Completion of the Chartered Market Technician (CMT) program reinforces this advisor’s fundamental investment philosophy: Capture as much of the upside as possible during healthy markets, while mitigating the downside in unhealthy markets.

After almost two decades in money management, completing the CMT (Chartered Market Technician) program was probably the most intense but rewarding experience I’ve ever put myself through.

I had already been implementing technical analysis in my financial advisory practice since midway through the 2007–2009 market crash. I had helped our clients through the fallout resulting from the dot-com bubble and World Trade Center attack, so I knew that proactive portfolio management was a better way to manage risk and our clients’ hard-earned savings. I just felt like I needed more, and I’ve always been someone who pushed myself to new heights in terms of knowledge and education.

Back in 2008, I sought out an introduction to a retired exchange trader who ran a technical analysis research firm, and he provided all of the original bits of knowledge to get started. After a few years, I felt like I needed to learn more, so I reached out to a well-known technical analyst who spent a generous amount of time with me. For the next five years, I researched Point and Figure charting and analysis and relative-strength methodologies.

One day, I ran into the owner of another fee-only RIA firm in Columbus, Ohio, who was a Chartered Financial Analyst (CFA). We discussed our respective investment philosophies and debated portfolio management strategies. At the end of the conversation, he asked me if I’d ever thought of joining the CMT Association (at the time, it was called the MTA, or Market Technicians Association). I joined the CMTA the next year.

The next big chapter had begun for my personal growth as both an independent portfolio manager and one who could competently scrutinize the strategic offerings of third-party investment managers and various research and analytical firms.

See Related Article: Why proactive money management makes sense for clients

I was blown away by the speakers at my first CMTA conference. I felt like I’d gained more knowledge in two days than I had at the previous 37 conferences I’d attended in my career at that juncture (yes, I counted). Aside from the knowledge, I also acquired incredible connections and made some great friends in the business.

I quickly learned that practitioners in the proactive money management field are much warmer, more approachable, and willing to share “trade secrets” than those in the financial-planning world.

Here is a case in point. After meeting two-time Charles H. Dow Award winner, technical-analysis legend, and author Charlie Kirkpatrick at a CMT event, I asked if I could come to his home in Maine to pick his brain for a few days. He didn’t even stop to think before responding, “Sure.” Three months later, I was sitting at a table in his living room peppering him with questions:

• “Here’s what I’m doing with this strategy—what could I improve?”
• “Here’s another strategy I’ve been tinkering with—am I completely off?”

I could have spent weeks in that living room, but at the request of my wife and two boys, email and phone calls were going to have to suffice.

Charlie’s vast knowledge was unparalleled. He had an answer for every question I threw at him, and there was so much more that I wasn’t even seeing. As the saying goes, “You don’t know what you don’t know.”

Soon after, I began to pursue the Chartered Market Technician designation. The CMT program is grounded in behavioral finance and extends well beyond classical pattern-recognition techniques to include quantitative approaches to market research and rules-based trading-system design and analysis. The curriculum is challenging, to say the least.

Here are the program level descriptions from the CMT Association website:

• Level I: Basic knowledge of the terminology and analytical tools used in technical analysis (2-hour exam consisting of 132 questions).
• Level II: Increased competency in the application of concepts, theory, and techniques used in technical analysis (4-hour exam consisting of 170 questions).
• Level III: Mastery of the integration and application of concepts, theory, and techniques used in technical analysis (4-hour exam consisting of primarily short-essay, long-form, as well as multiple-choice questions).

I had been working with analytical software that offered a CMT study program. This was immensely helpful. As I was learning new strategies, I could literally tinker around with them in real time, configure and analyze charts, test trade signals, change parameters, test again, and so on. This was a key to truly understanding the materials and putting them into practice.

I put the same amount of study time into both CMT-II and CMT-III: 119 hours each, to be exact. The second exam taught me a lot about several different types of investing strategies, as well as many concepts that could be mixed and matched into a custom trading system. I also learned about chart construction, market indicators, pattern analysis, statistical analysis, and market cycles. Each bit of knowledge I accumulated could be tested and put into practice almost immediately. So, I was improving my own strategies as the program progressed.

CMT-III was intimidating. The exam combines the learning objectives from all three programs and determines whether you really understand how to apply the material correctly in real life. In addition to the information included in the first two exams, this exam also includes additional strategies and material surrounding risk management, behavioral biases, ethics, asset relationships, volatility analysis, security selection and decision-making, trend analysis, trade system testing, and evaluation.

Once you have successfully passed CMT Level-III, you have obtained a strong foundation for implementing a proactive investment management strategy, testing it, and adjusting it over time as the market landscape evolves. (The last time I looked, just under 3,500 people have obtained the CMT designation.) I like comparing it to getting a black belt in martial arts—obtaining the education and designation is not the end of the process. It’s a foundation on which you can build through additional learning and continued education.

In fact, passing Level-III doesn’t even provide you with the ability to use the designation. After the completion of the final exam, each CMT candidate must adhere to the CMT/CFA code of ethics, obtain recommendations from three current CMT charter holders, and complete at least three years of analysis in actual practice. Only when the recommendation letters and application for membership are reviewed and approved can someone use the designation.

I believe the effort is worth it. The curriculum has helped me confirm and improve the investment management strategy within my financial advisory practice. The broad goal of my strategic approach is to capture as much of the upside as possible during healthy markets, while avoiding a majority of the downside as market crashes unfold.

My personal belief is that almost every financial advisor would benefit from practicing proactive money management for their clients, dependent on each client’s risk profile, time frame, overall financial-planning objectives, and retirement-income goals.

Not all advisors need (or have the time and inclination) to earn a CMT designation, of course. My fundamental investment philosophy of “playing defense first” using actively managed strategies that respond to changes in the market environment is also employed by a number of sophisticated third-party investment managers who work closely with financial advisors.

Lastly, I must revisit the ancillary benefits of going through the CMT program. I discovered much of the third-party research that makes my job more efficient through the program or from other portfolio managers and analysts I’ve met over the years when attending the CMT Association’s annual symposium in New York City. A few of the research firms I’ve hired also manage their own institutional portfolios, which makes the business relationship I have with them even more interesting as we discuss the markets, trends, and asset-class positioning.

And the content CMTA provides at its conferences and through its programs is excellent. Understanding how some of the brightest technical minds and active managers in the business think and execute not only imparts great insights, it reaffirms my commitment to proactive money management.

In 2017, CMTA’s annual symposium centered on the theme “Technical Analysis: Integral to Successful Active Management.” It presented an opportunity to learn from and cultivate relationships with industry leaders and value generators from around the world.

Almost by definition, the various constituencies represented within the CMT Association have their own belief systems, which generally are diametrically opposed to a purely passive (and, hence, non-risk-managed) investing approach. According to the CMT Association, the CMT designation is “awarded to those who demonstrate mastery of a core body of knowledge of investment risk in portfolio management settings.”

This year’s symposium was also very illuminating, focusing on the theme “Navigating the Gap: Forces That Influence Price Dynamics.” This was addressed via workshops and panel discussions on technical analysis, macro market and economic viewpoints, analysis of big data, and behavioral science. Close to 40 chief investment officers, senior portfolio managers, research directors, technical analysts, academics, traders, authors, wealth managers, and others presented. The presentations explored different viewpoints on a central idea: how the application of technical analysis can impact the investment management process and aid in assessing risk and reward in today’s markets.

I can’t emphasize enough the benefits of the CMT Association—the education it provides, the wonderful community surrounding it, and the intelligent minds you meet. Best of all, leading professionals in our industry are more than willing to share their knowledge—all you have to do is ask.