Chartered Market Technician (CMT) Practice Exam

In Point and Figure analysis, a successful buy signal is indicated when the current column of Xs surpasses the previous column of Os. This phenomenon occurs because the formation of new Xs above the prior Os signifies that demand is outpacing supply, suggesting bullish market sentiment. In this analysis technique, an increase in Xs above the previous Os reflects a price increase and indicates that traders are willing to buy at higher price levels, which is a positive signal for potential upward movement in the asset being analyzed.

In contrast, a scenario where the current column of Xs breaks below the previous column of Xs would indicate a bearish signal, suggesting that demand is weakening. The option regarding the price level being above the red line does not specifically relate to the core mechanics of Point and Figure buy signals, as this term is generally not standard in this context. Lastly, market conditions favoring bearish trends would conflict with the definition of a successful buy signal, as such conditions imply that sellers are in control. This makes the first option the clear indicator of a successful buy signal.