Technical Indicators

Do you think we’ll actually be tested on the specific indicators for contrarian or smart-money investing? It seems ridiculous that we would need to know from memory that a put call ratio > .5 means that investors are bearish and contrarians are bullish (as one example). Honestly, I’m not sure why this is even on the CFA given that the curriculum also details the fact that markets are weak-form efficient and none of this stuff works.

Hmm no idea. I thought if the put call ratio > 0.5 means that there are more calls than puts. Which would mean investors are bullish. since you would long call only if you thought market was going up? I didn’t want to memorize so I just try to analyze the situation.

nope, the ratio is puts/calls. That was just an example, there are a bunch of other indicators discussed in the curriculum

You might get questions like this: According to contrarian investing, which of these indicators would not indicate a buying opportunity. etc. etc.

Have you already taken the exam before, or are you just guessing?

i’m assuming we’re not going to have to know the numbers, but you do have to know what each indicator is and who uses it (smart money vs contrarian). and anyway, if they do decide to test this, it would probably be only 1 question on the test.

every question counts, because the question that you are hoping to get correct, I am sure you will get them wrong. because its CFA exam.

O i misread the sign to be

not sure. the numbers are somewhat arbitrary. However, in the end, it probably doesn’t matter if you assume that technical trading creates abnormal profits. When the PCR exceeds 0.5, you have the contrarians buying and it likely creates a self-fulfilling prophecy.

The equilibrium quantity for puts is lower than that for calls. Think of it like this…the normal put:call ratio is 40%, next week it shoots up 60%, so this would be a bearish indicator. Its more about the direction of the change than the absolute ratio