Essential Technical Indicators Every CMT Candidate Must Know
Technical indicators form the backbone of the CMT Level 1 and Level 2 curricula. Understanding how they work, when to use them, and their limitations is critical for exam success.
Moving Averages
Moving averages smooth price data to identify trend direction. The two most important types:
- Simple Moving Average (SMA): Equal weight to all periods
- Exponential Moving Average (EMA): More weight to recent prices
Key concepts: crossovers, support/resistance, the 200-day SMA as a long-term trend indicator.
Relative Strength Index (RSI)
RSI measures the speed and magnitude of price changes on a 0–100 scale.
- Above 70: Overbought
- Below 30: Oversold
- Divergences: When RSI diverges from price, it signals potential reversals
MACD (Moving Average Convergence Divergence)
MACD consists of three components:
- MACD Line (12-EMA minus 26-EMA)
- Signal Line (9-EMA of MACD Line)
- Histogram (MACD minus Signal)
Bollinger Bands
Bollinger Bands use a moving average with upper and lower bands set at ±2 standard deviations. They measure volatility and identify potential overbought/oversold conditions.
Stochastic Oscillator
The stochastic oscillator compares closing prices to the price range over a given period. %K and %D lines generate crossover signals.
Key Exam Tips
- Know the formulas for each indicator
- Understand the difference between leading and lagging indicators
- Be able to identify divergences on charts
- Know the default parameters for each indicator