Traders' Tips from TASC Magazine

Confirming the Price Trend

Barbara Star’s article on confirming the price trend discusses using R squared and the slope of a linear regression line in conjunction with moving averages and the stochastic. All these indicators are built into MetaStock and require no custom formula to use. Below is a system based off her suggestions in her article.

Long positions are entered when:

• A 10 period moving average is above a 30 period moving average
• The Stochastic Oscillator has risen above 20
• R squared is above .2
• A 20 period linear regression lines slope is above 0

Short positions are entered when:

• A 10 period moving average is below a 30 period moving average
• The Stochastic Oscillator has fallen below 80
• R squared is above .2
• A 20 period linear regression lines slope is below 0

Positions are closed when:

• R squared is equal to .2 or less
• A 20 period linear regression lines slopes against the position
• Either the moving averages or the Stochastic Oscillator give an opposing signal

The formulas and the steps to create this system in MetaStock are listed below:

1. Select Tools >
   the Enhanced System Tester.
2. Click New
3. Enter a name.
4. Select the Buy Order tab and enter the following formula:
   • stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
   • mov(c,10,S)>mov(c,30,s) AND rsquared(c,20)>.2 AND
   • LinRegSlope(c,20)>0 AND stsig=1
5. Select the Sell Order tab and enter the following formula:
   • stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
   • rsquared(c,20)<=.2 AND LinRegSlope(c,20)<=0 AND
   • (stsig=-1 OR mov(c,10,S)<mov(c,30,s))
6. Select the Sell Short Order tab and enter the following formula:
   • stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
   • mov(c,10,S)<mov(c,30,s) AND rsquared(c,20)>.2 AND
   • LinRegSlope(c,20)<0 AND stsig=-1
7. Select the Buy to Cover Order tab and enter the following formula:
   • stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
   • rsquared(c,20)<=.2 AND LinRegSlope(c,20)>=0 AND
   • (stsig=1 OR mov(c,10,S)>mov(c,30,s))
8. Click OK to close the system editor.

William Golson
Equis International