Mastering MetaStock A Beginner's Guide to the MetaStock Power Tools AIL Rights Reserved Copyright © 2002 Printed in the US.A. Equis International 3950 South 700 East, Fist Floor Salt Lake City, UT 84107Contents Introduction 1 Weleome ‘Who Should Read this Manual” ‘This product is nota recommendation to buy or sl, but rater a guideline tointrpreting the specied analysis Imai Ts foraon shoud oly be sed by lives ws ae snare oho sk ered cece tng. Eglin ant Tara Syme Aras Gc scot oy wore ys atl fom oy ss procul ors Conon, Chapter Three - Using the MetaStock Power Tools Introduction. Opening a Chart 2° Custom Indicators The Enhanced System Tester ‘The Explorer ‘The Expert Advisor: ‘Trading Basics. Disclaimer | How to Use this Manual Getting Help Chapter One - What is Technical Analysis? 3 Introduction — a) Technical Analysis Basis. oa quis and MetaStock are registered trademarks of Equis Intemational. MetaStock Performance Systems and Chapter Two — Introducing MetaStock and MetaStock Performance ‘MetaStock Perlrmance Systems Plus aro tademarts of Equsltematonal, Mcrosol Windows, Merosot Systems 0 Windows 85 and 9b, and Merosot Explorer ere trademarks of Merosot Corporation, Al oer podct names o {eroes mentioned are tademarks or egtered rademarks ol her respective owners. Introdetion nnn om vm sn nd MetaStock. co — 9 MetaStock Performance Systems 1s : = Which System Should I Use? a ai Comparing System Tests Chapter Four - Descriptions of the MetaStock Performance Systems 45 Introduction: 45 The Systems — — — ve 46 Adaptive Moving Average so 41 Bull Power Bear Power 1 ih Bull Power Bear Power 2... ' 48 Contents +1Bull Power Bear Power 3. CCI (Commodity Channel Index) Chande Forecast Oscillator. CMO Reversal Consolidation Breakout Cooper 1234 Pattern Cycle Progression. Dynamic Momentum Index 1 Exponential Moving Average. Fractal Trading Systems I and 2 Long Sell Short Sale - 5 Day MACD Histograms 1 and 2.. Meisels Overbought/Oversol4.. MESA Sine Wave soon Pattern Trading System 1 Percentage Crossover 3%. Projection Oscillator 1 StochRSI. ‘Swing Index... Vertical Horizontal Filter. Volatility Breakout (Chaikin) 49 49 50 31 52 33 54 54 35 56 37 58 59 60. 61 2 Cs 68 65 Introduction Welcome Do your emotions interfere with your trading? Would you like to add discipline to your trading style? Would you like to automate your investment activities, using a built-in set of pre-tested trading strategies? ‘And would you like a manval that explains al this in easy-to-understand terms? That's what MetaStock®, the MetaStock Performance Systems™, and this manual were designed to do, ‘We will show you how to quickly and easly use the most powerful features of MetaStock, the Power Tools. We will also introduce you to 26 of the 80 MetaStock Performance Systems, a collection of the best trading systems ever developed for MetaStock ‘The core ofthis manual isthe step-by-step instruction on how to use the MetaStock Performance Systems to find better investments. The manual shows you, step-by-step, how each MetaStock Power Too! is used to help in choosing systems and trades, You'll be up and running a trading system in no time. ‘We won't waste your time with anything but the essential instructions to getting you trading, This manual isn't a complete MetaStock manual (that’s available from the MetaStock Help menu). It's not a guide to the basies of MetaStock (see the QuickStart Tutorials in the MetaStock Help 4 menu), It's nota trading course. Nor is it an in-depth review of technical analysis. This guide is a quick and easy way to feel the power of “MetaStock. Where appropriate, you'll be guided to other reference ‘material for more information. Who Should Read this Manual? If you'te comfortable performing basic tasks in MetaStock, this manual is for you. Basic tasks include opening charts, creating security files, downloading data, plotting indicators and running system tests and explorations. If you're not familiar with any of those tasks, we highly recommend you read MetaStock’s Getting Started manual before reading, this one. eee Introduction eeeHow to Use this Manual MetaStock Help ~ keyword A.new term will be defined in the margin. Chapter one of this manual introduces you to Technical Analysis and explains the basic techniques used in MetaStock to help you make better investment decisions. Later in the manual, we'll be introducing you to more advanced techniques, and having a basic understanding of Technical Analysis will help immensely. Chapter two explains what's unigue about MetaStock and MetaStock Performance Systems, and what they can do to improve your trading ‘This chapter also outlines two approaches to using the MetaStock Performance Systems so you can choose the system that’s best for you Chapter three isa step-by-step tutorial on using each of MetaStock’ Power Tools with the MetaStock Performance Systems, This is where you Tearn to master the real power of MetaStock, Chapter four contains a description of each MetaStock Performance System so you can find one that fits your trading personality ‘Throughout this manual, references to the MetaStock help file are included in the left margin. The keyword to search is bolded (as in the example to the left). To look up the keyword, select Help from the MetaStock Help menu, and choose the Index tab, Then type your keyword in the input box atthe top of the dialog. ‘The first time new terminology is introduced, a definition will be found in the margin, Chapter One - What is Technical Analysis? Getting Help BB cone serstive Help icon MetaStock Help — Technical Support Ifyou have a problem or a question, the first place to check is the MetaStock help system. It contains everything inthe printed manual, ‘Most questions can be answered in the help, ‘There is help button on each dialog that guides you to the help for that dialog. Or you can click on the Context Sensitive Help icon, and then click on any item in MetaStock, to get help on that item, If you've checked the help system and still cannot find the answer to your problem or question, please contact the vendor from which you purchased MetaStock for assistance. If you purchased MetaStock directly from Equis, you may contact Equis Technical Support for assistance with MetaStock. Look up Technical Support in the MetaStock help for information on contacting Equis Technical Support. Be introduction Introduction ‘To some people, technical analysis is some sort of mystical art, akin to reading tea leaves. To others, it's a valuable tool that inereases their investing success while decreasing their risk. The term security refers to Simmpy stated, technical analysis is the study of past security prices and stocks, bonds, mutual funds, volume, in an attempt to predict te future. Technical analysis only deals commodities, currencies, ith the price elements (open, high, low, and close) and the volume fires, indices prions, gssocjated with a security, and ignores other factors such as earnings, Ce revenue growth, etc. Technical analysis can be applied to just about any investment vehiele, including stocks, futures, options, or mutual funds, ‘This chapter will describe what technical analysis is ané why you should use it, and introduce you toa few of the basic concepts of technical analysis. Why use Technical Analysis? ‘Used properly, technical analysis can increase your investment return, ‘while reducing your risk. Would you buy a used car without knowing - anything about its past performance? Likewise, you shouldn't buy a stock without learning about what the prices have done in the past. ‘Technical analysis protects you from the biggest enemy to your investment success - you. Using a mechanical trading system takes the emotion out of trading. It makes you a more disciplined trader. It removes the chance that you will panic at the worst possible moment. ‘Chapler One ~ What ls Technical Analysis? «3‘The open isthe frst rade rice ofthe period. The high isthe highest trade price that occurred during the period. The low isthe lowest trade price thar occurred during the period. The close isthe lat trade rice ofthe period. The volume isthe number of shares traded daring the period. The period is whatever time frame constitutes one bar (eg. minwe, hour, day, week, month ‘he wats 18 the date scale along the bowom of the chart. ‘The yeas isthe price scale ‘along the side ofthe char. ‘This isa very basic introduction to technical analysis. For an excellent ‘book on Technical Analysis, consider Technical Analysis from A to Z, by the cteator of MetaStock, Steve Achelis. Charts ‘The most basic concept in technical analysis isthe chart. This is where technical analysis takes place, A chart shows, in graphical form, the trading history of security. The most common technical analysis chart is a“bar chart.” The bar shows the open, high, low, and closing prices. for the period, See the following illustration for an example. The ‘volume is usually shown below the price bars. Dates ‘The bottom of the chart (also called the x-axis) shows the dates. The right ofthe chart (also called the y-axis) shows the prices. “The bar chart is the most common type of chart, but other forms of charts are also available in MetaStock. For example, you could plot the close as faline. This is also a good chart if you just want to take a quick look at the overall price over the long-term. ‘Support and Resistance Security prices represent a balance between buyers and sellers. When the price falls to a point where there are many more buyers than sellers, prices stop falling, and you get a support level. When prices move up to ‘point where it brings out many sellers, prices stop rising, and you get a resistance level. ‘The following illustration shows Medimmune and a support level at $44. An overbought security has risen to an unreasonable level, and is due for a correction. An oversold security isthe opposite. A trading range isa sideways chart pattern, ‘often a resting period before Prices resume their former ‘An up-trend is increasingly higher low prices. A downstrénd is decreasingly lower high prices TE) MEDIMMUNE [As stocks move between support and resistance, their action is termed ‘eyclic.” Indicators designed for such activity can be called cyclic indicators, or overboughtoversold indicators, or reversal indicators Cyclic indicators perform best when stocks are in a trading range. The most famous eyclic indicator is probably the Stochastic Oscillator. See page 6 for more information about indicators. ‘When trading support and resistance levels, it's advisable to wait for confirmation of the level rather than trying to anticipate the price turn. TThat is, wait for prices to fall to support and bounce off (the confirmation) before placing a long trade, or vice-versa for short trades. Trends ‘The opposite ofa stock caught between support and resistance is a stock in atrend. An up-trend is defined as increasingly higher low prices. A down-trend is defined as decreasingly lower high prices. The old saying is absolutely true - “The trend is your friend.” The following illustration shows Washington Mutual in a great up-trend as prices break out of resistance, “Te Chapter One ~ What Is Technical Analysis? ee ____. “Chapter One ~ What is Technical Analysis? « 5A price pattern is recognizable formation in prices due to trend and trend reversal A moving average isthe ‘average price at which a security has traded over a ziven fime period. MetaStock Help ~ Moving ‘Average SER ‘Trend-following indicators can also be called “lagging” indicators because their signals lag behind price changes. They work best when securities move in long trends. The most common trend-following indicator is the moving average. Indicators ‘An indicator is simply a mathematical calculation applied to some or all Uf the price fields and/or volume, Indieators can be plotted in the chart to show a graphical representation of these calculations. Many of the MetaStock Performance Systems use indicators in their calculations (the systems that don’t use indicators use price patterns). Moving Average (One of the most common indicators is the moving average. A moving average shows the average price a security has traded over the specified time period. For example, a S-day moving average would sum up the ‘losing prices for the ast five days, and divide by five, to get the average. ‘This type of moving average is called a “simple” moving average because it gives equal weight to each time period. MetaStock includes six other moving average methods that apportion the weight in different ‘A moving average represents the average price investors have been ‘willing to pay for a stock over the specified time period. It gives you the ‘consensus of the crowd. The following illustration shows Microsoft and 25-day moving average. Notice that buying or selling when the price ‘ossed the moving average resulted in ate, but profitable, entry points. ‘> Chapter One ~ What le Technical Analysis? The Stochastic Oscillator calculates the price relative to the recent high-low range MetaStock Help — Stochastic Oscillator ‘Moving averages are lagging indicators. Signals generated will occur after the price has changed direction. On the other hand, moving ‘averages always eventually get you on the right side of the trend. Moving averages are best for securities that show strong trends Stochastic Oscillator “Another popular indicator is the Stochastic Oscillator. “Stochastics,” as it’s sometimes called, shows where the price is trading relative to the recent high-low range, For example, a ten-period Stochastic would look ‘tlhe highest and lowest price over the last ten days, and see where the ‘current price falls within that range. A value of 100 would indicate the Stochastic was atthe top (or 100%) of the 10-day High-Low range, and a value of 0 would indicate it's atthe bottom of the range. The following illustration shows Intel and the Stochastic Oscillator. ‘Chapter One ~ What is Technical Analysis? « 7‘The Stochastic Oscillator is an overbought/oversold indicator, That is, it teies to anticipate reversals in price. A common interpretation is to g0 Tong when he Stochastic tums up out of oversold tentory (Le it eases Chapter Two — Introducing SEE eee nee MetaStock and MetaStock Other Indeators Performance Systems MetaStock includes over 120 other technical indicators, from Accumulation/Distribution to Zig Zag. MetaStock also includes over 100 ‘more mathematical, statistical, date, and other functions that can be built into your own technical indicators. You are encouraged to experiment ‘with as many of them as you have time for. Most investors find a couple of indicators that work for them, and stick to those. Hopefully the MetaStock Performance Systems will guide you toa couple of indicators that work for you a aes ® ‘ Introduction ‘Technical analysis is a powerful tool, but to get the full benefit from it, Jet the computer do most of the work. MetaStock and the MetaStock Performance Systems do all of the dirty work for you, allowing you to spend your time more productively. ‘This section gives an overview of MetaStock and each Power Tool. This section also introduces you to the MetaStock Performance Systems, and ‘guides you through selecting a system that is right for you. MetaStock MetaStock contains all ofthe tools necessary to design, test, and implement an advanced technical analysis trading system, “MetaStock’s Power Tools include The Explorer™ for finding securities that meet certain conditions, the Enhanced System Tester™ for testing : trading systems to see how profitable your ideas have been in the past, the Indicator Builder for creating your own indicators, and the Expert ‘Advisor™ for displaying customized commentary, highlighted bars, symbols, and alerts The Explorer MetaStock Help -What is "The Explorer isa powerful, multi-purpose analysis tool that can perform The Explore? in-depth “explorations” (also called “Seans") on thousands of securities at one time. Itcan compare, rank, sort, and filter securities; lst multiple indicator values for multiple securities; show securities with current buy and sell signals; and search for any technical criteria set by a trader. Results ean be saved to lists for easy future reference. ‘Te Chapter One ~ What le Technical Analyste? ‘Chaplor Two ~ Introducing MetaStock and MetaStock Performance Systems » 9MetaStock Help ~ What is a System Test? MetaStock Help - What is ‘he Indicator Builder? MetaStock Help ~ What is the Expert Advisor? Enhanced System Tester ‘The Enhanced System Tester lets users create and back-test trading systems, The user sets entry and exit conditions, commission amounts, and other important details. Then the Enhanced System Tester tests the criteria on real securities to see how much money would have been made of lost using that system during a set period of time. The Enhanced System Tester can also optimize each system to find the parameters that ‘work best for an individual security and compare multiple systems to show which is most profitable. These tools allow traders to optimize their chances of making profits in the markets—without risking a cent of real money. Indicator Builder Built into MetaStock is a powerful indicator builder that allows users to ‘conveniently create their own custom indicators using MetaStock’s 200+ pre-built mathematical, statistical, and technical functions. MetaStock’s indicators also support variables, multiple plots, and user inputs. Expert Advisor MetaStock’s Expert Advisor works as both a basic teaching tool and a powerful means of automating a trading system, no matter how advanced, Experts include buy and sell signals, alerts, and written commentary. ‘Users can also ereate their own experts to automate systems of signals, alerts, and more MetaStock Performance Systems ‘The MetaStock Performance Systems are a set of 80 of the best- performing systems ever devised for MetaStock. Twenty-six of these systems come free with MetaStock, and the remaining $4 are available with the MetaStock Performance Systems Plus plug-in. Each MetaStock Performance System has an associated system test, signal exploration, performance exploration, and expert advisor. Some of the performance explorations associated with the 26 free systems are only available by purchasing the plug-in. A description of each of the 26 free systems is found in chapter four ofthis manual, including whether the performance exploration is included with MetaStock or must be purchased with the MetaStock Performance Systems Plus plug-in. 70 Ghaptor Two — Introducing MetaStock and MetaStock Performance Systems A Siop isan order to sella long position, or cover a shor postion, at a predetermined amount, tesallyto lit losses. How the MetaStock Performance Systems were selected ‘The MetaStock Performance Systems, developed by Trading Systems ‘Analysis Group, were chosen by testing many variations of hundreds of, different systems on daily data, adding up to about 10,000 different combinations. ‘The tests were done on daily stock data, using no trade Chapter Two Introducing MetaStock and MetaStock Performance Systems, Pisa ieaasyeunt sn en) ot ed tat 85 8 ‘The Test View opens. Click the "Net Profit" column heading twice to arrange the results with the best performers at the top of the list ‘The top two performers (according to net profit) are General Dymanies and Schlumburger. But net profit is just part of the picture. Lets look more closely at how well these securities worked with the Pattern Trading System 1 18, In the results ist (the bottom half of the screen), double-click General Dynamies. The Summary Report appears. ‘Chapter Two Introducing MetaStock and MetaStock Performance Systems» 1519, 20. au Look at the Performance section (second section down on the left), and notice the Buy & Hold Profit. It was only $5,236.25. But the Pattern Trading System returned a $5636.25 profit, $400 more. ‘That's a good sign. [Now elick the Equity tab to view the Equity Repor. ‘The equity line rises steadily without any extreme jumps. This, suggests that the system is relatively stable and dependable. Now click Back and repeat steps 18 -20 for Schlumberger. You'l find that in this test, Schlumberger's net profit beat its buy and hold profit, but its equity line is less stendy than General Dynamics’ So ofthe two securities that returned the highest net profit with the Pattern Trading System 1, General Dynamics is probably the best candidate going forward. If you decide to use this security with this test, you should attach the Pattern Trading System expert to General Dynamics’ chart and check it each day for buy and sell signals. "é> Chapter Two Introducing MetaStock and MetaStock Performance Systems Several Systems Tested on a Single Stock 1, Launch the Enhanced System Tester so we can perform a back-test (Gee page 10 for more information about the Enhanced System Tester). 2, We want to try all 26 of the MetaStock Performance Systems on our stock to see which ones do the best. To select all the systems, click ‘on the first PS system in the Systems list, then hold down the shift key and click on the last PS system in the list. 3. Click the New Simulation button to start the Perform Trading. ‘Simulation wizard. In the wizard, click Next. Click Add Securities. The Add Securities dialog opens. Make sure the Online Vendor button is selected and double-click the ‘Stocks - Common folder to open it (if you're not already ini Click the Options bution and select View by Name. ‘Type Amgen in the Symbol field. “Make sure the periodicity is set to daily (inthe lower left corner) and click Open. You retum to the wizard. 10, Click the Dates button, IL, Select "Use price data from __ to _" and enter 6/27/2001 for the first date, and 6/28/2002 for the last date. 12, Click OK. 13, Click Next. In the wizard, the System Testing Options dialog appears. 14, Check the Points Only Test checkbox, Make sure the rest of the System Testing Options dialog matches the picture below. Chapter Two ~ introducing MetaStock and MetaStock Performance Systems» 1715, Click More to open the System Testing Options dialog, and click the Trade Execution tab, 16, Uncheck the Realistic Market Prices box. 17, Set the Buy Price and the Sell Price to Close. 18. Click OK. 19. Click Next. The Begin Trading Simulation dialog appears. In the field atthe top ("The System Tester will now perform ..") type "My Simulation". (Don't include the quotes.) 20, Click Start. 21, When the simulation is complete, click View Results, 22. ‘The Test View appears, listing all the systems and showing how well they did according to profit and other criteria. Click the Net Profit column once to sox the systems in ascending ‘order, and twice to sort them in descending order (with the best results atthe top) In this example, net profit represents points since we are doing a points- ‘only test. This report shows that the PS Cycle Progression system performed best, returning 39.93 points (the column that says “Net Profit”) ver the one-year period. PS Bull Power Bear Power is a close second, with an net profit of 31.79 points. Looking at the total number of trades (the column titled "Trades"), the PS PS Bull Power Bear Power system only had 15 trades. The PS Cycle Progression had 48 trades, three times as many as the PS Cycle Regression, All else being equal, we'd prefer the system with fewer trades, Fewer trades mean fewer commissions paid out to a broker. 24. Double-click PS Bull Power Bear Power to open the Result Details View 25. Click the Plot on Chart button so we can see the equity line plotted in ‘a chart (the equity line represents our system's profits). Close the Enhanced System Tester to see the equity line plotted in the accompanying chart, “The equity line shows @ relatively steady up trend for the entire year. ‘That's what we like to see. It would appear that the PS Bull Power Bear Power is in tune with Amgen for these dates. Te + Chapter Two — Introducing MetaStock and MetaStock Performance Systems. ‘Chapter Two ~ introducing MetaStock and MotaStock Performance Systems « 19Now all we need to do is attach the PS Bull Power Bear Power expert advisor and check the chart each day for signals. ‘The expert alerts will notify us if there have been any signals since the last time we opened our chart, and the expert commentary will give us details on each signal generated [Now we've done everything we can to reduce our risks. We've found a system that back-tests well on a stock that we understand well. The system fits our trading personality, and we understand the theory behind the indicator, We're only going to put a small part of the money we can afford to lose into any one trade. We've removed the emotion factor as ‘much as is possible. We're ready to trade. ‘This concludes our discussion of choosing a system and stock to trade. Remember these points: © Load enough data for a valid test. ‘© Look for systems that beat buy-and-hold, ‘© Look for steady, up-trending equity lines. © Limit your risks Chapter Three — Using the MetaStock Power Tools "20> Chapter Two ~ Introducing MetaStock and MetaStock Performance Systems Introduction The MetaStock Performance ‘Stems tls begin with eer ‘Now that you know how MetaStock and MetaStock Performance Systems can improve your trading, we'll show you, step-by-step, how t0 use each of MetaStock’ advanced features, the Power Tools. ‘These tools contain the real power of MetaStock. Using MetaStock just to chart your prices ‘and draw a trendline is like buying a luxury car and only sitting in it in the driveway. If you want powerful technical analysis to back up your trades, use the Power Tools! For our examples, we will use the Long Sell Short Sale-5 day (LSS) system. Finding the MetaStock Performance System tools ‘The MetaStock Performance Systems tools are built into MetaStock. All of the MetaStock Performance Systems tools begin with “PS.” For example, the exploration to find stocks that show an Adaptive Moving “Average System buy or sell signal is named “PS Adaptive Moving Average (Signal).” Not al of the MetaStock Performance Systems provide custom indicators. Many systems use only the indicators that are already built into MetaStock for their calculations. Some of the performance explorations associated with the MetaStock Performance Systems are available separately by purchasing the MetaStock Performance Systems Plus plug-in. Check the descriptions in chapter four to find out whats included with each system, Choosing a Time Period How many time periods should you load? This is a more important issue than i€ may appear. You want to load enough data to get a good look at the long-term trend, Two to three years is usually a fair choice. If you're Jooking at long-term investments, you may want to look even further into the past. Whatever time periods you choose, you should be consistent across euch of the tools. If you load 500 periods in your chart, load 500 “Chapter Three — Using the MotaStock Power Tools « 21periods in your explorations, also. If the time period is different in your explorations, the results may not agree with your system test. Opening a Chart Before we can apply any’of the tools, let's open a chart, If you know ‘Which security you want to trade, go ahead and open that chart. We're going to use Exxon Mobil in our example. MetaStock Help Open 1, Click on the File Open icon, or choose Open from the File menu Dialog File Open icon ewe innit 2. Choose Load Options from the Options menu in the Open dialog. Enter the number of periods you would like to be displayed in your charts. Or if you prefer, select Prompt for dates when chart is ‘opened if you'd like to choose different time periods or dates for ‘each chart, We'll choose this option for our example. Whatever ‘option you choose will be the default forall charts. Click OK, MetaStock Help= 3. Select the folder containing the security you want open. If you're DateOnDemand "sing online data with DataOnDemand™, choose the data vendor Online data is acessed shortcut from the shorteut bar. If you're using local data, choose the through the internet oF Local Data shorteut from the shortcut bar, then navigate to the dther online resource. appropriate folder. We'll choose the data vendor shortcut Local data is stored on your 4. Type the symbol of the security you want to look atin the “Symbol” ee field, and press the Enter key 10 open the chart. We know the name ‘of our security, so we choose View by Name in the Options menu, then enter “Exxon Mobil” in the “Security Name” field. Or if you see your security in the list, you can double-click on it to open the chart 5. If you chose the “Prompt for dates when chart is opened” option in the Load Options dialog, the following dialog appears. Enter the ‘number of periods to load, or a specific date in the past. We'll enter ‘a date 20 years in the past so we can look at the long-term trend, Click OK. Em [Now that’s what they mean by “the trend is your friend”! Exxon has been srrinding higher for nearly 20 years. ‘That's trend you want to be on the right side of. We've determined thatthe long-term trend is positive, but we don’t want to use the tools on 20 years of data, The more data you have loaded, the longer each calculation takes. Close this chart, and reopen with only 1000 periods (about four years) of data. Now we're ready to use MotaStock’s advanced features, the Power Tools, ‘Chapter Three — Using the MetaStock Power Tools «23i Custom Indicators MetaStock Help - Plotting a Custom Indicator ‘The Indicator Builder allows you to build custom indicators of your own design, of enter indicators that you may find in a magazine or web site. Many of the MetaStock Performance Systems use custom indicators in their calculations. These indicators are included in MetaStock so you can see how the associated indicators look on a chart, ‘They are for reference only, and are not necessary for your analysis. Plotting a Custom Indicator ‘The MetaStock Performance System's custom indicators are plotted using the Indicator QuickList on the Standard toolbar. 1. Click the Indicator QuickList on the toolbar and scroll the list until the indicator “PS Long Sell Short Sale-5 day” appears. (This indicator appears in a second alphabetical listing at the bottom of the QuickList.) 2. Position your mouse pointer over the small icon fo the left of the indicator. Note how the mouse pointer changes to a hand, [Fs Popo Ona Imre secre [conto fxarconewsUrer esa tvs tre 3, Click and hold the left mouse button and drag the indicator until you have it positioned on any title bar within the chart. Notice how the ‘mouse cursor changes appearance when i's positioned over the title bar. era a i this yh, 4. Drop the indicator by releasing the mouse button. The following illustration shows the indicator in the chart. Ser The Enhanced System Tester & ‘Enhanced System Tester All 26 MetaStock Performance Systems include a system test free with MetaStock. ‘The Enhanced System Tester allows you to back-test a trading system to determine its past profitability. Past performance does rot guarantee Future results, but as you learned in chapter one, stocks tend to follow trends or patterns that can help predict the future. The Enhanced System Tester can show you how profitable a system was in the past, so you can decide how risky future trades may be. If a system did not perform well in the past, you would not want to risk your money ‘on future trades. ‘The Enhanced System Tester should not be used to generate current ‘wading signals. To find out if any signals have been generated by the current data, atach the expert for your system (see page 38). ‘24+ Chapter Three — Using the MetaStock Power Tools “Chapter Throo — Using the MetaStock Power Tools » 257. Type XOM in the Symbol field. (XOM is the symbol for Exxon Mobil. 1. Choose Enhanced System Tester from the Tools menu, or click the : Enhanced System Tester icon. 8. Click Open. 9. Back in the Select Securities dialog, click the Dates button. ‘The Simulation Dates dialog appears. 10, Select "Use price data from the last __ available periods" and center 500 in the blank, 1. Click OK. 12, Click Next. The System Testing Options dialog appears tom Testing Options "Troe edbcadnech itt hsb, BB nrc em Teser icon 2. Inthe systems list (the left panel), scroll down and select the PS Long Sell Short Sale-5 day (LSS) system, 3. Click the New Simulation button (atthe bottom of the Enhanced ‘System Tester), The simulation wizard appears 4. The first dialog in the wizard is the Select Systems dialog. Make sure “PS Long Sell Short Sale 3 Day” is highlighted, 5. Click Next. The Select Securities dialog appears. ‘When you run a system test, you can factor in your specific trading conditions such as intial equity, commissions, and : ‘margins. To get an accurate calculation of past profit, the ae ‘System Testing Options should be set to match, as closely as possible, the way that you would have traded the system. To ‘get a general idea of how well a system works with a stock, ‘you can run a basic test with no options. Then, ifthe system \was profitable, you can set your specific options to get a more accurate calculation. 13. In the Trading section at the top ofthe dialog, select "Points only test.” 14, In the Portfolio section in the center of the dialog, select "Long." ees Soe ae a 15, Click Next. The Begin Trading Simulation dialog appears. 6. Click the Add Securities button, The Add Securities dialog appears, ‘where you can select any number of local or online securities. '26 + Chaptor Three — Using the MetaStock Power Tools TTT ‘Chapter Three — Using the MetaStock Power Tools « 27Ready to Begin Simulation ‘heen eto pl din lato ing rte saan porbay —aarsa 16. Type "LSS" in the field under the words "The System Tester will row perform the simulation”, 17. Click Start. The Perform System Test wizard closes, and a small window appears, showing you details about the simulation’s progress. A blue bar next to a dollar sign in the lower right comer of the MetaStock workspace also indicates the test's progress. 18, When the test is complete, click View Results, Results from the Systems Tests After you've run the test, click the View Results button, Note that the ‘View Results button will disappear after thirty seconds or so if you don't click it, If it disappears, return to the Enhanced System Tester and click the "All Systems” folder at the top of the Systems List (the left section), then double-click "LSS" in the Trading Simulations List (the lower right section). This opens the Summary Report in the Result Details View [Note that your results may differ from those shown here, But the basic concepts still apply. 28 » Chapter Three — Using the MetaStock Power Tools ‘The Summary Report shows (among other things) the profit, the percent gain, the total number of trades, and the number of winning and losing trades. In our example, the Profit was 30.1437 points, with 58 trades. ‘Scroll down a litle and you'l see that 43 of the trades were profitable, anc 15 were unprofitable. (Our total net profit of 30.1437 compares very favorably with the buy-and- hold profit of 4.2850. Scrolling down in the Summary Report dialog, we see the average winning trade was 1.1183 points, or $111.83 if you are trading 100 shares. There were 43 winning trades, lasting an average of six days each, The losing trades were slightly bigger, an average of 1.1961 points, or $119.61 for 100 shares, but there were only 15 losing trades, They lasted, on average, fifteen days. ‘There are 4 other tabs in the System Report dialog: ‘© The Orders tab details every order that the system observed. ‘© The Positions tab details every position opened during the tet. # The Equity tab shows the day-by-day change in equity ‘© The System tab shows the rules for the system, along with the stops and the testing options. Arrows and Equity Line ‘While viewing the Summary Report, click the Plot on Chart button, and ‘close the Enhanced System Tester. The security’s chart appears with an equity line and buy and sell arrows are plotted on the chart. ‘The most desirable equity line is one that shows a good, steady upward trend, Less desirable would be an upward but volatile line, and obviously worse ‘Chapier Thee Using the MetaStock Power Tools «29'30 Chapter Three ‘would be a declining line, In our example, we've got a great equity line (in the upper window). There were so many trades that the “Buy” arrows are hard t0 see. Cleaning Up the Chart Before you continue, you should remove all unwanted buy and sell signals from your chart. 1, Choose Delete All from the Edit menu. 2. Check Symbols in the Delete All dialog. All other options shovld remain unchecked. 3. Click OK. ‘MetaStock Power Tools The Explorer MetaSiock Help ~The Explorer Dialog a Explorer MetaStock Help Online Cache Local Securities _ sera Stek Help Exploration Options a Explorer All 26 MetaStock Performance Systems include a signal exploration free with MetaStock. Ten of the systems include a performance exploration free with, ‘MetaStock. The performance explorations for the ‘remaining 16 systems are available in the MetaStock Performance Systems Plus plug-in. A signal exploration looks for stocks that have ‘generated buy or sell signals. A performance exploration is similar to a system test. It displays the performance of the given system versus a buy-and-hold strategy. ‘The Explorer works with onfine and local data, but runs faster on local data. Selecting the Stocks Which stocks should you include in your exploration? It depends on your system, A short-term system that catches very small moves would work best on the largest, most liquid stocks, The S&P 100 stacks are good ‘examples ofthis type of stock, so we will use the S&P 100 for our ‘example, A longer-term system designed to catch larger moves could be applied to a broader database of stocks such as the S&P 500, v1 even the entire database of U.S, stocks, available on the MetaStock Data CD. Try the performance exploration on different stocks, and see which stock shows the best results. You can filter out stocks that don’t meet price, volume, or other criteria (see page 36). Setting Exploration Options When running an exploration, you should load at least S00 records to generate reliable results, More records require more time to calculate, however, so don’t be surprised if a 20-year scan takes several hours, ‘Remember to be consistent with the number of time periods you load on ‘your charts of your results will not match the Enhanced System Tester. 1. Choose The Explorer from the Tools menu, or click The Explorer icon, 2. Click the Options button in The Explorer dialog. 3. Enter the number of reconds to load. We'll enter 1000 records (about 4 years) for our example. 4. Click OK. ‘Chapter Three - Using the MetaStock Power Tools «31Running an Exploration ‘We'll run our performance exploration first. performance exploration I {ells us how the system has performed versus buy-and-hold on @ group of| stocks. We can get an idea of how well our LSS system has done on other stocks, besides Exxon Mobile. 1. Select the “PS Long Sell Short Sale-S Day (Pert)” exploration. 2. Click the Explore button. Peis count MeraSiock Help t Results Report 4. Click Add Securities..., The Add Securities dialog appears, 5. Double-click the folder titled "Stocks - Co...", and then double-click the folder titled "S & P 100", Click the Tools button and then click Select Al Click Open. Click OK to start the exploration After the exploration is complete click the Reports button in the Exploration Completed dialog to get a complete report of the results. Performance Exploration Results ‘Tho Exploration Report dialog has three tabs across the top ~ Results, Rejects, and Exploration. The Rejects tab displays any securities that were rejected by the exploration filter, and why. The Exploration tab shows the options that were used in the exploration. The Results displays the following columns. ‘© LPoint~ the number of points gained per share on long trades over the time period specified. ‘* Point — the number of points gained per share on short trades over the time period specified. ‘Chapter Three — Using the MetaStock Power Tools « 8%‘The trade efficiency ‘measures the performance of asysiem verses uy ‘and-hold. ‘© LS Point ~ the total number of points gained per share on both long and short trades over the time period specified © LPerf— the performance, as measured by the trade efficiency, of the long trades. ‘© S Pert the performance, as measured by the trade efficiency, of the short trades. * LS Perf the performance, as measured by the trade efficiency, ofall trades. [Note that points are not the same as percents. Ifa system gained, say, points, that would be a $5 gain for a stock, which might be a move from $10 to $15, or a move from $100 to $105. If you're trading 100 shares, 5 points is a gain of $500, ‘The results are sorted by security name by default. We want to see the best performers atthe top of our list. We want to sort by “L Perf”, since ‘we are only taking long positions, and we want to know how well the system did versus buy-and-hold, To sort the list by the “L Perf” column, we click on the column heading. Clicking once sorts in ascending order, so we click again to sort in descending order. eciaone To get an idea of how the system did onal ofthe socks, roll down te list (with the scrollbar on the right) until the “L Perf” column shows a negative value. In this example, it occurs about 3/4ths of the way down the list, which tells us thatthe system was better than buy-and-hold on about 3/4ths of the securities in the S&P 100. That's an excellent result ‘You can get more information on the exploration with the buttons on the right: ‘© The Inspect button allows you to view the day-by-day results ‘Sa > Chopter Three ~ Using the MetaStock Power Tools * The Open Chart button will open the selected chart or charts. ‘© The Sort button allows you to sort by up to three different columns. ‘©The Print button will print out the results, ‘©The Save List button will save the securities into alist. This list could then be used as the source for a later exploration. Trade Efficiency ‘The crux of the testing process isthe trade efficiency. Ifa system's profit per day ina wade exceeds the buy-and-hold profit per day, that system ‘will have a positive trade efficiency. For example, if a system was ina position for 250 of 1,000 possible days, and it gained 250 points it gained a dollar per share per day. Ibuy-and-hold gained 250 points in those same 1,000 days, it only eamed 25 cents per share per day, so the trade efficiency would be .75 (1.00 minus 25), even though both systems gained the same absolute amount. The key is thatthe system managed the same profit in 25% ofthe time as buy-and-hold, so your money was freed up 75% of the time for other trades. A positive trade efficiency does not mean tha a system was profitable, it means a system ‘outperformed buying and holding that security Signal Explorations Results To run the signal exploration, follow the instructions in the Running an Exploration section above, but choose the “PS Long Sell Short Sale $ Day (Signal)” exploration instead, ‘The Signal exploration will display alist ofall securities that generated a buy or sell signal on the current bar. ‘The following columns are displayed in a signal exploration report: © Longs — will show a otherwise 0. if the Enter Long condition is met, ‘© Shorts - will show a 1 ifthe Enter Short condition is met, otherwise 0, Ifyou get too many results from a Signal exploration, add additional filters (see the next section). Running the LSS signal exploration gives us the following results:MetaStock Help ~ Filter Symtax ‘There were 12 possible buys, and two possibilities for selling short. Let's add another filter so we don’t have so many stocks to look at Adding an Additional Filter For systems that return a large number of results, additional filters ean be ‘used such as a price or volume limit. For our example, we only want 10 trade the biggest, most liquid stocks, So we'll adda filter that requires the average volume over a 50-day period to be at least five million shares per day, and the price to be greater than SS per share 1, The “PS Long Sell Short Sale-S day (Signal)” exploration should sill be selected. If not, select it, then click the Ealt button, 2. Select the Filter tab, The current filter is “ColA or ColB”, which screens out stocks that don’t show a 1 in either column A or column '36 > Chapter Three - Using the MetaStock Power Tools ‘Add the volume requirement. In English-like terms, we would say “ColA or ColB and High Volume.” The problem is that MetaStock doesn't know if you want the “or” evaluated first, or the “and.” To clarify the rules, we will start by putting parenthesis around "ColA or ColB.” The formula should now look like this: (ColA OR colB) Now add the following to the filter“ and mov{volume,50,simple) > 50000". That breaks down as: this condition must also be true > make ita simple moving average > the volume must be greater than 30000 => 5 million shares (volume is reported in 100"s by Reuters Datalink, our data provider) ‘The formula should now look like this: (cotA OR colB) AND Mov(VOLUME,50,SIMPLE) > 50000 Add the filter that excludes any stocks that are less than $5. This filter would simply be " and Close > 5" ‘The formula should now look like this: (6olA OR colB) AND Mov(VOLUME,50,SIMPLE) > 50000 AND. CLOSE > 5 “Chapler Three — Using the MetaStock Power Tools «75. Click OK to save your changes. 6. Click Explore to re-run the exploration with the new filters. ‘This time, the results only show two buy signals ~ General Electric and Bristol Meyers Squibb. Let's look at these two charts. Click on General Electric, then control-click on Bristol Meyers to select them both. Then click Open Chart to open both charts. Launch the Enhanced System ‘Tester and run the LSS system test on both charts. Now we can compare ‘equity lines and system test results and make a decision on what to trade. The Expert Advisor Matasteck HelpExpert All 26 MetaStock Performance Systems include an expert free with ‘Advisor Dialog MetaStock. The Expert Advisor automates your trading system by @ applying your system's rules to the latest data every time you open the 3. Click the Attach button. Expert Advisor icon chart, Ifa signal is generated, an alert will appear, and an arrow will 4, Click the Close button. ‘The expert is now attached to the chart. Point out the signal on the chart. For more detail on signal, read the expert commentary. Sm Experts must be attached to your chart, and only one expert can be gee ee meee Pees gee attached to a chart at a time. When you first attach an expert, the system pw en A aay will be applied to all the data in the chart. In the future, when you open [A the chart with the expert attached, alerts will only be generated for the latest data. Signals will still appear for all the data. Features of the MetaStock Performance Systems experts include: ‘+ Symbols ~ buy au sell signals ate pointed out on the chart with ‘¢ Highlights ~ the price bars are colored green while in long positions, and red while in short positions. «Alerts —2 dialog will pop up notifying you of any buy and sell signals ‘© Commentary —a description of the buy and sell signals. Attaching an Expert 1o0se Expert Advisor from the Tools menu, or click the Expert BR enadisoricon Choos Expert the Tools meno, o tik the Exp Advisor icon on the toolbar fo attach an expert to an open chart. IF Editing an Expert your chart is not open, see page 22 for more information on opening ‘MetaStock Help ~ Creating What if you only want to take long positions, and don’t want any signals ‘charts. an Expert displayed for short positions? Editing the expert to display only long 2. Select the “PS Long Sell Short Sale-5 Day” expert signals is simple, 1. Choose Expert Advisor from the Tools menu, or click the Expert Advisor icon on the toolbar. 2, Select the “PS Long Sell Short Sale-5 Day” expert. BB enaaviorion “Chapter Three = Using the MetaStock Power Tools + 3Ecthopene| orancemm yet 4 lesen sone Beeiawaie 3. Click the Edit button, ‘The Expert Advisor dialog shows six tabs across the top ~ Name, ‘Trends, Commentary, Highlights, Symbols, and Alerts, We will edit the Highlights, Symbols, and Alerts tabs. 5. Select the Highlights 6, Select the Symbols tab, De-select the boxes next to “Enter Short” xit Shor.” 7. Select the Alerts tab, De-select the boxes next to “Enter Short” and ‘Exit Short.” 8. Click OK to accept your changes. 9, Click Close to dismiss the Expert Advisor dialog. ‘The following illustration shows the changes to the chart. Now that we ee “40> Chaptor Three — Using the MetaStock Power Tools ‘have removed the short positions, instead of a down-arrow terminating the long trades (and initiating a short trade), we have an exit sign. ghoul sul i al ill ust "[Seslme[ocober "November [December Viewing the Commentary 1, Select Expert Commentary from the View menu 2. The commentary will appear as shown below, Any signals for today will be explained, along with a brief description of the system. Performance Systems Long Sell Short Sale - 5 Day ‘Trading signals for EXXON MOBIL (KOM) on i Lng’ ee 9 tier as Seopa | oul buted opr a fing oes Bom hag ak cea ea ‘Chapter Three — Using the MetaStock Power Tools «ATrading Basics Trading isa risky business, but there are some steps you can take to increase your odds of being successful. This is nota thorough discussion of trading, but just a few tips to point you inthe right direction. * If you've never traded before, paper-trade for a while. Go ‘through all the motions of trading, but instead of placing the ‘actual order, just write your trades on a piece of paper. Or use ‘one of the virtual trading web sites available on the internet. Be honest with your entry and exit points! You may be surprised at how hard it is to keep up with a trading system. ‘+ Find a trading system that matches your trading style, your risk tolerance, and the markets you want (o trade. If you can’t spend too much time following the market, and are risk averse, take only long positions in a system with a low number of trades. ‘Use a tight stop, and maybe check the fundamentals ofa stock before you buy it. If you want to trade daily and are a risk-taker, find a system that generates frequent signals. Your positions may have more volatile swings, but you may get a better return ‘© Determine your stop levels (the most you are willing to lose) before placing a trade. The worst feeling in the world is watching a stock move far past a stop point you ignored in the heat of battle ‘© During the testing of the systems, it was found that only taking long positions in stocks, and not taking short positions, generally increased performance. ‘This could be due to the natural inclination of stock prices to rise, There are also other difficulties that go along with shorting stocks ~ itcan be tough to borrow shares, you can’t short a falling stock, you can be forced. to cover even if you don’t want to, you have unlimited risk, and limited gain, etc. ‘These factors should be considered when deciding on whether or not to take short positions. ‘© Trade only money you can afford to lose, Trading is stressful enough without the added stress of trading the rent money. * Only place a small percentage of your trading account into any cone trade, Don’t let a bad trade zero out your account. # Take a logical, disciplined approach to trading (that’s what the MetaStock Performance Systems are for). Don't buy Nike stock {just because you spend so much money on your kids’ tennis shoes. ‘© Learn as much as you can about trading. “42+ Chapter Three ~ Using the MetaStock Power Tools Disclaimer Securities trading is an imperfect be considered. ‘ence. The following factors should The future may not resemble the past There's no guarantee tata security's future price setion will resemble its past price action Trading involves risk You can lose some or all of your money. ‘There's no guarantee that future results will match the Enhanced System Tester results Commissions and slippage ‘The performance explorations only calculate points gained by a system, and make no allowance for commissions, slippage, taxes, or other factors. A promising system should be confirmed by running a system test with the testing options set to your individual situation. Positive trade efficiency [A positive trade efficiency daes not mean that a system was profitable, it just means that it beat buy-and-hold. No Endorsement by Authors Most of these systems are based on indicators developed by well-known technical analysis gurus, but they did NOT develop these systems. Many systems are variations of systems advocated by these gurus. These systems are in no way endorsed or accepted by such authors. If no author is mentioned, the system is an original system by the Trading Systems Analysis Group, Not an Offer Nothing in this manual constitutes an offer or a solicitation to buy or sell any securities mentioned, but rather itis a guideline to interpreting the specified analysis methods. This information should only be used by investors who are aware of the risk inherent in securities trading. Equis International and Trading Systems Analysis Group accept no liability ‘whatsoever for any loss arising from any use of this product or its contents. ‘Chapter Three — Using the MetaStock Power Tools » 43Chapter Four - Descriptions of the MetaStock Performance Systems Introduction “This section describes each of the MetaStock Performance Systems to help you decide which system is best for you. Each system includes a brief description ofthe system's strategy, a description of the signal requirements, trade characteristics to Tet you know how often the system trades, and a list of material for further reading, Please note: Replication and distribution of any MetaStock Performance Systems formulas is a violation of your license agreement. Do not use the Formula Organizer to export and distribute these systems Description ‘This section contains a short description of the system. Note that most systems are a minor or major variation ofthe original system developed by the author. For example, the PS CCT system uses a +/- 200 level, rather than the traditional +/- 100 level developed by the author, Donald Lambert. These variations are a result of back-testing many variations of the standard systems Signals Shows the conditions for entering and exiting short and long positions. Not al systems take short positions. Most of the time, the “enter long” i short” signals are the same, as are the “enter short” and “exit ig” signals. In that case, the system would be in a trade 100% of the time if you were trading both long and short positions. Some systems have different exit criteria, and are only in the market part of the time. Trade Characteristics ‘The MetaStock Performance Systems were tested on a variety of stocks, including volatile and non-volatile, up-trending, down-trending, and sideways moving. The trade frequency is a result of those tests. The frequency shown assumes both long and short positions are taken, and ‘Ghaptor Four - Descriptions of the MetaStock Performance Systome « 45trades are entered atthe close with no delay. Further Reading Cites any further reading relevant to that system or that author, The Systems Adaptive Moving Aver Bull Power Bear Power 1 Bull Power Bear Power 2* Bull Power Bear Power 3 CCI (Commodity Channel Index) ‘Chande Forecast Oscillator* CMO Reversal Consolidation Breakout Cooper 1234 Pattern Cycle Progression Dynamic Momentum Index 1 Exponential Moving Average* Fractal Trading System 1 Fractal Trading Sy Long Sell Short Sale ~ MACD Histogram 1 MACD Histogram 2 Meisels Overboughy/Oversold® MESA Sine Wave* Pattern Trading System 1* stem 2 Day* Percentage Crossover 3% Projection Oscillator 1* ‘StochRSI ‘Swing Index* Vertical Horizontal Filter Volatility Breakout (Chaikin)” "The performance exploration for this system is included free with MetaStock, “Ge > Chapter Four - Descriptions of the MetaStock Performance Systoms Adaptive Moving Average The performance ‘exploration for this systems is available in the MetaStock Performance Systems Pls plug-in Aceustom indicator is available for this system. Description The Adaptive Moving Average (AMA) was developed by Perry Kaufman. The AMA is designed to adjust its sensitivity depending on the marker's trendiness. A sideways market with a lot of noise requires a longer-term moving average than a trending market. The AMA varies the number of time periods in the moving average depending on the tuendiness of the market. Signals Enter Iong/close short when the AMA changes direction from falling to rising. Close long/enter short when the AMA changes direction from rising to falling Trade Characteristics ‘The AMA system produces a trade about once every four to six days, ‘making it appropriate for short-term traders. ‘The system is always in a trade if you are taking both long and short positions. Further Reading Trading Systems and Methods. (Wiley Trading Advantage Series) John Wiley and Sons, Inc. 1998 Smarter Trading: Improving Performance in Changing Markets. ‘MeGraw-Hill, 1995 Bull Power Bear Power 1 The performance exploration for this syter: is available inthe MetaStock Performance Systems Plus plug-in Description ‘The Bull Power Bear Power systems are based on the concept of Bull Power and Bear Power developed and introduced by Alexander Elder Bull Power is calculated by subtracting a 13-period exponential moving average from the high price. This is typically displayed as a histogram oscillating above and below the zera Tine, A higher reading above the zero line gives strength to the Bull Power. Bear Power is calculated by subtracting a 13-period exponential moving average from the low price. This is also typically displayed as a histogram oscillating above and bbelow the zero Tine. A lower reading below the zero line gives strength to the Bear Power, ‘Chapter Four - Descriptions of the MetaStock Performance Systeme» 47Signals {As Tong asthe Bull Power i stronger above the zero line than the Bear Power strength is below the zero line (ie, the Bull Power is greater than the absotute value ofthe Bear Power), then a long position is maintained If Bear Power strength below the zero line is greater than the Bull Power strength above the zero line, then a short position is maintained Trade Characteristics The Bull Power Bear Power 1 system produces a trade about once every week or two, The system is always ina trade if you are taking both long and short positions. Further Reading Trading or a Living: Psychology, Trading Tactics, Money Management (Wiley Finance Fditons) John Wiley and Sons, In. 1993 Study Guide for Trading fora Living: Psychology, Trading Tactics ‘Money Management, (Wiley Finance Editions) John Wiley and Sons, Ine 1993, Further Reading See Bull Power Bear Power 1 Bull Power Bear Power 2 The performance exploration for this system fs included free with MetaStock Description See Bull Power Bear Power 1 (page 47) for an explanation of Bull Power and Bear Power. ‘The Bull Power Bear Power 2 system doesn’t look at Bull Power/Bear Power directly. Instead, it looks atthe S-period linear regression slope of Bull Power and Bear Power to determine which one i gaining strength Whichever one is showing a gsi in strength isthe positon tat it takes. Signals Enter long/lose short when the S-perid linear regression slope of Bull Power is increasing while the same slope of Bear Power is decreasing, Enter shorvelose long when the S-period linear regression slope of Bull Power is decreasing while the same slope of Bear Power is increasing, Trade Characteristics “The Bull Power Bear Power 2 system produces a trade about once every ‘wo to four days, making it appropriate for extremely short-term traders, ‘The system is always in a trade if you are taking both long and short positions. Bull Power Bear Power 3 The performance exploration for this system is availabe inthe MetaStock Performance ‘Systems Plus plug-in Description See Bull Power Bear Power | (page 47) for an explanation of Bull Power and Bear Power. The Bull Power Bear Power 3 system looks at whether Bull Power and Bear Power are abe to muita strength, and takes & positon when that strength ais Signals When the Bear Power comes down to a trough and then moves up again, this system will wait for the next movement down. Ifthe Bear Power fails to come down to as low as the first trough does, this is viewed as the Bear Power losing strength and a long (Bullish) position is taken, Both troughs need to occur below zero for the entry to be valid. ‘When the Bull Power comes up to a peak and then moves down again, this system wll wait for the next movement up. Ifthe Bull Power fails to ‘come up t0 as high as te first peak does, this is viewed as the Bull Power losing strength and a short (Bearish) position is taken, Both peaks need to ‘oocut abuve vere fun Ue enkry Ww be valid Trade Characteristics ‘The Bull Power Bear Power 3 system produces a uade about once every two to four weeks. The system is always ina trade if you are taking both Jong and short positions Further Reading See Bull Power Bear Power 1 CCI (Commodity Channel Index) The performance exploration for this system is available inthe MetaStock Performance Systems Plus plugin Description ‘The Commodity Channel Index (CCD) was developed by Donald Lambert Despite the name, this indicator is suitable for stocks as well as commodities. Mr. Lambert suggests using the CCI as an overboughVoversold indicator with +100 being overbought and -100 being oversold, ‘The system included with MetaStock is based upon a further analy’ “48+ Chaptor Four - Descriptions of the MetaStock Performance Systems: ‘Chapter Four Descriptions of the MetaStock Performance Systome « 49