%. 11%.

Behavioural Investing.
James Montier.
22%.

Trading with Intermarket Analysis.

John Murphy.
13%.

Japanese Candlestick charting techniques.

Steve Nison.
14%.
4 CMT Level III 2014

What do CMT candidates say about the Study Notes?

"Preparation materials for the CMT certificate of Mr. De La Loma are an invaluable aid
to the successful tacking of the official examinations. The clarity in the exposition of
the different issues and the interesting preparation questions, show the author's ex-
pertise on the subject.”
Iñaki Arcocha Torres
CFA CIIA CAIA FRM

“Alexey's study books are an excellent summary of the requested readings for the
CMT, without leaving anything up. I would highly recommend them to anyone wanting
to pursue the CMT designation."
Jeremy Bendahan
CMT, CAIA

“I wish I had known about Alexey’s study notes for the first and second levels of the
CMT. Level two has over 2,200 pages of assigned readings and I just got lost in the
volume of material. Lucky for me I discovered these invaluable study notes in time for
the final level of the CMT course. I was able to go through the material three full
times and thus knew the material inside out. The practice exams also provided an-
other heightened level of understanding and confidence for taking and passing my
level three CMT exam. I would highly recommend these notes to anyone wanting to
pursue the CMT designation. You will be lost without them.”
John L Wassenaar
CMT, CFA

"I completely recommend the Alexey´s CMT study notes. They helped me to cover all
the subjects evaluated in the exam and not to spend too much time in this area. The
practice exams are also useful and will help you to know exactly at which point you
are".
Javier Urones
CMT

"Alexey's study notes are the secret recipe to passing the CMT. When studying the
exam you will face two challenges: the extensive body of knowledge (pages to be read
and understood) and lack of test exams. Alexey provides amazing study notes that you
will be using extensively to prepare for the exam. In addition, the test exams he put
together are essential to test your knowledge and feel confident the day of the exam."
Stuart Tatti Staines
CMT, CIIA

"In spite of having gone through the exact editions on the reading list and in fact al-
ready having been practicing a large part of those texts, I found Alexey De La Loma’s
CMT material as a fantastic help in preparation for the exam. It is amazingly concise,
yet very comprehensive in what one needs to focus on. Very professionally done and
presented, I am super impressed by how he organizes it in blocks, the summary points
and practice exams. Though I didn’t have to bother him through my preparation, the
belief that Alexey is there to support with any query in his usual very responsive and
effective manner was a great deal in itself. I would highly recommend his study mate-
rial to CMT aspirants."
Kuldeep Bhan
CMT
 5 CMT Level III 2014

Alexey De La Loma Jiménez

CAIA, CMT, EFA, FRM

Alexey De La Loma has got degrees in magazines as Estrategias de Inversión

Economics and Business Administration
at University Carlos III in Madrid. He is in
alexey@alexeydelaloma.com the middle of a degree in Mathematics at
UNED University in Madrid and, also in
the middle of a Ph.D in Applied Statistics
in UNED University in Madrid.
He is taking the third level of the CFA
designation in June 2012.
Currently, he is co-founder in Diversia
Trading, a company devoted to financial
education in Financial Markets, trading
systems, Visual Chart, Forex, EasyLan-
guage, technical analysis, financial mod-
eling and derivatives. Courses are offered
in online format too. From 2001, he has
been trading for his own account. He pub-
lishes regularly articles in financial
and Gestión Alternativa and appears
regularly in financial radio programs as
Cierre de Mercados in Radio Intere-
conomía. From 2010 he is the editor of
the online free financial magazine Ges-
tión Alternativa, with more than 120.000
subscriptions.
Until September 2007, was a partner in
TradeSolver S.L. and he was in charge of
developing trading strategies and portfo-
lios for the fund TS SYSTEMATIC STRATE-
GIES. He started his career in interna-
tional companies as CLH, Arthur Ander-
sen, Banco de Santander and IBM, with
broad international experience (Great
Britain, Italy, Portugal, Chile, Peru and
Argentina).

Books.

"Las voces de los maestros de los mercados financieros".

Published by Millenium Capital in 2006.

"Todo lo que hay que saber sobre Candlesticks. Un enfoque moderno".

Published by Millenium Capital in 2011.

Financial Certifications Series:

 CMT. (Chartered Market Technician).
 CFTe. (Chartered Financial Technician).
 CFA. (Chartered Financial Analyst).
 CAIA. (Chartered Alternative Investment Analyst).
 EFA. (Asesor Financiero Europeo).
 FRM. (Financial Risk Manager).
 6 CMT Level III 2014
0. CODE OF ETHICS.
……………………………………………………………………..
1. Code of ethics (Amended December 2004).
I. PROFESSIONAL TECHNICAL ANALYSIS.
…………………………………………………………….……….
2. Oscillators do not travel between 0 and 100.
2.1. A new breed of technologically armed
traders.
2.2. Change your conventional view about
technical indicators.
2.3. Double bottoms and double tops in RSI.
3. Dominant trading cycles are not time sym-
metrical.
3.1. Symmetrical cycle projections.
3.2. Fibonacci Cycle projections.
3.3. Fibonacci numbers as exponential ratios.
3.4. Cycles and multiple time horizons.
4. Choosing and adjusting period setup for
Oscillators.
4.1. Stochastics Default Club.
4.2. Finding the right parameters for Sto-
chastics.
4.3. Changing the timeframe.
4.4. Finding the right parameters for MACD.
5. Dominant trendlines are not always from
extreme price highs and lows.
5.1. Trendlines crossovers.
5.2. Trendlines on oscillators.
6. Signals from moving averages are frequently
absent in real-time charts.
6.1. real-time versus end-of-day.
7. Adjusting traditional Fibonacci projections
for higher-probability targets.
7.1. Theory vs. practice.
7.2. Truncating Spikes in Fibonacci retrace-
ment projections.
7.3. Truncating Spikes in Fibonacci Swing
objective projections.
8. Price projections by Reverse-Engineering
indicators.
9. Price objectives derived from positive and
negative reversals in the RSI.
9.1. Using the RSI.
9.2. Determining the price objectives with
RSI Reversals.
9.3. Filtering RSI Reversal signals.
9.4. Spot prices in Forex databases.
10. Calculating price and time objectives from a
Gann Wheel.
10.1. The most important tool for Connie
Brown.
10.2. Determining price objectives with the
Gann Wheel.
10.3. Determining time objectives with the
Gann Wheel.
10.4. Astrology in the Gann methods.
11. Using Oscillators with the Elliott Wave
Principle.
11.1. Objections and misunderstandings.
11.2. Impulse Waves.
11.3. Corrective Waves.
11.4. Long-Term analysis.
12. Volatility Bands on Oscillators.
12.1. Applying a Volatility indicator over the
RSI.
II. ELLIOTT WAVE PRINCIPLE.
…………………………………………………………………….
13. The broad concept.
13.1. Basic Tenets.
13.2. Detailed Analytics.
13.3. Corrective waves.
13.4. Additional terminology.
14. Guidelines of Wave Formation.
14.1. Guidelines of Wave Formation.
14.2. Wave Personality.
14.3. Motive Waves.
14.4. Corrective Waves.
14.5. Practical Application.
15. Historical and Mathematical background of
the wave principle.
15.1. Historical and Mathematical back-
ground.
16. Ratio Analysis and Fibonacci Time Se-
quences.
16.1. Ratio Analysis.
17. Long-term wave and up-to-date composite.
17.1. The Millenium Wave from the Dark
Ages.
17.2. The Grand Supercycle Wave from
1789 to present.
17.3. The Supercycle Wave from 1932.
18. Stocks and Commodities.
18.1. Individual Stocks.
18.2. Commodities.
18.3. Gold.
19. Other approaches to the Stock Market &
their relationship to the wave principle.
19.1. From the Dow Theory to the Random
Walk Theory.
20. Elliot Speaks.
20.1. Nature’s law.
12.5. Practical Application.
III. TRADING WITH INTERMARKET ANALYSIS.
…………………………………………………………………….
21. Intermarket analysis: the study of relation-
ships.
22. Review of the old normal.
23. The 1997-1998 Asian currency Crisis
24. Intermarket events surrounding the 2000
top.
25. The 2002 falling dollar boosts commodities.
26. Asset allocation rotations leading to 2007
top.
27. Visual analysis of the 2007 market top.
28. Intermarket analysis and the business
cycle.
29. The impact of the business cycle on market
sectors.
30. Exchange-Traded Funds (ETFs).
31. The dollar and commodities trend in oppo-
site directions.
32. Stocks and commodities become highly
correlated.
33. Stocks and the dollar.
34. The link between bonds and stocks.
35. The link between bonds and commodities.
36. Conclusions.
Financial Certifications Series
IV. JAPANESE CANDLESTICK CHARTING
TECHNIQUES.
…………………………………………………………………….
37. Introduction.
38. A historical background.
39. Constructing the candlestick lines.
40. Reversal patterns.
40.1. Hammer and Hanging Man (Umbrella
lines).
40.2. Engulfing patterns.
40.3. Dark-cloud pattern (semi-engulfing
pattern).
40.4. Piercing line (semi-engulfing pattern).
41. Stars.
41.1. Morning (Doji) Star.
41.2. Evening (Doji) Star.
41.3. Shooting Star and Inverted hammer.
42. More reversal patterns.
42.1. The Harami (Cross) pattern.
42.2. Tweezers tops and tweezers bottoms.
42.3. Belt-Hold lines.
42.4. Upside-gap two crows.
42.5. Three black crows.
42.6. Three white soldiers.
42.7. Counterattack lines.
42.8. Longer-term topping and bottoming
patterns.
43. Continuation patterns.
43.1. Windows.
43.2. Tasuki.
43.3. Rising and falling three methods.
43.4. Separating lines.
44. The magic doji.
44.1. Northern doji (doji during rallies).
44.2. Long-legged doji (rickshaw man), the
gravestone doji, and the dragonfly doji.
44.3. The Tri-Star.
45. Putting it all together.
46. A cluster of candles.
46.1. A cluster of candles as support.
46.2. A cluster of candles as resistance.
47. Candles with trendlines.
47.1. Trendlines.
47.2. Springs and Upthrusts.
47.3. Change of polarity principle.
48. Candles with retracement levels.
49. Candles with moving averages.
49.1. Types of moving averages.
49.2. Using moving averages.
50. Candles with Oscillators.
50.1. Relative Strength Index (RSI).
51.2. Moving average oscillator.
52.3. Stochastics.
53.4. Moving Average Convergence Diver-
gence (MACD).
51. Candles with Volume.
52. Measured moves.
53. The best of the East and West.
 7 CMT Level III 2014
V. BEHAVIOURAL INVESTING.
…………………………………………………………………….
54. Emotion, Neuroscience and Investing: Inves-
tors as Dopamine Addicts.
54.1. The primacy of Emotion.
54.2. Conclusions.
55. Part Man, Part Monkey
55.1. The biases we face.
55.2. Conclusions.
55.3. Take a Walk on the Wild Side.
56. Take a Walk on the Wild Side.
56.1. Impact bias and empathy gaps.
56.2. Conclusions.
57. Brain damage, Addicts and Pigeons.
57.1. What do the brain damaged, addicts
and pigeons have in common?
57.2. Conclusions.
58. What do Secretaries’ Dustbins and the Da
Vinci Code have in Common?
58.1. The need to find rationales of every
market movement.
58.2. Conclusions.
59. The limits to Learning.
59.1. Some mechanisms that prevent us
from recognizing mistakes.
59.2. Conclusions.
60. Behaving Badly.
60.1. Conclusions.
61. A Behavioural Critique.
61.1. Sin City.
62. The Folly of Forecasting: Ignore all Econo-
mists, Strategists, & Analysts.
62.1. Overconfidence as a driver or poor
forecasting.
62.2. Why forecast when the evidence
shows you can’t?
62.3. Conclusions.
63. What Value Analysts?
64. The Illusion of Knowledge or Is More Infor-
mation Better Information?
64.1. An increase in the amount of informa-
tion can increase the forecast error.
64.2. Conclusions.
65. Why Waste Your Time Listening to Company
Management?
65.1. Psychological barriers to the useful-
ness of company meetings.
65.2. Conclusions.
66. Who’s a pretty By Then? or Beauty Contests,
Rationality and Greater Fools.
66.1. Keynes and Backward Induction.
67. ADHD, Time Horizons and Underperfor-
mance.
67.1. The dangers of short term.
67.2. Conclusions.
68. The Story is the Thing (or the Allure of
Growth).
68.1. The rational view vs. the story view.
69. Scepticism is Rare (or Descartes vs
Spinoza).
69.1. Cartesian vs Spinozan systems.
70. Are Two Heads Better Than One?
70.1. Statistical vs deliberate groups.
70.2. Major problems encountered by Delib-
erate Groups.
70.3. Beating the biases.
71. Improving Returns Using Inside Information.
71.1. Value vs Growth.
71.2. EMH vs Behavioural Finance.
71.3. Conclusions.
72. Just a Little Patience: Part I.
72.1. The short-term obsession.
72.2. Mutual fund performance and fund
managers selection.
72.3. Conclusions.
73. Just a Little Patience: Part II.
73.1. Value, Growth and Momentum.
74. Sectors, Value and Momentum.
74.1. Sectors or Stocks.
75. Sector-Relative Factors Work Best.
76. Cheap Countries Outperform.
77. CAPM is CRAP.
77.1. CAPM in practice.
77.2. Why does CAPM fail?
78. Risk Managers or Risk Maniacs?
78.1. Risk with Risk Models.
78.2. Shifts in correlations between good
and bad times.
79. Risk: Finance’s Favorite Four-Letter Word.
79.1. Risk in performance measurement.
79.2. Risk from an investment perspective.
80. The Anatomy of a Bubble.
80.1. Bubble stages according to the Kin-
dleberger/Minsky model.
81. De-bubbling: Alpha Generation.
81.1. Bubbles in the laboratory.
81.2. Bubbles in the field.
81.3. Applications: Asset Allocation.
81.4. Alpha Generation.
81.5. Conclusions.
82. Running with the Devil: A Cynical Bubble.
82.1. The major types of bubbles.
82.2. Experimental evidence: bubble ech-
oes.
82.3. Market dynamics and the investment
dangers of near rational bubbles.
83. Bubble Echoes: The Empirical Evidence.
83.1. Bubble echoes in practice.
83.2. Conclusions.
VI. POINT AND FIGURE.
…………………………………………………………………….
84. Introduction to Point and Figure.
84.1. History and development.
84.2. Where did Point and Figure charts get
their name?
85. Characteristics and Construction.
85.1. Characteristics of Point and Figure
Charts.
85.2. 1-box reversal charts.
85.3. 3-box reversal charts.
854. 2-box and 5-box reversal charts.
85.5. Close Only Method vs. High/Low
Method.
85.6. Log scale vs. Arithmetic scale Point
and Figure Charts.
Financial Certifications Series
86. Understanding Point and Figure charts.
86.1. Point and Figure signals.
86.2. Double-top and Double-bottom.
86.3. Triple-top and Triple-bottom.
86.4. The strength of the pattern.
86.5. Catapult patterns.
86.6. Triangles.
86.7. Traps and Shakeouts.
86.8. Broadening patterns.
86.9. Bullish and Bearish pattern reversed.
86.10. Poles.
86.11. Congestion Analysis.
86.12. Trendlines on Point and Figure
charts.
86.13. Point and Figure charts Summary.
87. Projecting Price Targets.
87.1. Horizontal counts on 1-box reversal
charts.
87.2. Horizontal counts on 3-box reversal
charts.
87.3. Vertical counts on 3-box reversal
charts.
87.4. Things you should know about Point
and Figure counts.
87.5. Counts on log scale.
87.6. Risk and Reward.
87.7. Summary.
88. Analyzing Point and Figure charts.
88.1. Choosing the reversal and box size,
the data time series and the log scale
charts.
88.2. Analysis of 3-box reversal charts.
88.3. Analysis of 1-box and 2-box reversal
charts.
88.4. Stops and early entry points.
88.5. Summary of Point and Figure Analysis.
89. Point and Figure charts of Indicators.
89.1. Point and Figure of Relative Strength.
89.2. Point and Figure of OBV.
89.3. Point and Figure of Oscillators.
89.4. Summary.
90. Optimization of Point and Figure charts.
90.1. Approaching Point and Figure Optimi-
zation.
90.2. Optimizing for specific patterns.
90.3. Optimization Summary.
91. Point and Figure’s contribution to Market
Breadth.
91.1. A caveat.
91.2. Bullish Percent.
91.3. Analyzing bullish percent as a line
chart.
91.4. Analyzing bullish percent as a Point
and Figure chart.
91.5. Summary.
92. Advanced Point and Figure Techniques.
92.1. Moving average on Point and Figure.
92.2. Parabolic stop and reverse (SAR) on
Point and Figure.
92.3. Bollinger Bands on Point and Figure
charts.
92.4. Summary.