The role of CMT designation in the investment industry and what you should know about key aspects of the CMT designation
This is an exclusive interview Mr. ALVIN KRESSLER, Executive Director and CEO of the CMT Association gave to me in June 2021. I thank very much Mr. ALVIN KRESSLER for his time and answers to my questions related to the CMT designation and CMT Association.
The CMT Association is the leading provider of technical analysis education and networking centered around price behavior and market statistics.
CMT Association Interview
- Q: What are the CMT designation and its history?
A: The CMT Association began in New York in the 1970’s as an informal meeting of a group of technical analysts. Ralph Acampora, John Brooks and John Greeley are credited as the founders. The original 18 members incorporated the CMT Association as a not-for-profit association in 1973.
The organization authorized a certification program and began developing and administering exams in the mid-late 1980’s. Charters were awarded to the first graduates of the CMT Program in 1989.
In 2005, the Financial Industry Regulatory Authority (FINRA) submitted a rule filing with the U.S. Securities and Exchange Commission to accept the CMT Program levels 1 and 2 exams as an alternative to the Series 86 examination required of financial analysts.
The Chartered Market Technician® (CMT) designation marks the highest education within the discipline of technical analysis and is the preeminent designation for practitioners of technical analysis worldwide.
- Q: What benefits does CMT designation have for someone looking to obtain it, what are the main careers and their applications in the modern investment industry?
A: Our market philosophy is grounded in behavioral economics and extends beyond classical pattern recognition techniques to include quantitative approaches to market research and rules-based trading system design and testing. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand.
Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management.
Core roles for holders of the charter include – Portfolio Manager, Securities Analyst, Trader, Financial Advisor, Risk Manager
3.Q: CMT Association integrates CFA Institute’s Code of Ethics and Standards of Professional Conduct, how did this partnership materialize, and what other future benefits may arise from this development?
A: The adoption of the CFA institute’s Code of Ethics and Standards goes back around a decade. Really was a recognition of both organizations having very similar standards. We decided it was an area where we didn’t need to develop our own set of standards independently.
4. Q: How rigorous and tough is the CMT designation? What is some important information such as cost, what is the time dedicated to complete it and how often the exams are held? Is there a minimum passing score?
A: The CMT program is 3 exam levels, each given twice a year, June and December. A simple way to think about each level is: Level 1 is foundational and definitional; Level 2 is definition and application of concepts, and; Level 3 is integration of concepts into security selection, risk management etc.
Study time is a bit subjective and dependent on the person but, generally level 1 requires 80-110 hours of study time; level 2 generally requires 100-130 hours of study, and; level 3 requires 100-130 hours of study,
Pass grades are a bit complex as these are benchmarked exam to exam to ensure a consistent level of difficulty… For Levels I and II, the passing scores will vary with each exam depending on the set of questions used and how those questions perform. Both before and after each exam, questions are reviewed for accuracy and comprehensibility. After the test is complete the data from all test scores are given a psychometric review. This review process forms the basis for establishing the passing scores. In the past, these exams had a fixed passing score at 70% of possible points. That amount is still a default target for exams, but with the post-exam review process, the actual cut score may vary by one to three percentage points. The new process allows us to more effectively equate the difficulty of the current exam to a relevant benchmark–a past exam or set of exams. This allows us to adjust scores depending on the degree of difficulty of each exam.
The Level III exam review process takes more time due to the short-answer structure of the questions. The short-answer questions are written by a team of subject matter experts, then reviewed by a second group of subject matter experts. Similarly, each test is graded by two graders working independently. The passing score is then determined by the point distribution of exams taken at that administration.
5.Q: Why someone should pursue the CMT designation?
A: For many people TA is a complementary toolset as most candidates have had significant exposure to fundamental analysis (mostly taught in business schools). From our survey work, those who have obtained the charter report back that after earning the charter they have:
- Been promoted,
- Been given more responsibility,
- Unsolicited recruiter contact,
- Increased salary and/or bonus payments
6.Q: Fundamentals vs technicals. Some say they are a complement to each other, some that it is mutually exclusive. What is your opinion?
A: See #22.
7.Q: What additional benefits such as research and analysis do you offer on the CMT Association website for your members and prospective candidates?
A: Lots of continuing education and knowledge opportunities in the form of bi-monthly webcasts (sometimes this becomes weekly), local chapter meetings and opportunities to network, larger format conferences both in-person and virtually, an annual scholarly publication of research papers on technical analysis topics, a monthly member newsletter as well as a large knowledge base video archives.
8.Q: Is the exam globally available? Are there local societies in many countries? What is the growth of the members?
A: The exams are computer based, we deliver them through our partner, Prometric, which has test centers in most major cities around the world. Additionally, for the December 2020 exam, and ongoing, we introduced through Prometric remotely proctored exams. This gives candidates the opportunity to take the exam wherever they have high speed, stable internet access and can meet certain test enviroment conditions (private location with no other electronics in the room the main requirement – but details on that can be found here: CMT Exams via Remote Proctoring with Prometric’s ProProctor (cmtassociation.org)
9.Q: Meme stocks, dogecoin, and other assets had a surge in 2021. How technical analysis can protect investors, traders make sophisticated and well-researched investments rather than just speculate?
A: I would say “protect” is the wrong word, the key is TA gives you a toolset that if consistently and systematically applied gives you the tools to minimize losses and maximize your return opportunities.
10. Q: What do you consider are the most important technical analysis advantages? And its disadvantages?
A: Advantages: Technical analysis is applicable across markets without the necessity of working through pages of studying arcane notes and numbers that are different for each market. Technical methods are very useful for generating risk profiles and plans, identifying key price levels to be monitored for exits.
Disadvantages: Technical analysis is dependent on liquid markets and publicly available trading data (price, volume, open interest, etc.) and is therefore of limited use for new issues and private markets.
11. Q: What are technical analysis and its importance in the modern investment industry?
A: See #’s 10 and 22
12. Q: What challenges, opportunities do you see in the investment industry today and in the future? What are your insights?
A: One of the biggest challenges is intertwined with a significant opportunity. The increased democratization of trading and investing has given novice individuals the opportunity to invest in the same securities and markets as institutional investors. This risk is that the novice is given access to margin, options and other leverage type products where the losses when incurred can exceed the amount invested. And lacking the tools and how to use them can lose more than they can afford to lose. In some regard it’s analogous to letting a $5 blackjack bettor play the high roller table in Atlantic City or Las Vegas, they may win a few hands, but in all likelihood, they will lose everything they came with and if they got credit even more.
13. Q: Someone can learn technical analysis but may not need to be certified as a technical analyst. What single argument would you give to someone to get certified?
A: We’re happy to help people learn technical analysis, the certification / charter however is for finance professionals. The charter and continued use of the charter require an individual to maintain proficiency, I.e. continuing education. The ability to continuing to use the charter signals to the market place that you have learned a body of knowledge and are continuing to develop your knowledge and skills
14. Q: What are the most common jobs for a technical analyst? Is there any estimate of the salary increase for a certified technical analyst compared to a non-certified one?
A: See #2
15. Q: How can someone be sure whether the Chartered Market Technician Program is right for him/her?
A: Really is an individual assessment, however, if you are looking for a way to add a systematic risk management to your investment process I would say the program is definitely for you. Many portfolio managers and analysts can wax poetically on why they invested in a security, however, they have no clue on why they or when they should exit.
16. Q: Does the CMT program curriculum cover all aspects of studying for passing the CMT exams? Are there any suggested readings?
A: The program books available through our publisher Wiley and most bookstores (including Amazon) contains everything you need for the exams. We also have a partnership with Optuma that gives you access to an institutional level charting platform while you are registered for an exam. This gives you the opportunity to see and test the concepts in real time on the same platform professional investors and traders use.
17. Q: You have an Academic Partner Program. Can you share more details on this?
A: We have been working for over forty years to advance the discipline of technical analysis through education and application of the highest professional standards. In an effort to advance our mission the CMT Association established an Academic Partner Program to promote technical analysis education at colleges and universities worldwide.
The program is available to academic institutions that provide accredited graduate or undergraduate finance degrees and include courses focused on technical analysis. There are no fees associated with a University or College becoming an Academic Partner. The fact sheet can be found here 2021-CMT-APP-Fact-Sheet.pdf (cmtassociation.org)
18. Q: You have volunteer opportunities on your website. What areas do they cover and how can some get engaged?
A: There seems to be an endless supply of volunteer opportunities, members just simply need to go to the “Volunteer Opportunities” link under membership or about and fill out and application letting us know their interests and we can get them intouch with the leaders for those activities.
19. Q: Do you organize annual worldwide summits for networking opportunities?
A: Prior to the pandemic we held an in-person symposium annually in New York City, we hope to be able to start that again in 2020. Additionally, in 2019 we introduced a Summit in Mumbai, India that we moved to virtual in 2020 and expect it to be that way again this fall with a resumption of an in-person APAC Summit in the fall of 2022.
20. Q: What is the best way and advice for someone to study for the CMT program? Is it self-study? How many hours should someone devote per level of the exam? Do you suggest any third-party providers as test preparation services?
A: It really is up to the individual and their study habits. Some people are fine with self-study, others need a structured course to help them. We don’t offer a study course, however, on our website we do have a listing of Prep Providers who have agreed to abide by a set of guidelines (can be found here: CMT-Prep-Provider-Guidelines.pdf (cmtassociation.org) ). That list can be found here and includes online only to only in-person programs. Participating CMT Program Test Prep Providers – CMT Association
21. Q: What is the future of the CTM Association as you visualize it and what are the main goals to achieve?
A: First is to continue to provide to our members and candidates a high level of service and content for their use to improve themselves as technical analysts. Second, to expand the recognition and adoption of technical analysis in the industry, at both firms and regulators, and in academia.
22. Q: Is technical analysis applicable to all financial assets? What are its limitations? And strengths?
A: As noted in the answer to #10 above, technical analysis is applicable to any and all capital markets with adequate liquidity and the availability of timely public price data. Equities, commodities, currencies, fixed income – technicians are active in all these markets. Of course, the type of market data available and the speed with which it is delivered, even trading hours, vary between markets and countries, but technical methods have been adapted for all these variations.
23. Q: Some traders, investors rely only on fundamentals, some only on technical analysis. What is your opinion on this and what do you think is the best approach to investing and trading?
A: Traders and investors should always use what is productive for them, those which are useful in identifying opportunities and managing risk. For many, that means combining fundamentals to identify value with technicals to time trades and manage risk. But there are many who approach markets from only a fundamental or technical perspective.
24. Q: What is the future of technical analysis and what challenges do you see with all this technological advancement and all this plethora of software, programs, to help an analyst, trader make investment decisions?
A: The software and programs will help you structure and analyze the data (they are tools), however you still need to understand what you are looking at and in the context of the environment the prices and other information are being generated.
25. Q: Getting the CMT designation is about understanding the core principles of technical analysis and making sound investment decisions. Is this suitable for many different timeframes and investors according to their risk tolerance or is there a preference towards short-term investing rather than long-term investing?
A: Technical methods have often been thrown into the category of short-term or day-traders tools. This was never really accurate. Technical methods are applicable to the full range of time frames. To be sure, each technician will adapt and use tools that fit with their trading horizon but there is no barrier to the use of technical analysis by either the long-term investor or the short-term trader.
26. Q: There are many types of bias for analysts and investors such as overconfidence. What are the most common types of biases for someone getting the CMT designation, and what advice would you give to avoid these biases?
A: Technical analysts, like other analysts, are only human. Overcoming biases begins with recognizing how they affect us as individuals and how they might affect the traders in general. Technicians have been pioneers in developing objective systems that can be tested on historical data and then implemented according to strict rules. This approach helps overcome many of the biases to which we all fall victim. Whether using rigorous systems or other “weight-of-the-evidence” decision making, technical analysis was built on the recognition that behavior and emotion are critical inputs to price action.