Technical Indicators for the CMT Exam: RSI, MACD, Bollinger Bands & More

Technical Indicators on the CMT Exam

Technical indicators carry 20% weight on CMT Level 1 — tied with chart patterns as the highest-weighted topic. Indicators also appear heavily on Level 2 in application-based questions.

See the complete topic weight breakdown in our anchor guide.

Moving Averages

Moving averages smooth price data to identify trend direction:

• Simple Moving Average (SMA): Equal weight to all periods
• Exponential Moving Average (EMA): More weight to recent prices, faster reaction
• Key crossovers: 50-day crossing 200-day (Golden Cross / Death Cross)

Relative Strength Index (RSI)

RSI measures the speed and magnitude of price changes on a 0–100 scale:

• Formula: RSI = 100 − (100 / (1 + RS)), where RS = Average Gain / Average Loss
• Default period: 14
• Overbought: Above 70 — Oversold: Below 30
• Divergence: When RSI diverges from price direction, it signals potential reversal

MACD (Moving Average Convergence Divergence)

MACD is a trend-following momentum indicator:

1. MACD Line = 12-period EMA − 26-period EMA
2. Signal Line = 9-period EMA of MACD Line
3. Histogram = MACD Line − Signal Line

Signals: Buy when MACD crosses above signal; sell on cross below.

Bollinger Bands

Bollinger Bands measure volatility using standard deviation:

• Middle Band = 20-period SMA
• Upper Band = Middle Band + (2 × standard deviation)
• Lower Band = Middle Band − (2 × standard deviation)
• Bollinger %b = (Price − Lower Band) / (Upper Band − Lower Band)

Stochastic Oscillator

Compares closing price to price range over a period:

• %K = ((Close − Lowest Low) / (Highest High − Lowest Low)) × 100
• %D = 3-period SMA of %K
• Default period: 14
• Overbought: Above 80 — Oversold: Below 20

Leading vs. Lagging Indicators

CMT Exam Focus Areas

Know these cold for the exam:

1. Formulas for RSI, MACD, stochastic, and Bollinger Bands
2. Default parameters for each indicator
3. Divergence identification (bullish and bearish)
4. Leading vs. lagging classification
5. Combining indicators with chart patterns

Practice with our 8,000+ questions or return to the main CMT guide.