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TRADER'S NOTEBOOK


Trading Credentials

09/26/11 11:07:03 AM PST
by Matt Blackman

James Bond may have a license to kill, but regular folks need a license to do just about everything else from driving a car, flying a plane, managing money, and practicing law to doing someone's taxes. Is there something along those lines for trading?

When I first got interested in trading, I had no idea what training was required and figured the only way to learn was to enroll in the school of hard knocks. After I'd written a few articles, someone asked what trading credentials I possessed. At the time, I wasn't aware there were any internationally accepted trading certification programs. But after doing some homework, I discovered that there indeed was such a professional designation - the Chartered Market Technician (CMT) program.

Those trading their own money need no credentials or certifications. Like fixing your car, repairing your home, representing yourself in court, or doing your own taxes, no credentials are required since no one will be hurt except yourself if you screw up. It is only when you start performing services for someone else that a license or some indication of competence is needed. The same is true about trading.

As I continued my market education, examining different trading approaches, indicators, cycles, and asset classes, I began to realize there was a lot more to the trading game than I'd originally figured. With each new trading system, method, and indicator I investigated, it became clear each had its own rules, assumptions, applications, and limitations. So every time I looked into a new technique, I was faced with the daunting task of learning its strengths and weaknesses and which markets each worked best in, if at all. This was essential to accurately judge whether it was a system worth trading.

For example, there are two basic categories of trading indicators: those that work best in trending markets and those that work better in trading range-bound markets. Relying on a moving average crossover system in a trading range will not only prove extremely frustrating as you get whipped in and out of trades, it can also be very costly. Use an oscillator like a relative strength index (RSI ) or stochastics in a trend, on the other hand, and you'll get false buy signals in a downtrend and false sell signals in a rally unless you make the proper adjustments.

Learning these lessons if you're trading real money can cost you much more than an Ivy League degree. I quickly came to the conclusion that the CMT program would pay dividends in not only helping avoid unnecessary trading losses but also help me recognize profitable strategies in less time.

What I needed was a solid foundation, a technical analysis knowledge base in my brain, and at my fingertips, so I could quickly accept or reject trading systems without having to research the underlying theory behind each one every time a new method came along.

ANALYZE THIS
Offered by the Market Technicians Association (MTA), the CMT program is composed of three levels, each requiring approximately 100 to 160 hours of study and an exam to pass. Each level also requires knowledge of the material from previous levels, so cramming for the exams is not a good idea. You must develop a thorough understanding of all past levels in the required reading lists. The goals of the program are to:

  1. Guide candidates in mastering a professional body of knowledge, to develop and apply analytical skills
  2. Promote and encourage the highest standards of education
  3. Grant the right to use the professional Chartered Market Technician designation to those who successfully complete all three levels of the program and agree to abide by the MTA code of ethics, which you will find on all three CMT-level recommended reading lists provided by the MTA.

The program also gives the recipient the knowledge required as well as access to a professional library.

Level 1 of the CMT program tests knowledge in six basic areas of technical analysis that include technical analysis (TA) theory, terms and definitions, charting methods, introduction to price trends and basic patterns, price targets, analyzing equities (stock) market, and technical analysis of bond, currency, futures, and option markets.

The level 1 exam evaluates basic, entry-level competence as well as the candidate's understanding of the level 1 reading material and basic technical analysis tools. Made up of 132 multiple-choice questions, the level 1 exam primarily focuses on TA definitions. The exam is typically two hours long.

Level 2 raises the bar and requires that candidates not only know the TA definitions but that they can apply techniques to real-life charts and examples in various asset classes (stocks, bonds, currencies, and futures). The level 2 exam is composed of 160 multiple-choice questions with an increased focus on application of what you have learned. Candidates are given three hours to complete the exam.

Level 3 requires not only a thorough understanding of levels 1 and 2 material but that candidates can also analyze and report their findings in essay form. Exam questions focus on the integration of all three levels, and an understanding of definitions and applications combined with the ability to write clear, concise yet comprehensive technical analysis reports. Typical level 3 exam length is four hours. MTA ethics are tested at all three levels.

WHAT'S IN IT FOR ME?
They say that membership has its privileges, and this is certainly true for the MTA. Many MTA members make up the "who's who" of the trading and TA world, and include some well-known names you've come to know such as Martin Pring, John Murphy, John Bollinger, Charles Kirkpatrick, and John Carder, many of whom are CMT holders.

During the first national MTA meeting I attended in Washington, DC, I had the pleasure of chatting with Martin Pring after his presentation, sat beside John Murphy during the awards ceremony and dinner and had a lengthy conversation with author Perry Kaufman. I also got to meet and chat with legendary cycles analyst Ian Notley. Having the opportunity to see cutting-edge presentations and network at local membership meetings and over drinks or dinner at conventions with other traders and the movers and shakers in this business was priceless.

From a professional standpoint, there are many benefits to holding the CMT designation. For starters, the Securities and Exchange Commission accepts successful completion of CMT levels 1 and 2 exams as an alternative to the Series 86 exam, a partial requirement for becoming a financial analyst.

But this is just the beginning of the benefits. Those looking for careers in the financial, stock brokerage, or trading industries will find that the CMT designation is a powerful door-opener. Many CMTs today hold key positions such as chief financial analyst and chief strategist at a number of major Wall Street firms. The CMT is a big plus for those wishing to become technical analysts or advisors for financial firms.

But the designation is also useful to large professional traders and money managers as well as those who trade their own accounts and those of immediate friends and family. It shows a serious dedication to detail and a commitment to maintain the highest ethical standards.

BADGE OF HONOR
So whether you decide to go for the CMT designation or would simply like to join the MTA to network with others in your field, you will find the experience rewarding. For the professional trader, market analyst, newsletter writer, and/or published author, the CMT provides a badge of honor. Holding the charter indicates that the individual has paid his/her dues, put in the time to learn the ropes in this business, has met the required professional experience, and passed exams at three levels. It also proclaims the holder will maintain the highest of ethical standards and remain professional at all times to clients, colleagues, and competitors alike.

So have you got what it takes to go after the CMT designation? If so, the effort will help get you to where you want to be in the trading world.

SUGGESTED READING

  • Recommended reading list for levels 1-3 of the CMT program here.
  • Test yourself: Level 1 CMT sample quiz questions here.
  • Level 2 CMT sample quiz questions here.





Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He tweets about stocks he is watching at www.twitter.com/RatioTrade Matt has earned the Chartered Market Technician (CMT) designation.

E-mail address: indextradermb@gmail.com


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