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Three Lessons From The CMT Exams

Three Lessons From The CMT Exams

Larry Thompson
September 29, 2024

I’m a Chartered Market Technician

While traveling to India last week, I received the official news that I had become a Chartered Market Technician (CMT). This week I wanted to reflect on a few key lessons I’ve learned since being introduced to the world of Technical Analysis.

1.) It’s How I See The World

Like everyone else who becomes interested in the markets, I was initially guided toward a list of fundamental books, along with the usual advice to "invest like Buffett." Ironically, the people recommending this advice rarely have anywhere near Buffett’s level of success, which is always amusing to me. If only it were that simple: "Invest like Buffett, play basketball like Michael Jordan, swim like Michael Phelps…" The reality is, show me your returns, and I'll show you who you really invest like—for most, it's more akin to a gambling addict on a bender. But I digress.

I followed the path they suggested. I read The Intelligent Investor, One Up on Wall Street, and so on. But the book that stood out to me during that time was Warren Buffett and the Interpretation of Financial Statements. One quote from the early pages stuck with me, and I took it to heart. I did exactly what Warren advised.

Quote from Warren Buffett and the Interpretation of Financial Statements

In undergrad, I majored in accounting and finance. During this time, I also took several courses in economics, where I was introduced to Austrian economics, a school of thought that emphasizes individual decision-making, spontaneous order, and the role of human action (praxeology) in economic processes. After getting my CPA I started working in public accounting, and witnessed firsthand how human actions could taint these supposedly "pristine and audited" financials. The assumptions, estimates, and forecasts were often shaped by people with their own incentives, and as an auditor, the pressure to finish on time and under budget hardly lent itself to the "objectivity" that so many naïve people believe in. As Austrian economics assumes, human decision-making often overrides the cold, computational objectivity that many expect to find.

It was during this period that I discovered technical analysis, and it immediately clicked. What stood out to me was the human element that fundamental analysis often overlooks—humans are buying and selling stocks, interpreting information, and making decisions based on incentives not necessarily aligned with “this stock is going to go up in price”. I quickly realized that technical analysis wasn’t just another tool—it was a parallel way of viewing markets that aligned perfectly with my worldview. It was easy for me to see that that there’s more practical truth in price than in any 10K ever created. Price, much like human action in praxeology, reveals the truth of the market, regardless of external narratives or theories.

2.) There is No “Holy Grail”

The CMT exam covers a wide range of topics, including various technical indicators, statistical methods, historical backtest etc. A common trap when learning this material is believing that there’s a "holy grail" hidden within one of the indicators or tools. It’s human nature to search for that elusive magic solution. We do this in all aspects of life—whether it’s the politicians we idolize, the diets we can’t stop telling people who didn’t ask about, or the new budget techniques we swear by. We’re always looking for that ultimate fix. But when you dig deeper into these indicators, you realize that 90% of them are simply derivatives of price.

Once you understand this, you see that the subtle differences between many indicators are often insignificant. The true “holy grail” is in developing a system that uses a range of market evidence, ones you truly understand, to piece together the puzzle in a way that generates actionable insights. Developing a mastery of their strengths and limitations makes your decision-making process far more robust, as opposed to adding layers of complexity for the sake of sophistication.

3.) That Was The Easy Part

The CMT is a significant time commitment, with three exams offered twice a year. The fastest you can complete it is in 12 month month window. The material is extensive but the reality is, passing the exams was the easy part.

Yes, the CMT exams require effort, but they offer a level of predictability that the market doesn’t. There’s a study guide, specific chapters to review, and practice exams. As long as you're diligent, it’s an achievable task. But the market doesn’t care about study guides, your IQ, or how hard you work. The real challenge comes in applying the material. It’s a lot like having a playbook for a football game, you can memorize the plays and understand the nuances, but once the quarterback says "hut," a million different opposing forces come into play, making it far more challenging than practice.

It’s been over a year since I passed the exams (June 2022 - June 2023 window), and while the material has been invaluable in helping me better understand how the market operates, the hardest part is putting it into action. Passing the exams doesn’t suddenly make you a profitable investor, just like getting a PhD in kinesiology doesn’t give you a six-pack. It simply equips you with many of the skills needed to be successful. Mastering your emotions and applying the lessons you’ve learned is the real challenge.