Section1 - Chapter 3 - Market Instruments

Section1 - Chapter 3 - Market Instruments - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus Visit Site : www.learn.ptaindia.com and www.ptaindia.com

1. Chapter 3 - Markets, Instruments, Data and the Technical Analyst Section 1 – Theory and History of Technical Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Learning Objective Statements: Markets, Instruments, Data and the Technical Analyst Tradable Markets Behind the Scenes of Market Data This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Markets, Instruments, Data and the Technical Analyst 1. Markets • Types: Stock, Forex, Cryptocurrency, Commodities, Bonds • Market Conditions: Trending, Ranging, Volatile, Consolidating • Liquidity & Volume: Higher liquidity means tighter spreads and easier trade execution. 2. Instruments • Equities (Stocks & ETFs) • Derivatives (Options, Futures, CFDs) • Forex Pairs (Major, Minor, Exotic) • Cryptocurrencies (Bitcoin, Ethereum , etc.) • Commodities (Gold, Oil, Agricultural Products) • Bonds & Fixed Income This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Markets, Instruments, Data and the Technical Analyst 3. Data • Price Data: Open, High, Low, Close (OHLC) • Volume Data: Number of shares/contracts traded • Market Breadth Indicators: Advancing vs. declining stocks • Sentiment Data: Fear & Greed Index, Commitment of Traders (COT) reports 4. The Technical Analyst • Uses historical price and volume data to forecast future price movements. • Employs technical indicators like moving averages, RSI, MACD, Bollinger Bands. • Analyzes chart patterns such as head and shoulders, double tops/bottoms, and triangles. • Uses support & resistance levels to find entry and exit points. • Incorporates candlestick patterns (e.g., Doji , Engulfing, Hammer). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

5. Markets, Instruments, Data and the Technical Analyst 3. Data • Price Data: Open, High, Low, Close (OHLC) • Volume Data: Number of shares/contracts traded • Market Breadth Indicators: Advancing vs. declining stocks • Sentiment Data: Fear & Greed Index, Commitment of Traders (COT) reports 4. The Technical Analyst • Uses historical price and volume data to forecast future price movements. • Employs technical indicators like moving averages, RSI, MACD, Bollinger Bands. • Analyzes chart patterns such as head and shoulders, double tops/bottoms, and triangles. • Uses support & resistance levels to find entry and exit points. • Incorporates candlestick patterns (e.g., Doji , Engulfing, Hammer). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

6. Four Asset Classes Four asset classes that are well-suited for technical analysis are: 1. Equities (Stocks & ETFs) – Traders use price charts, trendlines, and indicators like moving averages and RSI to analyze stock price movements. 2. Foreign Exchange (Forex) – The highly liquid and volatile nature of currency pairs makes them ideal for technical analysis using patterns, Fibonacci retracements, and momentum indicators. 3. Commodities (Gold, Oil, etc.) – Futures contracts on commodities respond well to technical indicators like Bollinger Bands, MACD, and support/resistance levels. 4. Cryptocurrencies (Bitcoin, Ethereum , etc.) – Due to their speculative nature, crypto assets are heavily analyzed using technical indicators like volume profiles, moving averages, and oscillators. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

7. Technical Analyst (Technician) A technical analyst (technician) is likely to employ the following five tradable instruments: 1. Stocks (Equities) – Individual company shares like Apple (AAPL) or Tesla (TSLA) are analyzed using price charts, volume, and indicators. 2. Forex Pairs – Currency pairs such as EUR/USD or GBP/JPY are traded based on trends, support/resistance, and momentum indicators. 3. Futures Contracts – Instruments like crude oil (CL), gold (GC), and S&P 500 futures (ES) allow speculation using technical patterns and volume analysis. 4. Options Contracts – Traders use options on stocks, ETFs, and indices, employing technical analysis to determine strike prices and expiry strategies. 5. Cryptocurrencies – Bitcoin (BTC), Ethereum (ETH), and altcoins are heavily traded using technical indicators like moving averages and Fibonacci retracements. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

8. Technical Analyst (Technician) For technical analysis to be effectively applied, a market must have the following characteristics: 1. Liquidity – There must be sufficient trading volume to ensure smooth price movements and reduce the impact of large trades on price action. 2. Frequent Trading Activity – Markets with continuous price action allow for the development of trends and patterns, making technical analysis more reliable. 3. Price-Driven by Supply and Demand – Markets should operate efficiently, with price movements reflecting investor sentiment, buying and selling pressure, and other fundamental factors. 4. Historical Price Data Availability – Technical analysis relies on past price action, so the market must have well-documented historical data for trends, patterns, and indicator analysis. 5. Minimal Artificial Influence – Markets should be free from excessive manipulation or government interventions that can distort natural price behavior. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

9. Technical Analyst (Technician) For technical analysis to be effectively applied, a market must have the following characteristics: 1. Liquidity – There must be sufficient trading volume to ensure smooth price movements and reduce the impact of large trades on price action. 2. Frequent Trading Activity – Markets with continuous price action allow for the development of trends and patterns, making technical analysis more reliable. 3. Price-Driven by Supply and Demand – Markets should operate efficiently, with price movements reflecting investor sentiment, buying and selling pressure, and other fundamental factors. 4. Historical Price Data Availability – Technical analysis relies on past price action, so the market must have well-documented historical data for trends, patterns, and indicator analysis. 5. Minimal Artificial Influence – Markets should be free from excessive manipulation or government interventions that can distort natural price behavior. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

10. Technical Analyst (Technician) A technical analyst (technician) must be aware of several data-handling issues that can impact analysis and decision-making. These include: 1. Data Accuracy & Integrity • Bad Ticks & Outliers: Erroneous price prints or data spikes can distort charts and indicators. • Gaps in Data: Missing price data due to exchange issues, market halts, or low liquidity can disrupt analysis. 2. Timeframe Selection • Different Timeframes, Different Trends: A trend on a daily chart may differ from an hourly or weekly chart, leading to conflicting signals. • Intraday vs. End-of-Day Data: Short-term traders need tick-by-tick or minute-by-minute data, while long-term traders rely on daily or weekly data. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

11. Technical Analyst (Technician) 3. Volume & Liquidity Distortions • Pre/Post-Market Volume Variations: Lower liquidity outside regular hours can create misleading price moves. • Order Book Manipulation: Large limit orders ("spoofing") can mislead traders about supply and demand. 4. Adjustments for Corporate Actions • Stock Splits & Dividends: Historical price data must be adjusted for splits and dividends to avoid misleading trends. • Mergers & Acquisitions: Affected stock price history may become inconsistent with past trends. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

12. Technical Analyst (Technician) 5. Data Source Reliability • Differences Across Data Providers: Price discrepancies can occur between brokers, exchanges, or charting platforms. • Latency & Delays: Delayed or slow data feeds can impact real-time trading decisions, especially for high-frequency traders. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

13. Next Chapter 4 - Efficient Market Hypothesis (EMH) Section 1 – Theory and History of Technical Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia