Monitor Newsletter

The MetaStock Newsletter is a free newsletter that contains information focused on making our clients more informed and enlightened when it comes to making trading decisions using MetaStock.

Archive

March - April 2013 MetaStock Monitor

In this issue:

Main Article

A Simple, Powerful Method for Trading Different Market Environments

Contributed by the Dynamic Market Lab, LLC

In 2004, the Dynamic Market Lab, LLC (our, us, we) introduced John Ehlers’ signal processing applications for the markets to the MetaStock community through introduction of the Adaptive Cycle Toolkit (ACT). The intent was clear;demystify powerful, but complex concepts and mathematics for immediate application to trading in the easily understandable MetaStock formula format. As time passed, it became apparent the real insight behind his pioneering work lay not in bringing these engineering tools to bear for market analysis, but in recognizing how these tools should be combined for maximum effectiveness.

In this article, we present one of the best approaches revealed by our extensive work with ACT. The approach is simple, powerful, and allows a trader to quickly, confidently identify different market environments, and execute a logical approach to capitalize on them, or stand down. The approach is described in the ensuing paragraphs, and all code is available from MetaStock with purchase of ACT. Discussion of the approach may appear complex, but we want you to understand the concepts, and feel comfortable with them. Fret not, application of the tools is very simple.

Three ACT or ACT modified functions are used to a) identify trend, b) measure trend strength and noise, and c) identify low risk entry points within a trend. A multi-faceted trading approach across different market modes (trending, drifting) is then suggested. The discussion below may appear complex, but the application of the tools is simple.

This approach is based on the Laguerre Transform, a modified version of David Sepiashvilli’s Trend Quality Indicator (TQI) (the ACT TQI), and a fisher transformed version of the Laguerre Stochastic.

  • The Laguerre Transform is an average of prices derived from a mathematically “warped” cross-combination of only three current and past data points at each time interval (based on trader’s selected chart interval for trading). The three data points ensure rapid response to change;the “warped” cross-combination ensures smoothness. Prices tend to rapidly cross and “ride” above (below) the average during uptrends (downtrends), and “hang” on the average during drifting markets. This average is plotted as an overlay on prices in the chart window.
  • The original TQI measures trend direction, trend strength, and market drift. It is powerful in its own right, but requires explanation to understand, and understand why we modified it.
  • David Sepiashvilli introduced the TQI in a Stocks and Commodities (S&C) article, Trend Quality Indicator, as a technique to measure trend strength and noise. Copies of the article may be purchased online from S&C for $2.95.
  • Sepiashvilli uses a difference between seven (7) and fifteen (15) period exponential averages to identify changes from an uptrend to a downtrend, and back again. At each crossover point, he resets his computations. He then performs the following steps:1) measures cumulative bar to bar price change since the crossover point, 2) averages this change to compute the trend, 3) subtracts the trend from the cumulative change to compute the noise, 4) computes the square root of the moving average of the squared noise over time and multiplies this by 2. This multiplication is done so that when trend is compared to noise, if the ratio is 1 (uptrend) or -1 (downtrend), it means the trend is as strong as twice the noise. This “factor of 2 times noise” is a benchmark often used for distinguishing the onset of a trend from noise, 5) finally, he computes the ratio between the trend and noise. If the ratio is >1, an uptrend is in force. If it is <-1, a downtrend is in force. If the result is – 1 <ratio <1, the market is considered to be drifting. According to Sepiashvilli, the higher (lower) the ratio, the greater the strength of the uptrend (downtrend).
  • We originally plotted the MetaStock version of this indicator from Stocks and Commodities Trader’s Tips code, but observed the code had an error. This was evident from the fact the indicator was not centered around zero. Since the indicator is reset at every crossover point (see above), it must by definition move back and forth across the zero line. Based upon discussion with a contact on the MetaStock forum, we were able to get corrected code that plots correctly for Sepiashvilli’s original formulation. We can supply this corrected code.
  • A basic premise behind using adaptive tools is that markets are dynamic. Fixed period lengths do not always timely identify shifts in markets between trends, cycles and noise. Although the logic behind the TQI is very sound, we thought we might be able improve it a bit by replacing the fixed period lengths with ACT functions.
  • Enter the ACT indicators named Mama/Fama (Cybernetic). These are nonlinear averages that speed up / slow down based on how fast the measured cycle is changing. Fama is set to follow behind the rate of change of Mama. The relationship between these two adaptive averages means it is hard for the two to cross, or cross by very much, unless a meaningful move has occurred. If Mama and Fama are substituted for the seven (7) and fifteen (15) period values in the TQI, this means it will be very difficult for the two to cross enough to exceed the noise thresholds of 1 or -1, unless a meaningful move has occurred. Furthermore, these two averages are adaptive and should rapidly change as market conditions change. Thus, there is little need to continue to optimize fixed values (such as 7, 15) for moving averages. In trading systems, the fewer the optimized parameters, the more robust the system tends to be.
  • In constructing the inputs for Mama/Fama, we drew upon another concept from Ehlers’ work - ACT’s Signal to Noise function. We set a variable equal to this ratio, and used it to accelerate or slow down Mama/Fama’s cycle based computations. In other words, we would let both market cycles, and market noise, tell us what is happening.
  • In daily plots of IBM (2000 through early 2007) (not shown to save space, available upon request), Sepiashvilli’s choice of parameters was quite robust, and tracked our ACT TQI quite closely. However, there were six periods during this time, ranging from a few weeks to a month, the ACT TQI identified range bound markets (-1 <ACT TQI <1) much better than the original TQI. In candor, there was one time the original TQI was superior. The original TQI registered a slight uptick in value a few days before there was a price up gap…luck, maybe, but it did nonetheless. However, it is interesting to note the other six periods where the ACT TQI performed better, the markets made a more continuous transition from one price to another, and did not exhibit an abrupt gap.
  • Thus, there is reason over a substantial span of years for a market which fell heavily, rose heavily, and drifted to believe the ACT TQI improved the traditional TQI, and thus we will use this modified version (i.e., the ACT TQI.)
  • The ACT TQI is plotted in the first indicator pane. The red horizontal lines are placed at +1 (weak uptrend = 2* noise) and -1 (weak downtrend = 2* noise). If the ACT TQI >1, an uptrend is in force. If the ACT TQI <-1, a downtrend is in force. If the -1 <ACT TQI <1, the market is drifting. Divergences between the ACT TQI and price are, like other traditional divergences, a warning sign of possible, imminent change.
  • Lastly, the fisher transformed version of the Laguerre Stochastic (FLS) is a statistically transformed version of a stochastic indicator, except the stochastic is computed from three prices first “warped” through application of the Laguerre mathematics. The three data points ensure rapid response to change;the “warped” cross-combination ensures a smooth stochastic. The fisher transform is then applied to the Laguerre Stochastic to ensure it is properly distributed according to the normal distribution function (i.e., bell curve in statistics). Many market price variations do not fit the normal distribution, and the fisher transform is one statistical technique that can be applied to help ensure computations based on such prices are normally distributed. The FLS is plotted in the second indicator pane. The red horizontal lines are placed at +2.5 standard deviations (potentially overbought) and -2.5 (potentially oversold).

OK, now you have been patient, and the fun begins...

Trend Following:

Use crossovers of price against the Laguerre Filter as the earliest warning of a trend change. Compare these crossovers to the ACT TQI. If prices are above the Laguerre Filter and the ACT TQI is >1, a strong uptrend is likely in place, and do not trade against it. If prices are below the Laguerre Filter and the ACT TQI is <-1, a strong downtrend is likely in place, and do not trade against it. If you are trend follower, you can use these confirmed signals to initiate a trend position. We leave this to the viewer to examine the charts presented. We believe the confirmation points of the two indicators, and the trend direction to trade, are straightforward.

Mean Reversion Trading: (i.e., buy dips in an uptrend, sell peaks in a downtrend)

Mean reversion trading is based on the simple principle that when prices move far away from their average price they tend to move back to their average. This may be true in both trending and drifting markets. However, we should not employ this approach without a sound method. A strongly trending market can move prices farther from their average than expected.

Use the position of prices relative to the Laguerre Filter, and the ACT TQI to determine the market’s state. If prices are above the Laguerre Filter, and the ACT TQI is >1, enter long trades only when the fisher transformed Laguerre Stochastic is below -2.5 standard deviations (oversold). If the price “hooks” down near the Laguerre Filter, this is even more desirable for entering long trades. If prices are below the Laguerre Filter, and the ACT TQI is <- 1, enter short trades only when the fisher transformed Laguerre Stochastic is above +2.5 standard deviations (overbought). If the price “hooks” up near the Laguerre Filter, this is even more desirable for entering short trades.

This allows us to buy dips in an uptrend, and sell peaks in a downtrend. We are capitalizing on both trend and price extremes, and using both to raise our odds of success. It is not recommended to use the oscillator values alone to take trades in the opposite direction of a strong trend. At this point, our examination of the market’s state indicates a strong trend exists, and we should not trade against it.

Range Bound or Drifting Markets:

If prices are above the Laguerre Filter, and the ACT TQI is -1<ACT TQI <1, enter long trades only when the fisher transformed Laguerre Stochastic is below -2.5 standard deviations. If prices are below the Laguerre Filter, and the ACT TQI is -1<ACT TQI <1, enter short trades only when the fisher transformed Laguerre Stochastic is above +2.5 standard deviations. During very noisy, drifting scenarios, prices tend to “hang on” to the Laguerre Filter, they are not above it (uptrends) or below it (downtrends.) In such cases, this may not be worth trading, unless the trader is selling options or option spreads to collect premium decay. These are lower probability trades because we do not have the benefit of a strong trend. These trades are strictly “range bound” trades. They may be very profitable during extensive periods of market drift. At the first sign of a price crossover of the Laguerre Filter or ACT TQI value moving beyond the +1/-1 limits, and in directions against your trade, exit immediately.

Please refer to the attached slides, and vertical lines indicating examples of these trade setups based on the rules explained above.

Conclusion:

Three carefully designed tools allow a trader to operate a simple, powerful approach across a spectrum of market conditions. Although the concepts behind the indicators we have discussed may be complex, applying them is not.

Trading is often the most successful when it is simple, and based on sound principles of market behavior. We hope that we have provided a more powerful perspective on market behavior© for you, and that you will take a look at the powerful tools and concepts in the Adaptive Cycle Toolkit (ACT).

ACT is available from MetaStock’s site in a convenient downloadable format on a risk free trial.

Disclaimer:

The Adaptive Cycle Toolkit (ACT) is a product of the Dynamic Market Lab, LLC. The techniques described in this article, and the software and related manuals, are based on approaches some consider to be experimental. As a result, this information is offered for educational purposes only. Concepts or techniques presented are not guaranteed or warranted to be profitable.

Users apply the product strictly at their own risk. They must understand that trading in stocks, commodities or other instruments has significant risks, and substantial losses may occur.

The creators of this product or authors of this article are not acting in a capacity as investment or trading advisers. Readers of this article or users of the product must accept full responsibility for their investment or trading decisions, and should seek professional investment counsel before beginning a trading/investment program.

About the ACT Developers:

Michael Burgess

  • Co-founder of The Dynamic Market Lab, LLC. Conceptualized the ACT product.
  • He received published credit for his editorial contributions to Cybernetic Analysis for Stocks and Futures, and has a unique perspective on John Ehlers work.
  • He has over twenty (20) years of experience as a consultant with domestic and international corporations dealing with complex issues such as derivatives and other financial issues.
  • He holds a BA from Duke University, and a Masters in Taxation from the University of Denver's Graduate Tax Program.

Brad Ulrich

  • Co-founder, and developer for The Dynamic Market Lab, LLC.
  • He has been a C++ application developer for a healthcare software company, a mobile application developer, a technology coordinator in the ethanol industry, and currently provides litigation support work in the software and technology fields to several leading companies.
  • He holds BS degrees in computer science and mathematics from Vanderbilt University with a background in algorithm design, signal processing, statistics, and numerical analysis. His academic experience includes the design and implementation of algorithms for recent mathematical theory on irregular sampling and reconstruction of digital signals in shift-invariant and wavelet spaces.

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Support Tip

How do I create a custom list?

Contributed by MetaStock Support

The Custom List Manager lets you create your own lists. The lists chan contain as many instruments from as many groups as you want. You can use these lists in the Power Console to view charts, run explorations, and run system tests. Here's how you can create your own custom lists:

1) To create a new custom list, click on either the "Tools" menu or click the "Manage Custom Lists" button at the bottom of the power console.


OR



2) After the Custom List Manager opens, click "New."


3) Enter a name for the list.


4) Enter symbols, one at a time, in the "Select Instrument(s)" field, clicking "Add" after each one.


OR look the instruments up (if you don't know the ticker symbol).


Search by the instrument name or symbol and options will auto populate below. Select the appropriate instrument name and click "OK."


5) Click "Save" to return to the Custom List Manager.


6) You can access your newly created Custom List by clicking on "Tools", then "Custom List Manager" or the Power Console.


OR

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MetaStock Power User Tip

Bollinger Bands - Part 1

Contributed by Breakaway Training Solutions

Bollinger Bands are one of the most popular and well known indicators in the world of technical analysis. Most traders use Bollinger Bands as a way to determine market volatility. In this first video of a three part video series on Bollinger Bands, Kevin will show you how to use Bollinger Bands inside of MetaStock. He’ll cover the basics of how they’re calculated, how to interpret them and discuss some of the different types of patterns to watch for. Have a look!

https://www.youtube.com/watch?v=yahIv53bRIA

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

About Kevin Nelson 

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

©Breakaway Training Solutions, Inc. 2013

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September - October 2013

In this issue:

Power User Tip:Using Excel with XENITH

Contributed by Breakaway Training Solutions

In this short YouTube video, I'll give you a couple of quick tips on how to get your real-time data from XENITH into an Excel spreadsheet.

MetaStock - Using Excel with XENITH

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

About Kevin Nelson

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm.

In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide.

While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

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Support Tip:HOW CAN I SEARCH FOR SECURITIES BASED ON FUNDAMENTAL DATA?

MetaStock can only screen securities based on price data and price based indicators. However,

MetaStock Professional, through the XENITH program can search for and screen stocks

based on a much more diverse set of criteria. To do this:

  1. Open XENITH.
  2. Look at top left and find the blue icon that shows a magnifying glass over a page (Advanced Search).
  3. Click the icon and then select Equites ->Companies
  4. The Companies Search screen will open.
  5. In the bottom left, click the Add Criteria button.
  6. Select the desired fundamental data from the list
  7. A new line will be added to the search screen and you can enter the requirements for that data value.
  8. Add as many other criteria as desired and then click Search.

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Slauson's Slant:The Starving Artist

Contributed by John Slauson

One of the biggest challenges in developing a trading systems is being precise when defining the rules. Technical analysis is often criticized because many of its adherents are so ambiguous with their methodology. So ambiguous in fact that it becomes impossible to validate their “system” using any semblance of scientific methods. This is convenient for the trading system peddler, but frustrating for the trader. Among technicians, the well worn adage “the trend is your friend” is sadly second only to “technical analysis is an art not a science.” The latter is a eupSome examples of ambiguous trading rules I often hear:hemism for:“I have a system that works super awesome...except when it doesn’t.”

Some examples of ambiguous trading rules I often hear:

  1. Prices should move slightlyabove….
  2. Volatility can increase a bit….
  3. Place the stop just above a recenthigh…
  4. Prices should cross above the moving average on big volume...
  5. Prices will reverse at about the same price level several times…
  6. The trend must be steeply up over the short-term
  7. The black candlestick must be significantly larger than the preceding white candlestick…

To move technical analysis out of the realm of art and into the realm of science, ambiguous words like the ones in bolded italics must be eliminated and replaced with precise, quantifiable values.

Of all the tools used by technicians, support and resistance is perhaps the most difficult to quantify. Ask 10 traders to draw support and resistance lines on the same chart and you’ll see lines drawn at almost every price level Years ago I developed a scoring method to help traders quantify support and resistance levels. I presented this method at a conference sponsored by Golden Gate University. In attendance was W.H.C. Bassetti, editor and coauthor of the classic book, Technical Analysis of Stock Trends first written by Robert D. Edwards and John Magee in 1948. Bassetti referenced my scoring method and the MetaStock Add-on based on it (PowerStrike), in the 9th edition of his book.

The methodology I presented for measuring support and resistance is based on three phenomenon in the stock market:

  1. Humans prefer “easily” divisible and memorable numbers (e.g., “20” is preferred over “19”). These values are typical of option strike prices. Hence many traders' attention is drawn to these numbers providing the potential for even more "concentrated" buying and selling.
  2. Stock prices are heavily influenced by trading near option strike price levels. Hence, these levels greatly influence where "important" buying and selling occur. Support and resistance is based on the concentrated buying and selling. Option Strike Price levels attract more attention from important market participants over other price levels.
  3. Bullish and Bearish pressures at Option Strike Price levels resolve more quickly than pressures at other levels.

With these general principles in mind, I developed a tool that scored the strength of support and resistance on optionable US stocks. The heart of the scoring method revolves around three bar pivot highs and three bar pivot lows. A value of 1, 3 o 5 points is assigned to a pivot high or low based on the volume associated with bars 1 and 3 of the pattern.

To be counted in the score a pivot highs or lows has to form within a specified distance (based on precise volatility bands) from an option strike price. Totaling these values provides a specific score for the support or resistance level being measured. The score can then easily be used independently or incorporated into a larger set of trading rules. It can even be backtested, an important litmus test for a valid trading method.

The following chart of Costco illustrates this scoring system. Pivots highs that occurred near the 120 strike price totaled 14. Pivot lows near the 110 strike price totaled 30. “Near” is precisely defined as pivot highs and lows that form within the volatility bands drawn at each level. From this we can objectively state that support at $110 is stronger than resistance at $120.

My point in presenting this scoring method is not to sell you on this specific method of identifying support and resistance;it is simply to illustrate that it is possible to take the ambiguity and “art” out of technical analysis, even something as subjective and seemingly imprecise as support and resistance. Do this and you may avoid becoming a “starving artist.”

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July - August 2013 MetaStock Monitor


In this issue:

Main Article

Using the "Dr. Stoxx Trend Trading Toolkit" to Trade Mean Reversions

Contributed by Dr. Thomas K. Carr

The Mean Reversion setup has impeccable credentials. Versions of it are used by some of the best known and most successful technical traders and analysts. It has been tested and back tested every way imaginable, proving itself profitable in all market conditions on all security types and derivatives. When the Mean Reversion system is done properly, there is no more exciting, more profitable, and yet more (nearly) mechanical trading system out there.

The key thesis of the Mean Reversion system is stocks that trade a statistically significant distance in price away from their mean, measured in our case by a moving average, tend, once a point of equilibrium is reached, to revert to that mean in short order. What we are adding to this thesis is that when we limit stocks that have travelled far from their mean to only those showing strong growth potential (for longs) or the lack thereof (for shorts), we improve our odds significantly of a successful reversion. This reversion is what we trade.

INTRODUCING THE SYSTEM

The Mean Reversion concept came into its maturity with market technician and financial analyst, John Bollinger (b. 1950). Bollinger swapped out Keltner Channels' use of ATR (Average True Range) for standard deviation (2.0). With this revision, Bollinger created trading bands that both envelop most of the price action over time, but are also dynamic enough to show changes in both volatility and directionality.

The Mean Reversion system I teach uses Bollinger Bands as its primary technical tool. On the longs side of the system, we are looking for stocks that have traded outside of the lower Bollinger Band, and which are trading significantly under their "mean" (the 20sma). I also apply a fundamental filter which favors those stocks that show strong earnings growth, low debt to equity, and recent institutional and/or insider buying.

On the shorts side of the system, we are looking for stocks that have traded outside of the upper Bollinger Band, and which are trading significantly above their "mean". Our fundamental filter on this side of the system looks earnings deceleration, and institutional and/or insider selling.

The Mean Reversion system detailed below is one I recommend you always trade in market-neutral pairs. This means for every long position you take you will need to find a short to mate it with;and for every dollar you have in that long, you should put a dollar into the matching short. The long/short pairs are treated as a single position:they are entered at the same time and exited at the same time. When done well, this system can hand you double digit monthly returns, and triple digit annual returns, regularly and reliably. The spreadsheet shown below (Figure 1) is my trading log for an eight week test (2012) of the system using a real-money account of $10,000. The average gain per week, including the losing weeks, was +3.3%. This is about in line with subsequent tests of the system. The total ROI was over 28%, or roughly +170% annualized with the compounding of gains.

TRADING THE MEAN REVERSION SYSTEM

Before you begin trading the Mean Reversion (MR) system, please remember that no claim is being made that following the step by step procedure as stated below will lead to profitable trading. It has in my case, but it may not in yours;nor in mine going forward. With that disclaimer out of the way, let's get down to work. Here are the tools needed to trade this system:

  • Use MetaStock's "Dr. Stoxx Trend Trading Toolkit" if you do not want to program in your own scan. You will find both the long and short version of this system preprogrammed into the "Long + Short Mean Reversion Scan" in the TTTK add-on. With a single click of the mouse, you can scan the markets in real time for current MR setups.
  • You will also need to bookmark the following website. We will be using this free service to perform a basic but very thorough fundamental analysis on whatever stocks pass our technical scan:
    • Navellier's "Portfolio Grader" (Google the name and you'll get the URL)

RUNNING THE LONGS VERSION

STEP 1: Open MetaStock and go to the Power Console. Click on the "Explorer". Select "STTK - Long + Short Mean Reversion Scan." From the "Select List(s) to Explore" table, highlight "U.S. Optionable Stocks" or any other list you wish to scan. Click "Next", then click "Start Exploration". Make a watch list of charts for all passing candidates.

You should get 6 to 10 passing candidates each day. Since this scan targets price extremes, you will normally have more long candidates than shorts in downtrending markets, more short candidates than longs in uptrending markets, and fewer candidates of both sorts in less volatile markets. When the general market is itself outside the upper or lower Bollinger Band, you may get dozens of passing candidates come through the scan. In this case, it is best to modify the moving average filter. When you open the "Edit" function for the "STTK - Long + Short Mean Reversion Scan", you will see the following code line:

  • C<Mov(C,20,S) * 0.9

Simply change the "0.9" multiplier to 0.87 and run the scan again. Keep lowering the multiplier if needed until you attain a list of only 10 to 15 passing candidates.

STEP 2: Take your list of passing candidates and input them, one by one, into Navellier's "Portfolio Grader". When you do so, you will see 11 categories each with a grade ranging from "A" (best) to "F" (worst). There are three general categories:"Fundamental", "Quantitative" and "Total". We are only interested in the "Fundamental" grade.

Your best candidates for the long side of the MR system will show an "A" or "B" for its "Fundamental" grade. If you have a number of "A" and "B" candidates, give favor to those with the highest grades in the first four "growth" categories:"Sales Growth", "Operating Margin Growth", "Earnings Growth", and "Earnings Momentum". Two or more "A's" is a good indicator that we have a strong candidate for this system.

STEP 3: Do further discretionary analysis on any passing candidates from Steps 1 and 2. At the least, this should involve checking the headlines for any possible "deal breaker" story about each company. Stocks usually hit extreme prices for good reason, but these setbacks often provide trading opportunities as they bounce back to the mean. What we want to avoid in this important step is getting into any company that is experiencing systemic problems. These can include things like accounting scandals (remember WorldCom?), an unexpected FDA rejection, mines and wells that run dry, and so on. We want to avoid these things.

This system works best when traded in market-neutral fashion with long-short pairs. Thus once you have completed Step 3, you will want to run Steps 1, 2 and 3 for the shorts side of the system (simply reverse the "Portfolio Grader" requirement to favor stocks showing "D" or "F") and trade accordingly.

STEP 4 (position management): There are a number of ways to manage the paired positions in the MR system. The one that generates a higher win percentage is as follows:

  • Exit any MR system long/short pair using a "Market on Close" order after 3 full trading days have passed since entry, if and only if either the long or the short position is trading at or beyond the 20sma (above the 20sma for the long, below for the short), or
  • 10 trading days have passed since entry, whichever comes first

CHART EXAMPLES

Hawaiian Airlines, Inc., (HA) began as a regional airline back in 1929 with two small planes serving residents of the islands. Today it serves 8 million passengers a year who fly all over the Pacific Rim. Though hard hit in 2013, HA has been known as a strong growth stock with its acquisition of new planes, hubs, and destinations. It is also a prime study in Mean Reversion:it has signaled ten MR longs since January, 2009, eight of which were profitable. In the chart below (Figure 2), you will two of those signals straddling either side of a downtrend. Note that the MR system returned +20% going long over a period when the stock itself traded down:

Biolase, Inc., (BIOL) is a medical equipment maker that among other things makes dental lasers, pain treatment applications, and 3D imaging machines. The shares of the company, long the target of the momentum day trading crowd, have a way of getting ahead of themselves. Its chart looks like a silhouette of the Grand Tetons. Once these peaks reach equilibrium, where supply and demand match up evenly, it is time to put on the short position. The MR system is designed to catch these reversals of momentum. In the chart below (Figure 3), you will see three such shorting opportunities totaling over +38% ROI.

About the Author:

Aka "Dr. Stoxx", Dr. Thomas Carr is the founder and CEO of Befriend the Trend Trading, and author of two bestsellers:Trend Trading for a Living and Micro Trend Trading. He has been actively trading the markets since 1996 following several years of studying technical analysis. He is also the Founder and CEO of Kingdom Capital, LLC, and a General Partner of The 8:18 Fund, LP. He is the developer of the strategy used by the 8:18 Fund and is sole manager of the Fund's portfolios.

Dr. Carr earned Masters and Doctorate degrees in Philosophy from Oxford University (UK). He is a tenured Professor and has over 16 years of investment, trading and trader training experience. In 2002, he founded Befriend the Trend Trading, LLC, an investment advisory service offering three daily market letters and various trading seminars. He is also the author of two bestselling books, Trend Trading for a Living (McGraw-Hill, 2007) which has been translated into Korean and Chinese, and Micro-Trend Trading for Daily Income (McGraw-Hill, 2010). Dr. Carr has been interviewed by the Wall Street Journal and the US News and World Report for his expertise in market psychology. He also had a series of articles published in Stocks and Commodities Magazine.

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Support Tip

Where are the exploration options?

Contributed by MetaStock Support

In prior versions of MetaStock, the Explorer had two sets of options. One set was for all explorations and accessed from the Options button when viewing the list of available explorations. The other set was specific to each exploration and accessed from the Options button in the Exploration Editor. Both of these options screens have been combined in the current MetaStock. To access the Exploration Options:

1) Open the Power Console. (When you open MetaStock, the Power Console automatically opens for you.)

OR

2) Select the Explorer on the left side.

3) Select an exploration and click "next." For this example, we chose the "Equis - MSU-Rank" exploration.

4) Select any list(s) to explore and click "next."

5) You will now see the exploration options.

6) If you want to refine your exploration, do so here. Once you are satisfied with the set parameters, click "start exploration."

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Slauson's Slant on Trading

Forecasting with Grandpa's Trick Knee

Contributed by John Slauson

Since the late 19th century, weather forecasters have measured barometric pressure to predict the weather. The earliest barometers were invented in the 17th century. They were made of a basin of water and a glass tube. As the atmospheric pressure changed, the level of water in the tube fluctuated up and down. Since then, more accurate methods of measuring barometric pressure have emerged. Even so, my grandpa swore that changes in the pain level of his trick knee were more accurate than any of the fancy instruments used by meteorologists.

As technology has advanced, so has the reliability of weather forecasts. Forecasters have developed a wide assortment of new tools. They feed data into complex computer models that provide increasingly accurate forecasts. The key to their accuracy is using a wide variety of tools to analyze the data such as barometers, radar, satellites, and weather balloons. If their computer models were limited to data from a single tool like a weather balloon, then almost certainly their forecasts would be pretty dismal.

Forecasting the weather and forecasting the markets have many similarities. I learned an important principle from John Bollinger many years ago that I later used in the ICE add-on for MetaStock. Mr. Bollinger emphasizes the importance of avoiding technical indicators that have collinear variables. What does this mean? Here's how he explains it:"A cardinal rule for the successful use of technical analysis requires avoiding multi-collinearity amid indicators. Multi-collinearity is simply the multiple counting of the same information. The use of four different indicators all derived from the same series of closing prices to confirm each other is a perfect example."

In practical terms for MetaStock users wanting to build reliable trading systems, it means they should use indicators that measure a variety of market behaviors rather than many that measure the same behavior. For example, the two most popular technical indicators are RSI and Stochastics. With only slight variations, these two indicators are almost identical. The chart below shows a 14-day Stochastic and a 14-day RSI along with the correlation of the two in the top inner window. Note:the correlation coefficient is extremely high, ranging between 0.80 and 0.90. They are almost perfectly correlated. Even without using correlation, it is visually obvious that the two rise and fall in unison.

While two indicators being highly correlated (like RSI and Stochastics) does not necessarily mean they cannot be a valuable part of a trading system, in this case with the mathematical formulation underlying each indicator being so similar, you can be sure that there is little to be gained using both in the same system. So just like weather reporters, you should use a variety of different tools, not variations of the same tool.

One of the reasons we get sucked in to using collinear indicators is they optimize very well. The optimized results of a set of collinear indicators almost always show better historical performance than does a set of non-collinear indicators. Why? Because it is much easier to "curve fit" a system comprised of three highly correlated momentum indicators than a system comprised of different categories of indicators. A system that is curve fit to the past will rarely perform well in the future. Unfortunately you can't make money trading the past.

A better approach is to combine indicators that measure different dynamics such as momentum, trend, volume, and volatility. When building a trading system consider using indicators from at least three of these four categories. The table below shows some of the MetaStock indicators categorized into these four categories:

For example, RSI, Chaikin Money Flow, and Bollinger Bands when carefully combined into a system will provide non-collinear input that will likely perform better in the future. RSI measures momentum, Chaikin Money Flow measures strength using volume, and Bollinger Bands measure volatility.

And if you can figure out a way to work grandpa's trick knee into your system, then perhaps you will have found the holy grail!

About John Slauson 

John Slauson began his career with MetaStock in 1988. In 2000, he left and started Adaptick, a company that provided training and developed popular MetaStock add-ons ICE, FIRE and PowerStrike. Over the years, he's worked closely with industry experts like John Bollinger, Steve Nison, John Murphy, and Greg Morris. In 2008 he returned to MetaStock as a Product Manager.

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MetaStock Power User Tip

Bollinger Bands - Part 3

Contributed by Breakaway Training Solutions

In this third and final video on using Bollinger Bands in MetaStock, Kevin Nelson will show you how to color-code your price bars when you get a Bollinger Band squeeze and how to get buy and sell signals when the prices break outside of the bands.

https://www.youtube.com/watch?v=eCYpebJ0LvY

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

About Kevin Nelson 

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

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March - April 2010 MetaStock Monitor

 

In this issue:



Main Article

Money Flow Index

Contributed by Steven B. Achelis

Overview
The Money Flow Index ("MFI") is a momentum indicator that measures the strength of money flowing in and out of a security. It is related to the Relative Strength Index, but where the RSI only incorporates prices, the Money Flow Index accounts for volume.

Interpretation
The interpretation of the Money Flow Index is as follows:

  • Look for divergence between the indicator and the price action. If the price trends higher and the MFI trends lower (or vice versa), a reversal may be imminent.
  • Look for market tops to occur when the MFI is above 80. Look for market bottoms to occur when the MFI is below 20.

Example
The following chart shows Intel and its 14-day Money Flow Index.
 
Divergences at points "A" and "B" provided leading indications of the reversals that followed.

Calculation
The Money Flow Index requires a series of calculations. First, the period's Typical Price is calculated.


Next, Money Flow (not the Money Flow Index) is calculated by multiplying the period's Typical Price by the volume.



If today's Typical Price is greater than yesterday's Typical Price, it is considered Positive Money Flow. If today's price is less, it is considered Negative Money Flow. Positive Money Flow is the sum of the Positive Money over the specified number of periods. Negative Money Flow is the sum of the Negative Money over the specified number of periods.
The Money Ratio is then calculated by dividing the Positive Money Flow by the Negative Money Flow.


Finally, the Money Flow Index is calculated using the Money Ratio.



*Excerpt taken from Technical Analysis from A to Z by Steven B. Achelis. The Money Flow Index is available in MetaStock 11.

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Support Tip

How do I set up the MetaStock Enhanced System Tester to use no margin when back testing?

Contributed by Equis Support

For MetaStock versions 8-11

1. Open the Enhanced System Tester.
2. On the left side under "systems", highlight the test you would like to run and select New Simulation then hit Next.
3. Add your list of securities to test and hit Next.
4. In the Perform Trading Simulation screen click the More button.

5. In the Interest Rates section, change the Margin to 0.
6. Under the Margin Requirements section change the options to the settings below:

Long Initial:100%
Long Maintenance:0%
Short Initial:200%
Short Maintenance:101%

7. Hit OK to save your changes and hit Next to continue through the Enhanced System Tester and start the test.


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    MetaStock Features

    Trade Oracle

    Contributed by Greg Allred

    In the world of trading we need to keep up with the ever-changing markets. Systems that have worked in the past will not necessarily work in the future. With MetaStock, we have the capability of modifying our trading systems but rewriting a system can take time and effort. Luckily, Trade Oracle, an add-on that includes 90 ready-to-use and proven systems, has already done that work for you.

    Trade Oracle has been around for a few years but is so robust that it still applies to current market conditions. In order to create Trade Oracle, the developers tested over 10,000 trading systems in order to compile the most powerful library of trading systems. Only those systems that had a greater than 50% success rate were chosen. The industry average for similar products are based on a 25-33% success rate.

    In Trade Oracle, 100% of the trading systems are open code. It is very difficult to have confidence in a system you cannot see. All of the systems Trade Oracle includes will allow you to see why a particular system is winning or failing so you can make the changes necessary to build confidence and in the end, have more success.

    Trade Oracle quickly shows you the top performing systems for any security. With the Best System indicator, you immediately see the top three performing systems as well as their ability to perform, just by dragging and dropping one indicator. You also have a choice of measurement methods to choose from:

    - Best Equity (Points)
    - Best Equity (Percent)
    - Best Trade Efficiency (Points)
    - Best Trade Efficiency (Percent)

    Trade Oracle is the program that will help you take your trading to the next level. It will give you the tools necessary to stay ahead of the markets and be a more successful trader. For questions or interest in Trade Oracle or any MetaStock program please contact Greg Allred directly at greg.allred@thomsonreuters.com or 800-587-8014.

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    May - June 2013 MetaStock Monitor


    In this issue:

    Main Article

    Social Trading the Dow

    Contributed by eToro

    "The Dow Jones Reaches a New Record High" - This headline is hardly news anymore, due to US stocks reaching new all-time highs approximately twice a week, since the beginning of 2013. Nowadays the media is more likely to consider a week without record highs for the Dow as breaking news.

    With that said, many analysts and traders remain skeptical about the reasons behind these dramatic moves. The US economy is certainly not performing better than ever before, and although data releases indicate recover (albeit a slow one), there are still plenty of reasons for investors to be concerned.

    At the same time, Wall Street investors are singing an old and merry song, which goes something like this:

    Money is cheap and credit is loose, time to invest, give the economy a boost.
    What can we buy or what can we sell, when bond yields are low and real estate is stale.
    Corporations will grow long term and short, so equity shares are the best to report.

    We can see the strong sentiment very clearly by glancing at this chart.

    You don’t need any lines to see the clear upward trend, but when will it end? And what can you do to prepare for it?

    Social trading offers an interesting solution for dealing with bubbles such as this. As long as the bubble keeps inflating, it makes sense to take advantage of the upward momentum, however, if you know the downfall is imminent you also have to hedge your positions in the opposite direction.

    This is where social trading comes in.

    Social trading links traders from all over the world into one big network. It empowers traders to use each other’s skills and collective wisdom to trade smarter together.

    Across a broad social investment network there will be traders on both sides of the fence and some who are sitting on the fence.

    For example;

    Robysms61 from Switzerland has a moderate following of almost 10,000 traders. Currently 3,705 of them are copying his trades with their real money accounts. He strongly believes this entire rise is a big bubble and is holding short positions on the Dow Jones and S&P 500. His Dow Jones target is currently at 13,000 just around that big gap from New Year’s weekend. (Here are Robysms61's results.)

    On the other there is Schultieboy, a new trader from Holland. In just 2 short months this trader has managed to quadruple his initial investment and is currently holding some very green long trades on several different stock indices. (Here are Schultieboy's results.)

    A wise investor knows diversification is key so, by copying both these traders, we should be able to profit from both points of view and trading timeframes.

    Another cool advantage of investing socially is being able to gauge the overall sentiment, or the "Wisdom of the Crowd."

    Since the beginning of the year, the social sentiment on the eToro network has been growing increasingly negative when it comes to the stock market. Point in fact:at the moment, 96% of our top traders are selling the S&P 500.

    The following chart demonstrates the overall bearish exposure on the S&P of all the traders in the eToro network on a weekly basis since January 2013.

    The black line is the monthly moving average, where we can see the bearish trend starting to emerge.

    In the words of John Maynard Keynes, a very famous economist,"the markets can stay irrational longer than you can remain solvent."

    As long as the markets remain irrational, the only rational thing to do is to spread your investment to cover all possible scenarios. This is the number one reason to diversify as much as possible.

    You can achieve maximum diversification by copying diverse investors who are in turn diversifying their own portfolios. This way, whatever happens in the world your exposure will be spread out and much safer.

    To learn more about social trading, visit www.etoro.com.

    About the Author:

    eToro is the first global market place for people to trade currencies, commodities and indices online in a simple, transparent and more enjoyable way.

    eToro’s vision is to become a global market place for all people to invest and manage their funds in a simple and transparent way.

    eToro is committed to maintain the world’s largest and most trusted investment network, designed to financially empower individual investors through a simple, innovative trading platform and an active social trading community.

    Today, eToro empowers over 2.75 million users in more than 140 countries worldwide to manage their funds through their innovative online investment platforms and active trading community, with thousands of new accounts created every day.

    For more information on eToro, please visit their website.

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    Support Tip

    How do I control how an indicator is scaled?

    Contributed by MetaStock Support

    Adding indicators to charts in MetaStock is as simple as dragging and dropping. But what about scaling for the indicator? When you add an indicator to an inner window or copy or move an indicator to another inner window, it is likely that the other inner window's y-axis scale will not be compatible. If this is the case, MetaStock displays the Scaling Options dialog so that you can choose how to handle the scaling when the plot is overlaid.

    For this example, we will use a chart of Apple and a Stochastic Oscillator for the indicator.

    Let's take a look at the available options:

    For any indicator scaling you want to execute, you must do the following steps regardless of which scale you choose.

    1. After opening a chart in MetaStock, drag and drop the indicator anywhere on the chart. You will know the indicator is going to be applied in the chart when the price bars turn pink.
    2. After setting the parameters of your indicator, select "OK." You will be asked what you want your scaling options to be. Here are the scaling options and how to apply them.

    1) Display New Scale on Left

    1. For this example, we select "Display new scale on left."
    2. After selecting "New scale on left" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the left side of your chart. This scale is directly related to the plotted indicator. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the left with blue overbought and oversold lines at 20 and 80.

    2) Display New Scale on Right

    1. For this example, we select "Display new scale on right."
    2. After selecting "New scale on right" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the right side of your chart. This Stochastic Oscillator scale has replaced the pricing scale. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the right with blue overbought and oversold lines at 20 and 80.

    3) Merge with Scale on Right

    1. For this example, we select "Merge with scale on right."
      *** If you have a scale on the left side that appears with every chart you open, you can follow the same steps to merge with that scale. If you do not, the "Merge with scale on left" will remain grayed out.
    2. After selecting "Merge with scale on right" and clicking "OK" the indicator is “merged” with the current right scale. Notice the scale on the right side of your chart now displays from -50 to 750 so that it can display both the pricing for Apple as well as the range for the Stochastic Oscillator. So you’re now able to see Apple and the Stochastic Oscillator in the same chart.

    4) Overlay without Scale

    1. For this example, we select "Overlay without Scale."
    2. After selecting "Overlay without Scale" and clicking "OK" the indicator scale will use the price scale on the chart to plot the Stochastic Oscillator (in this example.) Notice the pricing scale on the right side of your chart is unchanged with the addition of the Stochastic Oscillator. The Stochastic Oscillator is still based on a scale of 0 - 100 with blue overbought and oversold lines at 20 and 80. However, for this example it is using pricing values rather than the 0 - 100 scale. This is useful if you are only concerned with comparing relative movments between the plots.

    Please note:You can change the scaling of any indicator already in your chart by right clicking on the indicator and selecting "Scaling." This will display the Scaling Options dialog and allow you to select the desired method.

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    Slauson's Slant on Trading

    A Stop for All Seasons

    Contributed by John Slauson

    A lot of traders focus on perfecting the perfect entry signal. The thinking is "If I can time my entry well, then a profit is a natural by-product." However, anyone who has traded knows this could not be further from the truth.

    I believe many systems could be improved with effective stop losses. It would not surprise me if a monkey throwing darts at a stock chart could generate entry signals that turned consistent profits IF an effective stop loss were used for exits.

    A little-known indicator in MetaStock is the IntelliStop. I developed this indicator about 10 years ago to be used as a universal exit signal. It is essentially a trailing stop with a unique twist;it automatically tightens and loosens based on directional volatility.

    Volatility (as measured by standard deviation) is non-directional - meaning a sharp upward move has the same impact on the volatility value as a sharp downward move. Intellistops separate upside volatility from downside volatility. Why?

    Upside volatility is considered a positive condition for long positions;whereas downside volatility is a negative condition. High upside volatility will cause Sell IntelliStops to tighten in anticipation of a return to normal volatility thereby locking in gains. A sharp downside pullback counteracts the temporary increase in volatility generated by a sharp upside move.

    IntelliStops were created with the following principles in mind:let losses die quickly (play defense first), let profits live long, and strive for average profits that outpace average losses by a factor of two. Are IntelliStops the perfect application of this principle? No. But they can be effective.

    The following chart shows the Adaptick IntelliStop indicator (Level 2 setting) overlaid on the QQQ. Note that an IntelliStop only resets when it is hit, as illustrated below. This is standard trailing stop behavior. The circled bar penetrated the active stop value, causing it to reset/recalculate on the current bar's low.

    To plot the Adaptick IntelliStop indicator on a chart, simply drag and drop the indicator named "zAdaptick - IntelliStop Buy (1,2,3,4, or 5)" or "zAdaptick - IntelliStop Short (1,2,3,4, or 5)" from the Indicator Quicklist and drop it on top of the price plot.

    An intellistop should be used the same way you would use any other stop. Using the chart above as a reference, here is an example:Let's say I purchased the QQQ at $68.50 using the monkey's dart and the current price is $73.03. I want to lock in my unrealized gains of $4.53 with an IntelliStop. The current value of the IntelliStop is $71.34. I could place a Good-til-Canceled (GTC) Sell Stop Loss order as shown below (This is Fidelity's order ticket;yours should be similar).

    After placing a Stop Loss, you will need to monitor the IntelliStop closely in MetaStock in order to adjust it as necessary. Of course, the stop will never go down in the case of long positions, or up in short positions.

    So take a look at IntelliStops. They may improve the performance of your trading systems.

    But remember, trading isn't monkey business.

    About John Slauson 

    John Slauson began his career with MetaStock in 1988. In 2000, he left and started Adaptick, a company that provided training and developed popular MetaStock add-ons ICE, FIRE and PowerStrike. Over the years, he's worked closely with industry experts like John Bollinger, Steve Nison, John Murphy, and Greg Morris. In 2008 he returned to MetaStock as a Product Manager.

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    MetaStock Power User Tip

    Bollinger Bands - Part 2

    Contributed by Breakaway Training Solutions

    In this second video of a three part video series on using Bollinger Bands, Kevin Nelson shows you how to create your own custom indicator to help determine when your Bollinger Bands are narrowing. This could be used to help find stocks going through periods of congestion.

    https://youtu.be/0nsI-3y1jYc

    For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2013

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    January - February 2013 MetaStock Monitor


    In this issue:

    Main Article

    Point and Figure Charting

    Contributed by Remould Robert (Remo), Director and Founder of www.chartsview.co.uk

    Point and figure charting is a popular charting method used in technical analysis. Point and figure charts are used because they are distinctive in terms of their analysis and construction, unlike other charts, time does not play a big factor. They are plotted on a grid and are made up of O's and X's. O's are used when the price moves down and X's are used when they go up, each box on the grid will be used for O's or X's.

    Prices movements are plotted on the vertical axis (y axis) and direction changes are plotted on the horizontal axis (x-axis), prices are scaled on the vertical axis. A box represents the number of points that you have selected. When the price goes up then you would mark it with an X but only when the market price rises completely through the box then you would place an X in the box, so every full box size will generate an X.

    For O's to be generated the price must reverse a minimum of 1-box (1-box reversal) but most commonly used is a 3-box reversal, which requires the correction of 3 boxes before the O's can be plotted. This will help filter out most of the noise so time is not really a factor. Once in the trend the next X or O will only need 1-box move to register on the chart whereas a reversal will require 3-box move in the opposite direction to register. That's why it's called a 3-box reversal. It's up to you what setting you want to use, for example you can use a 5-box reversal but remember this will take a lot longer to see the movements on the chart. Therefore, the usual preference is the 3-box reversal and this is the most common one.

    Another way to change the setting will be the price move itself e.g.




    The following table will help you to decide what box sizes to use, you should really try and experiment with different box sizes to suit your share.





    As can be seen from the chart above when prices reverse the X or the O is not in the same column. Every reversal will start in a new column and it must reverse by 3 to generate a reversal. For example:If you are plotting a 5 by 3 (5*3), 5=box size and the 3=reversal.

    If the latest box to be filled is 300 and the price rises to 305 then you would place another X in the 305 box. If then the price rises to 309 then you would ignore this, as it has not moved by 5 points. If the price suddenly moves to 323 then you would place an X up to the 320 mark (310,315,320), you would discard the 323 price as it has not moved by 5 clear points.

    If the price then turns down and moves to 313 you would still not plot any O as it has not corrected by 3 box sizes. For a new set of O's to be plotted the price must move 5*3=15 points, the current high is 320 - 15 points therefore 305 will be the level before a new set of O's can be plotted. Remember every box is equal to 5 points so once 305 is hit then you would plot an O in 315, 310 and 305 hence a new column of O's. All the above is based on intraday moves as most point and figure charts are done on intraday.

    End of Day

    There are different time frames you can use with point and figure. End of day point and figure is plotted exactly like the intraday point and figure but only the closing price is used. So it misses a lot of the intraday moves, a bit like the line charts where all the important levels will be missed. See chart below for end of day:



    High/Low

    This method uses the whole days moves so you use a lot more data, it totally ignores the closing prices. This method has the advantage that you can read the supports and resistances levels much better and clearer, see chart below for example:



    Trend lines

    • Trend lines are drawn from an extreme bottom or top with a 45-degree angle attached to it.
    • Bullish trend lines are drawn from a known low at 45-degrees pointing upwards.
    • Bearish trend lines are drawn from a known high at 45-degrees pointing downwards.


    Common Buy and Sell Indicator







    Price Targets

    Point and figure charts have the ability to project targets;there are 2 ways to count these either using the horizontal or the vertical count.
    • Vertical count. Upwards Target - This is done by counting the number of X's in the move up then multiply by the box size and then multiply by the reversal box, i.e. number of X's 6, Box size 1, reversal box size 3 and Target = 18. Once you have your target you use the previous low of O's as the bottom and then you project it from there, you have your target. This is best used from a low point and the reverse is true for downside target.


    • Horizontal Target - This is done using congestion area (sideways moves). The way to do the count is for an upside Target Columns x Box size x Reversal. You need to use the move that started the congestion and count from there to the move out of the congestion. So if there are 10 columns (including the start and finish columns) you would multiply that by the box size and then multiply that by the reversal so if box size is 5 and reversal is 3 then you would have 10x5x3 = 150 points target. This then is added to the lowest point of the congestion and projected up from there. The reverse is true for a downside target.


    There are many different signals on the point and figure charts and so you do really need to read about them first. The above is just an introduction to point and figure charting.

    Advantages
    • From the charts you can see almost the entire trading history on one page.
    • Easy to see buy and sell signals.
    • Trend is clear to see.
    • Point and figure charts have targets.

    About Remould (Remo) Robert

    Remo has over 20 years experience in technical analysis, its his love for technical analysis and his passion to help others to succeed in trading that saw him run one of the most successful private members board in the UK. He decided to take this community further and now runs his own ChartsView community at https://www.chartsview.co.uk, which includes regular technical analysis on shares, great trade set-ups and regular tips, a comprehensive learning section and a community of active traders from around the world.

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    Support Tip

    How do I apply a template to a chart?

    Contributed by MetaStock Support

    MetaStock 12 has made applying indicators and templates to a chart easier. This support tip will focus solely on applying a template to a chart. Templates give you access to preset indicators and systems, enhancing your charts. A template can be applied as a chart is opened from the Power Console. Here's how:

    1) After selecting an instrument, click "next".


    2) The next screen to appear is the Chart Options. Select "apply template" and choose the desired template from the list.


    3) For this example, we chose the Darvas Box template.


    *** Tip
    A template can be applied to an open chart by right clicking anywhere on the chart. In the popup menu, select "apply template." Select the template from the list and click "open."

    1) Right click anywhere on the chart.


    2) Select the template you wish to view and click "apply." This will automatically add the template to your chart.


    3) For this example, we used the Darvas Box.

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    MetaStock Power User Tip

    LMS Trailing Stop Fixed %

    Contributed by Breakaway Training Solutions

    Would you like to plot a trailing stop on your chart that you can customize? In this four minute video, Kevin Nelson will show you how you can download your own percentage-based trailing stop and also how to use it. You'll be able adjust the sensitivity of it to your specifications and whether you want to use it on long or short trades. Have a look!

    https://www.youtube.com/watch?v=00pU8CLEeT8

    For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2013

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    November - December 2012 MetaStock Monitor

    2012 November-December MetaStock Monitor

    In this issue:

    Main Article

    Trading in the Shadow of the Smart Money

    Contributed by Gavin Holmes

    Volume Spread Analysis (VSA) is the underlying methodology of the TradeGuider "Smart Money" Tracker. The following examples of how professional activity is clearly visible in all markets and in all time frames, to those trained in VSA.

    Volume Spread Analysis (VSA) is a proprietary market analysis method which was conceived by Tom Williams the Chairman of TradeGuider Systems International and former syndicate trader. VSA has its basis on the Richard D. Wyckoff method of analyzing market movement. VSA is utilized in the TradeGuider software to analyze a market by observing the interrelationship between volume, price and spread. This method highlights imbalances between supply and demand.

    The TradeGuider "Smart Money" Tracker is unique. Driven by an artificial intelligence engine, this methodology plug in for MetaStock is capable of analyzing any and all liquid markets, in any time frame, and extracting the information it needs to indicate imbalances of supply and demand on a chart. In doing so, TradeGuider is able to graphically show the essential forces that move every market which are supply and demand, cause and effect and effort vs result.

    The software works with either real-time or end-of-day modes, and enables users to see when professional money is entering, exiting, or not participating in the market they are trading, empowering clients to make more intelligent, timely, and informed decisions. Volume Spread Analysis (VSA) is a revolutionary concept that can be used on its own or in conjunction with other methods as decision support. The system combines ease of use with unique supply and demand analysis not found anywhere else. The extensive Expert System has an innate understanding of market dynamics combined with volume, which means that it is capable of analyzing supply and demand in any liquid market.

    The indicators are displayed automatically on the chart. There is no configuration, no setting of parameters, and no optimization. Tradeguider's belief is that if a system requires optimization to make it work, then the base methodology cannot have been sound in the first place, since the process of optimization is used to cover up a whole range of flaws in the original analysis method(s). Tradeguider concepts are robust and can be applied to any time frame, with consistent results. The sophisticated Expert System is augmented by a novel set of proprietary tools, which ensure that any trader or investor can immediately follow the footsteps of the "Smart Money."

    While volume in trading is not a new concept Tom Williams, who invented VSA, was a syndicate trader who could see the markets were manipulated and the key to unlocking the truth was in the relationship between the volume, the range or spread of the bar and the closing price. Tom Williams spent many years studying the concepts of Richard Wyckoff.

    Richard Wyckoff was a trader during the 1920 and 30's. He wrote several books on the Market, and eventually set up the "Stock Market Institute" in Phoenix. "At its core, Wyckoff's work is based on the analysis of trading ranges, and determining when stocks are in "basing," "markdown," "distribution," or "markup" phases. Incorporated into these phases are the ongoing shifts between "weak hands" (public ownership) and "composite operators," now commonly known as "Smart Money." To find out more about Richard Wyckoff this website is worth visiting.

    Tom returned to the United Kingdom from Beverley Hills in the early 1980's having made his fortune and began to investigate if it were possible to computerize the system he had learned as a syndicate trader, and so began the evolution of Volume Spread Analysis. Together with an experienced computer programmer Tom carefully studied many thousands of charts to recognize the obvious patterns that were left when professional or smart money was active. This methodology although simple in concept took many years to write and is now taught as a methodology combined with the software called TradeGuider.

    Volume Spread Analysis seeks to establish the cause of price movements. The 'cause' is quite simply the imbalance between Supply and Demand or strength and weakness in any liquid market, which is created by the activity of professional operators or "Smart Money." If you use the TradeGuider software you will see that it does an excellent job of detecting these key imbalances for you, taking the hard work out of reading the markets and enabling you to fully concentrate on your trading.

    The significance and importance of volume appears little understood by most non-professional traders. Perhaps this is because there is very little information and limited teaching available on this vital part of technical analysis. To use a chart without volume is similar to buying an automobile without a gasoline tank.

    For the correct analysis of volume, one needs to realize the recorded volume information contains only half of the meaning required to arrive at a correct analysis. The other half of the meaning is found in the price spread. Volume always indicates the amount of activity going on, the corresponding price spread shows the price movement on that volume. Many traders believe you cannot analyze volume in the FOREX markets because it is unavailable, but we will show you how TradeGuider proprietary system can achieve something that most traders thought was not possible. More about this later.

    Some technical indicators attempt to combine volume and price movements together. Rest assured this approach has limitations, because at times the market will go up on high volume, but can do exactly the same thing on low volume. Prices can suddenly go sideways, or even fall off, on exactly the same volume! So, there are obviously other factors at work.

    Price and volume are intimately linked, and the interrelationship is a complex one, which is the reason TradeGuider "Smart Money" Tracker was developed in the first place. The system is capable of analyzing the markets in real-time (or at the end of the day), and displaying any one of 280 indicators on the screen to show imbalances of supply and demand.

    Let's go ahead and look at some charts.

    The TradeGuider "Smart Money" Tracker Indicators.

    All of the indicators can be grouped into two broad categories:Indicators that show weakness are colored red. Weakness is indicative of supply, professionals selling the market, or professionals withdrawing from the market (i.e. no participation). Strength is indicated by green symbols and is indicative of market demand (i.e. professionals buying into the market or not selling as the market falls).

    TradeGuider constantly analyzes your charts for imbalances of supply and demand or strength and weakness as it happens. Once an imbalance is found, a red or green indicator is displayed, alerting you to the likely strength or weakness in the market. This chart (link below) shows a number of green symbols, indicating strength (demand). Showing supply and demand graphically on a chart is one of TradeGuider's major strengths. In the chart below, we can see that following the cumulative effect of a build up of demand, the stock responds with a positive and sustained price rise.

    This chart (link below) shows a number of red symbols in a strong short and medium term downtrend, confirmed by the bearish volume thermometer, indicating weakness (supply). The market falls because of the lack of interest from professionals as the price rises. We call this "No Demand." In a downtrend this is a great shorting opportunity. Here is an example of a TradeGuider chart in MetaStock 12.


    Chart 1




    Because TradeGuider works in FOREX, Stocks, Futures and Commodities, the actual markets we analyze for this document are irrelevant.

    Now let's look at some specific Volume Spread Analysis indications of demand. (strength) Climactic Action, is another indicator variant that shows when buying is overcoming selling. A high volume down move, on a wide spread would normally indicate selling. However, if the next bar closes higher, closing on or near the top of the bar, then this shows that buying occurred on the previous bar. Only professional money can do this and it is therefore a good indication of strength.


    Chart 2



    Notice on this chart the ultra high volume activity on a down bar with the price close in the middle of the bar. This can only mean professionals are buying the market otherwise the close would have been at, or near, its low. The concept of climactic action, as with most VSA indicators, has different variations. By using the TradeGuider "Smart Money" tracker you will be alerted automatically to all variations as they appear, accelerating your learning curve. The next chart we'll look at will demonstrate what a test looks like. Tests, by their very name, are the professionals testing the amount of supply present in the market. When they test and there is low volume this clearly shows no residual supply and the market is likely to rise in the near future.

    Now for an explanation of how TradeGuider can analyze FOREX charts to determine strength and weakness in both spot FOREX and Currency Futures.

    It is important to understand that TradeGuider does not need actual volume but relative volume compared to the previous bar to give a VSA indicator. Volume in FOREX can be seen as activity, and it is this activity that TradeGuider picks up extremely well when using MetaStock.

    Here is an explanation from Tom Williams, the creator of TradeGuider.

    Q:How does the Tradeguider VSA principles work in Spot FOREX?

    A:First of all you have to realize that the "Smart Money," or "Professional Money" is very active in the FOREX market. "Professional Money" as we shall refer to it here, can be trading syndicates, individual traders with huge capital, large financial institutions, certain funds such as 'The Quantum Fund operated by George Soros, and large institutional banks.

    See further information in this letter from The Derivatives Study Center sent to The Commodity Futures Trading Commission in August 2000 by clicking here.

    These individuals or organizations are very secretive in their dealings, as it is crucially important to keep their actions as invisible as possible.

    Fortunately tick volume does work. Tick volume is added to the price movement on every price tick up or down, because one may deal in 5M while the very next trader only deals 500k, but we get one tick each dealer. Bear in mind the number one principle, that from the tick volume created, 90% will be from "Professional Money" and their dealers.

    When these very large orders go through, they have a following, the same as the futures pits;this automatically creates more ticks, hence higher volume. So TradeGuider will analyze the tick volume as if it were real volume, and will clearly show this "Professional Money" either participating or just as importantly not participating in the movement of a currency. When we hear of strength and weakness in a currency, this is nothing more than professional support or lack of it, and can be clearly seen on the TradeGuider Chart.

    Remember when in 1992 George Soros massively shorted the British Pound forcing the Bank Of England to eventually withdraw from the European Exchange Rate Mechanism, well, this is one very well known example of "Professional Money" having a dramatic effect on a currency. This happens every day, you just need to know what to look for. Check out this chart and see what the volume did in that famous move by George Soros:

    Here's a famous example...


    British Government no match for George Soros

    In 1992 the British pound fell so sharply that Britain was forced to leave the Exchange Rate Mechanism (ERM). What do you think was behind this famous fall? Yes, you guessed it, professional money! The money in question was the Quantum Fund, run by the renowned speculator George Soros.

    He and his analysts had spotted a potential weakness in the ERM. During the weeks before the massive sell-off of the British pound, George Soros was busy exchanging seven billion US dollars for German Deutschemarks.

    When the time was right he moved in fast, selling the British pound. As the pound fell the Deutschemark rose, creating huge profits for Soros. As soon as the news broke the other professionals followed suit. The onslaught was overwhelming and too much for Norman Lamont, the then UK Chancellor of the Exchequer.

    In an attempt to halt the slide Lamont resorted to selling some of Britain's gold reserves, he put up interest rates three times during one day, but this was still no match for the professionals.

    The following is taken from the first 19 pages of the highly acclaimed book by Tom Williams – "Master the Markets." Here is some more information about this book. It WILL change the way you view the markets, so please take a moment to view these first few pages. The complete book has over 185 pages and the MetaStock "Smart Money" tracker software comes with a multimedia home study course that brings the book and plug in to life.

    ALL MARKETS ARE DOMINATED BY THE BIG PROFESSIONAL PLAYERS

    The banks, institutions and the specialists have all the financial resources to move prices up or down. Trillions of dollars are exchanged daily across the world's stock, currency and commodity markets. Hundreds of millions are spent analysing crop reports, business sectors and economic figures.

    All other activity, including the combined trades of thousands of individuals like you and me, represents only a tiny fraction of the money and resources flowing in and out of the market on a daily basis.

    You may think that's pretty obvious. But...

    Markets don't react to professional activity the way you expect them to.

    In every market, there's an undeclared understanding amongst professional traders. It alerts them to what the big money is doing. It's based around observations surrounding volume activity and the effect this has on the price and the spread.

    To us outside observers this activity normally goes unnoticed - an insignificant and unexplainable blip lost amongst the 'noise' of the markets.

    If you've ever watched the Dow or a stock price over any period of time, you'll know that prices can fluctuate wildly. But there is logic behind all this chaos and the professionals know exactly how to profit from it.

    They know what the signals mean, yet only a tiny minority of non-professionals know what's really going on.

    By using the MetaStock "Smart Money" tracker, you could be one of the trading elite...

    As you'll see in graphic detail later, knowing how to read the market will allow you to take the professional's lead and boost your profits.

    Understanding professional moves will allow you to uncover the true market sentiment. It will give you a clear indication of which markets you should hold positions in - whether buying or selling stocks, or going long or short on futures.

    There's No Way To Hide...

    You see, no matter what they do, the professionals can never hide their true intentions. They may be leading the market, but they leave tell-tale signs for anyone with the right knowledge to follow.

    It doesn't take a great leap of logic to see how you could use this information to your advantage...

    Ultimately it means that all other factors - including the fundamentals of a company, the management, the strength of the dollar and interest rates, simply aren't important in your analysis. Ditto for newspaper financial columns, investment journals, broker recommendations and television coverage.

    The only truly important consideration for you is what the professional money is doing - that is the only thing that matters.


    *** To see recent MetaStock chart examples of the specific market you trade and receive The Complete Volume Spread Analysis System Explained ebook at no cost just email ken@tradeguider.com and provide a contact number and we will be happy to assist you and answer any questions you may have.

    About Gavin Holmes

    Gavin has helped thousands of traders in over 36 countries learn how to track the "Smart Money" and avoid the tricks the "Smart Money" play. Gavin was taught to trade by veteran syndicate trader, Tom Williams, (now 78), and was fortunate enough never to have picked up the bad habits many retail traders suffer from.

    Gavin is now based in Chicago in the US and regularly hosts seminars and events sharing his experience and knowledge developed through talking to hundreds of retail traders each month, most who are finding the markets a challenging environment..

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    Support Tip

    How do I access the Power Console?

    Contributed by MetaStock Support

    The Power Console takes everything that is great about MetaStock and puts it in one convenient location. Now you can open a chart, start a scan, run a test, review reports, make custom lists, and more...from one full-featured dashboard. You can access the Power Console when you open MetaStock (Example 1) or navigate to it (Example 2). Here's how:

    To access the Power Console when opening MetaStock:

    1) First, open MetaStock. The Power Console will automatically appear.


    To navigate to the Power Console in MetaStock:

    1) When you are in MetaStock, look in the upper left hand corner for the box with a "P" in it. Click on the boxed "P".


    2) After clicking on the boxed "P", the Power Console should appear.


    You can also select "Open Power Console" from the Menu.

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    MetaStock Power User Tip

    Find Your Trading Edge with the MetaStock 12 Explorer

    Contributed by Breakaway Training Solutions

    There are thousands of stocks, currencies, options, and futures out there. Moreover, there are hundreds of indicators and systems you might want to use to trade them. How do you even begin to sort through the possibilities? How do you find the winners? That's where the MetaStock Explorer comes in. During this webinar, you will learn how to:

    • Create a custom exploration
    • Scan on price, indicators and volume
    • Filter out unwanted securities
    • and much more!
    https://metastock.adobeconnect.com/p1hx4tb9fgd/

    For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

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    September - October 2012 MetaStock Monitor

    2012 September-October MetaStock Monitor

    In this issue:

    Main Article

    How to Find, Track, and Trade with the Smart Money:The Critical Nature of Volume - Part One

    Contributed by Jeffrey A. Kilian, Chief Market Strategist and Founder of The Inside Technician

    As the market would have it, most participants are wrong in their trading decisions and therefore lose money when they invest or trade. We (as professionals who work in the business every day) know that even though what most dedicated people do is correct.......sometimes they miss the critical ingredient known as "volume".

    Volume is the catalyst behind the most explosive and profitable moves in trading any instrument within any market place, and to this day still remains the number one factor that determines the probabilities of future price directional price movement. Volume is the number of shares or contracts traded over a calculated period of time. The result of those volume numbers must then be used to determine the current and future Supply and Demand ratio of what we are analyzing.

    A professional trader will focus his or her attention on the Smart Money Volume. This volume is the most important type of volume. It is created by the people who actually move The US Markets and more importantly, The S&P 500 E-Mini futures from one level to another. These are the heavy market participants including off shore hedge funds, US based institutions, major market makers along with specialists on the trading floor who will orchestrate the mechanics behind the new price move, before the general public is aware of what is about to happen.

    The effect of what the Smart Money does now creates a new level of supply or demand that was previously non-existent.

    Where the ratio of supply and demand changes, so do the opportunities to invest or trade in anticipation to make money (whether long or short). However, without a sufficient amount of accumulated volume incorporated into the analysis of our trading decisions, we leave a reward to risk ratio on the table that is unacceptable. Let's examine the various scenarios where volume, especially a near historical volume spike or accumulated volume levels, plays a critical role in the end result of being on the right side of the markets and ultimately, a winning or losing position. Understanding that our US Markets are highly correlated, and that we must know the current state of our Markets, we begin with a chart of the Dow Jones Industrial Average.


    Chart 1

    The Basic Scenarios of Volumes True Colors

    • Excessive volume levels occurring at major turning points in the S&P 500 E-Mini Futures Market, stocks, subgroups, parent groups, their assigned Sectors, and the Major Market indexes, gives us the opportunity to get in at the beginning of a change in direction with the potential for profit that no other trading method can offer. For example let's consider the following example:
      • Trader A with 5 years experience finds a real time S&P500 E-Mini futures trade set up from a free or low cost internet program that has several favorable indicator formations and increasing positive volume. Trader A has considerable experience using Technical Analysis and believes there are strong possibilities for short term upside potential price movement. Trader A now analyzes the current state of the overall market and concludes that his/her timing is correct and now decides to trade the 5 E-Mini contracts in isolation. Trader A selected and traded a sub standard trade because of a critical failure to make a relative comparison between the E-mini trade that he/she will make and the "daily price levels in combination with proper volume analysis."



    Chart 2 

    • Successive volume spikes or sustained and consistent volume levels allow the trend to continue in the same direction until the trend has exhausted itself.
    • Where short term corrections within an uptrend present themselves, volume will have temporarily dried up and prices will stall and reverse because of the inherent change in the demand/supply ratio- supply has now become clearly in control. This normal correction will last a short period of time until more buying pressure shows up again in the form of volume to act as the engine behind the renewed continuation of the uptrend.
    • The exhaustion of an uptrend is almost always evidenced by a drying up of volume leading to a reversal pattern where the entire process is then repeated but this time leading to a down trend.

    Critical Volume Levels Relative to Key Indicator Formations Provide the Confirmation 

    • RELATIVE COMPARISONS of current volume levels to/past levels provide confirmation of Smart Money accumulation or distribution.
    • MACD and Volume relative Comparisons.
    • MONEY FLOW INDEX and Volume relative comparisons.

    As traders we have a clear choice in front of us to either choose to trade the candidates that have significantly higher volume levels or not. In choosing average volume level candidates, the statistics will quickly point to substandard trading results. This is a direct result of a lack of serious interest in the security or futures contract for the simple reason there is no real Smart Money buying behind it. No professional trader would make a valid risk to reward calculation before a trade is made without including volume as a serious portion of that equation.



    Chart 3 

    The MACD is one of the best indicators to analyze and make trading decisions because of its inherent ability to confirm the trend has now officially changed from one direction to another. Although at times it may lag price movement, its most powerful attribute is the confirmation it will provide us when prices achieve a new pivot point high or low or even a new base formation, and then move up or down from there into a new direction. This provides the confirmation that the probabilities of a new trend are present and we need to start paying serious attention to the trade on our watch list.



    Chart 4 

    IF MONEY FLOW is now included in our end of day analysis to determine the validity of the volume that we have now identified;it can provide us with a looking glass effect to determine whether or not that volume is in fact a real institutional and insider buying or not. Can you imagine how your confidence level would change knowing that what you have found has the people behind it that actually move prices from one level to another? This is the skill level that we must invest in and train ourselves to arrive at, now working every day in anticipation of finding, tracking, and trading with these Smart Money market players.

    With all the trading platforms available today is it easy to be swayed off course. By taking the necessary time to educate yourself on the most important aspects of professional trading it becomes second nature to spot turning points leading to the possibilities of a new trend, the tracking of a trend and most importantly a futures contract or a stock that is waiting for a substantial upside move. The critical nature of volume in this case being "a historical volume spike or accumulated volume level identified at precisely the right time" guides you to the true high probability trade vs. Trader A who will continue to make substandard trades and never know the inner workings of what really moves prices from one direction to another. The obvious question to ask yourself now becomes have you been trading on the A side or the B side?

    Waiting and trading with the correct volume level will put the risk/reward ratio greatly in your favor. Your best positional advantage as a trader or investor is patience. It is always better to wait until a significant or even historical volume level arrives before putting on a serious position. This basic tenant has applied to the majority of the biggest moves in the history of the securities market and still stands today as the mark of a professional trader. Volume is our trading edge and puts it all in our favor. Once we learn how to employ its edge, we cross over to an entirely different level of trading and investing.

    You can learn more and subscribe to "THE NIGHTLY MARKET INTELLIGENCE REPORT"™ by clicking here.

    About Jeffrey Kilian

    Jeff Kilian is a 13-year veteran trader/technical analyst who uses only technical analysis to make all his own trading decisions. His communication skills are what clearly set him apart from others in the educational side of the securities business, allowing him to teach in a clear and easily-understood manner.

    By following a structured, learnable, and repeatable process, his clients learn in a fraction of the time what it takes to become a real life professional and profitable trader.

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    Support Tip

    How can I backup my formulas (Indicators, Experts, Explorations...)?

    Contributed by MetaStock Support

    As you know, backing up all of your work is very important (especially on a computer). You can backup your formulas, indicators, experts, and explorations in MetaStock with a few simple steps. Here's how:

    To backup formulas in MetaStock:

    1) First, open MetaStock. Then, click on the "Tools" header, followed by the "Indicator Builder".


    2) Click "Organizer".


    3) Click "Export".


    4) Highlight the formula(s) you want to back up. You will be asked which custom indicators, system tools, explorations, and experts you want to back up on the following screens. Select ALL that you wish to back up.


    5) Specify the location you wish to export the files to. You can password protect them on the next screen (if you wish). If you do, make sure you choose a password you will remember! This will create new files with the appropriate files in the folder you specified. This will not over-write any existing files, so the folder specified must not have any other formula files in it.


    6) If you choose to enter a password, do it here but make sure you remember it!


    7) The formulas you exported should appear in the folder you directed them to in step number 5.


    To import files to a system:

    1) Follow steps 1 and 2 from backing up formulas. For step 3, choose "import" rather than "export".


    2) Specify the location you wish to import the files from.


    3) All the formula files, experts, explorations, and system tests will be read from and added to the current location in MetaStock. If you already have formulas, experts, explorations, and system tests of the same name in MetaStock, you will be asked if you want to replace them. If you say yes, the import will finish, overwriting the formulas of the same name. If you say no, the import will be halted with nothing being added.

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    MetaStock Power User Tip

    Analyzing Trading Systems

    Contributed by Breakaway Training Solutions

    When developing a system, one of the best ways to objectively review the results of the system is to test it over a large number of securities. In this two minute video, join Kevin Nelson as he shows you how analyze trading system results.

    https://www.learnmetastock.com/FreeStuff/FreeVideos/TestExcel/TestResultsExcel.html

    For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

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    July - August 2012 MetaStock Monitor

    2012 July-August MetaStock Monitor

    In this issue:

    Main Article

    Non-Farm Disappoints, But Gold Still Ends The Week On A Low. So What’s Next For Gold?

    Contributed by Nik Kalsi and Phil Carr

    Gold fell 1.6% in less than two hours on Thursday, as monetary policy easing in Europe and China was shortly followed by a better-than-expected US jobs report on Friday. US June non-farm payrolls rose by 80,000 while the jobless rate unchanged at 8.2 per cent, official figures showed.

    US employers hired at a dismal pace in June, raising pressure on the Federal Reserve to do more to boost the economy and further imperilling President Barack Obama's chances of re-election in November.

    By Friday lunchtime in London, Gold in Dollars was down around $5 per ounce on the week, while the Gold Price in Euros was still showing a 1.9% weekly gain following the weakening of the Euro. Meanwhile Silver fell to $27.10 per ounce – a few cents below where it started the week.

    The Gold & Silver Clubs technical analysis on MetaStock’s QuoteCenter shows Gold has been in a three month consolidation range of $1525 to $1640. Despite its flat performance in recent months, we believe it’s likely to rebound before the end of the year and here are three good reasons why...

    Quantitative Easing

    Last Thursday The Bank of England (BoE) confirmed it was to restart its asset purchase programme with a further £50 billion of quantitative easing (QE). To put that into perspective, that will take the total size of the UK programme to £375 billion. We believe the Federal Reserve will be next to boost the US economy and of course that will result in renewed buying interest in the shiny metal.

    Central banks still buying gold

    Central banks, the largest holders of gold, may expand reserves for the third year running, according to the World Gold Council.

    As gold prices head for a 12th consecutive annual gain, the council forecasts that central banks may buy more this year than the purchases of 456 tons in 2011 as countries diversify their reserves. We believe this makes absolute sense. The last thing that central banks want to hold is dollars. The most obvious thing for them to diversify into is dollar-denominated real assets and the easiest of these is gold.

    Indian gold demand:A repeat of 2009?

    Another reason why gold is in a consolidation period is due to news that the Indian economy, the biggest global consumer and importer of the commodity, is suffering, with the country registering its slowest quarterly growth of 5.3% in nine years in the first quarter this year.

    In early 2009, when the Indian economy faltered and the rupee crumbled, demand all but disappeared. In the first quarter of that year, demand was just 24.2 tonnes, down 77% year-on-year, according to GFMS data. For the full year Indian gold consumption fell 19%.

    Since March, gold sales to India have dropped between 50% and 60% year-on-year, with analysts forecasting Indian demand to fall between 20% and 30% over the full year.

    However, traders should be aware that a downturn in Indian consumption is a purely cyclical phenomenon. In 2010, for example, when the Indian economy made a comeback, gold consumption soared 74% to a record high of 1,006 tonnes, according to GFMS estimates. And a similar rebound, later this year or in 2013, could be back on the cards.

    Whilst we are still bullish on gold in the long-term, what’s our short-term outlook?

    In the short-term The Gold & Silver Club is focused on potential sell short opportunities with both Gold and Silver. If we break the important support levels – $26 on Silver and $1525 on Gold, the momentum is likely to continue downward in the short-term.

    If Silver breaks $26.00, we expect a big sell off with the price rapidly dropping to $25.00, $24.00, $23.00 or lower fast. In which case traders should be prepared with two things:one, the right trading strategy to profit from the downside momentum and two:a precise market data tool such as MetaStock’s QuoteCenter to give you the right information at the right time to make the right trading decision.

    On the flipside, if the market continues to bounce and rally off the $26.00 support level this potentially could be a very profitable trade to the upside. This key level has not been breached in the last 12 months so is the pivotal level to watch.

    Looking at gold – if we continue to bounce off and rally from the $1525 to $1535 support level then expect a great trade toward the upside. Again this key level has not been breached in the last 12 months so is the pivotal level to watch. On the reverse side, if gold breaks through $1525 prepare yourself for a major sell off with the potential of gold price hitting lows of $1500, $1485, $1450 or lower fast.

    On both occasions be aware – The more times we test a support level, the likely it is to break. To sum things up, the outlook for gold and silver remains bullish for the medium and long term but is rather bearish for the short term. If you would like to receive free weekly Gold & Silver trading updates then sign up to The Gold & Silver Clubs newsletter at www.thegoldandsilverclub.com.

    About Nik Kalsi and Phil Carr

    Nik Kalsi and Phil Carr are recognised as leading authorities on gold and silver trading. They are the founders of thegoldandsilverclub.com and professional commodity traders.

     Nik Kalsi

    Nik has extensive knowledge of the financial markets and investment strategy. Prior to founding The Gold & Silver Club, he spent 5 years coaching professional fund managers and traders internationally for some of the world’s top tier hedge funds and investment banks. Through his journey across the world’s leading trade floors, Nik formed first hand relationships with successful traders – discovering the strategies, mindset and tools giving professional traders the definitive edge in any economy. Nik has written many articles on monetary economics. He is also a regular columnist for a number of financial publications and appears frequently on television.

    Phil Carr

    Phil is the co-founder and director of The Gold & Silver Club. He specialises in teaching people how to make money from trading one of the biggest financial markets in the world:Gold, Silver & Oil and has trained hundreds of individuals to become independent traders and successfully manage their own investment portfolio.

    He has personally developed The Gold & Silver Club’s trademark investment strategies that have a proven track record of generating returns for traders.

    Phil speaks at numerous trading seminars and workshops across the world sharing his expert knowledge with investors who have a passion and interest in trading Gold, Silver & Oil.

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    Support Tip

    How do I create an expert adviser for an optimized system test?

    Contributed by MetaStock Support

    Some of the System Tests look for optimized values based off of the data set and security you are testing. Optimization values can change with each new data point coming into the chart, so the optimization values can constantly change. Since optimization values are ever changing, it would be impossible to create an Exploration\Expert including all the different optimization values. This is why there are not matching Explorations and Experts for each System Test.

    Below are instructions to create an Expert Advisor that uses optimization values found in the System Tester. The same steps can be used for non-optimized System Tests, you will simply not need to replace OPT1, etc with a value.

    To create an Expert from an Optimized test:

    1) First, you need to run the System Tester to get the optimization value. Open the System Tester.


    2) After opening the System Tester, choose the formula you wish to create an Expert Advisor for. For this example, we selected "Equis - Bollinger Bands". Click the "Edit" button. Once the information appears, click the "Buy Order" tab, highlight the formula and copy it.


    To create an Expert Advisor symbol (based off a Buy Order):

    3) Close the System Tester and open the Expert Advisor.


    4) After opening the Expert Advisor, select the "New" button. Then name your expert and add any helpful notes in the notes area.


    5) Go to the "Symbols" tab and select "New". Paste the copied formula from the System Tester in the "Condition" area and give the symbol a name. Anywhere in the formula that opt1 is listed, insert the optimization value found in the System Tester.


    6) After naming the symbol and pasting the formula on the "Name" tab, click on the "Graphic" tab and assign a graphic for your Expert Symbol.


    7) After saving your new Expert Advisor, you will see it listed.


    8) Here is a screen shot of the Expert Advisor we created generating a signal.
     


    To create an Expert Advisor alert (based off a Buy Order):
    (Use steps one and two from "To create an Expert from an Optimized test")

    3) After opening the Expert Advisor, click the "New" button. Create a name for your new Expert Alert and add any notes you feel necessary in the space provided. Once you have completed these steps, click on the "Alerts" tab.


    4) Select "New" once you have clicked on the "Alerts" tab. Name the Alert and copy and paste the formula taken from the System Tester in the "Condition" area. Anywhere in the formula that opt1 is listed, insert the optimization value found in the System Tester.


    5) Click on the "Alert" tab. This will allow you to specify how you would like to be notified when a signal is generated.

    6) You can see your Expert Advisor listed with the rest of the Expert Advisors once you set your Alert method.


    To create an Expert Advisor symbol (based off a Sell Order):

    You will need to close the Expert Advisor window and re-open the System Tester. Highlight and Edit the System Test. Go to the "Sell Order" tab and copy the formula. Repeat all of the same steps, making sure you name them "sell".

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    MetaStock Power User Tip

    The Importance of Managing Your Money

    Contributed by Breakaway Training Solutions

    How important is money management when trading? The short answer is that this can make or break your trading account! No one should ever place a trade without a solid money management plan in place. To help explain extremely important topic, please watch this review and tutorial of the JBL Risk Manager.

    https://www.youtube.com/watch?v=zr6vV2x18Vs

    For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

    Back to top

    May - June 2012 MetaStock Monitor

    2012 May-June MetaStock Monitor

    In this issue:

    Main Article

    Mysteries of Trader Tax Status

    Contributed by Jim Crimmins

    Just because you call yourself a securities trader doesn't make you one in the eyes of the Internal Revenue Service.

    In fact, Uncle Sam is predisposed to consider you merely a hyperactive investor - and thus deny you more favorable tax status - unless you meet a number of criteria that are frustratingly open to interpretation.

    You read that right:the tax code contains no actual definition of trader tax status.

    Instead, the IRS has issued guidelines that the tax courts have expanded upon with case law, most of which denied tax appeals by traders.

    What we're left with is a blurred image, like a photograph of a trader taken from a speeding car.

    According to the IRS, to qualify as a trader:

    • You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
    • Your activity must be substantial, and
    • You must carry on the activity with continuity and regularity.

    To help determine if you meet these three tests, the IRS considers these qualifiers:

    • Typical holding periods for securities bought and sold;
    • Frequency and dollar amount of trades during the year;
    • Extent to which you pursue trading to produce income for a livelihood, and
    • Amount of time you devote to the activity.
    Swoosh, right? What is "substantial" activity? "Continuity and regularity?" And what's an acceptable holding period? Is a week too long? A month?

    We know who investors are:They're our hardworking neighbors who buy securities and hold them for such long-term goals as a college fund or retirement.

    Traders, on the other hand, buy and sell securities solely to take advantage of short-term market changes. Your profits come from price swings, not dividends and interests. Since your holding period is brief, often a day at most - hence the term "day trader" - there's no need to perform due diligence on the companies you trade.

    Who cares how the IRS classifies you? You do!

    Investors are subject to the 2% threshold for deductible investment expenses - and hence cannot write off most of their expenses - and are limited to a $3,000 capital loss deduction.

    But as a trader, you write off 100% of your expenses, and if you elect the mark-to-market accounting option, you can offset all of your losses against your earned income.

    Three Steps to Claim and Protect Your Trader Tax Status

    Step 1: Prove beyond doubt that you are a bona fide trader - that is, you "seek to profit from daily market movements."

    The best way to accomplish this is by showing a pattern of high trading volume and short holding periods. Keep your personal investments well separated from your trading business. The IRS is looking for "earnest intent;" that is, you work diligently to manage transactions, conduct strategy sessions and make frequent trades.

    Step 2: Clear the "substantial activity" hurdle.

    The hallmarks the feds are looking for here are "frequent, regular, and continuous" trading. That means volume. One court case ruled that 330 trades a year was sufficient to warrant trader status. The feds need to know that you approach this as a business, not a hobby. Fail to convince them of that and you're back in investor-land.

    Step 3: Trade with "continuity and regularity."

    If you want trader tax treatment, it only stands to reason that you must actually be in - and remain in - the business of trading.

    Here's where the IRS is looking for a healthy flow of trades, significant dollar amounts, short holding periods - all the signs that you are at least attempting to make a living as a trader.

    If you take the summer off or show other gaps in your trading, the IRS will be disinclined to grant you trader status. If you're a newbie and flame out after nine months, while it seems unfair, the IRS has made it clear:no trader status for you.

    Once you obtain trader tax status, you're not entirely in the clear. Owing to the capricious nature of appellate rulings and the ever-evolving tax code, there are no guarantees that the trader status you enjoy today might not be gone tomorrow.

    One good way to secure your trader status is to trade under the umbrella of a business. That's not only where the most lucrative tax advantages reside, but a legal entity such as a general partnership, Limited Liability Company or C corporation sends a strong message to the IRS that yours is an earnest and legitimate business enterprise worthy of trader tax status.

    My recommendation is for you to maintain a day timer devoted completely to tracking the amount of time you spend each day on your trading activities. If you are audited by the IRS chances are it will be two or three years after you have filed your taxes. The day timer will service as proof of how many hours you spend each week on your trading activities.

    About Jim Crimmins

    Jim has become a nationally known speaker on tax strategies, entity structuring, and lifestyle change. He delivers over 30 talks a year throughout America as well as speaking in several chat rooms each month. You can learn more at TradersAccounting.com.

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    Support Tip

    How do I scan Fundamentals and charts at the same time?

    Contributed by MetaStock Support

    Many traders use technical systems to help determine when to execute trades. You can ensure your technical indicators will give you the full picture with a little bit of fundamental analysis. For example, your trading indicators tell you a good trading opportunity is about to take place. Then when you place your trade, the market moves in the opposite direction because you traded right before a big news announcement. Your technical analysis will not tell you this information. By combining both of these types of analysis together, you can get a more complete picture of the market. Here's how to view both technical and fundamental information in MetaStock:

    1) Start MetaStock.

    2) Click "File", then "Open".


    3)Select and open desired security. In this example, we'll use Thomson Reuters.


    4) Once the chart is open, right click on the background of the chart. From the menu, select "Research". From the following menu, select "Financial Highlights".


    5) After the page has opened from the MetaStock Window menu select "Column". Both the chart and financials should be displayed side by side.


    6) Click the "Next Security" button and the chart will change to the next security in that solder, AND change the Financials page to match. You can also use other options on the Financials page to check other fundamental information, such as Snapshot. Continuing to use the Next Security function will rotate through all the securities in that specific folder.


    You can also use the procedure above in conjunction with reviewing the results of an exploration:

    1) Choose your exploration.


    2) Select the securities for your exporation.


    3) After you have run your exploration, select all the securities you wish to review from the results by highlighting them. Right click on the highlighted area. From the menu, choose "Copy Securities".
     

    4) In the destination folder box enter the name of the folder you would like the securities copied to. (Name the folder with a reference to the exploration used and the date explored. For this example, we will use:MayJuneMonitor).


    5) You may get a message saying "Folder does not exist! Create the folder?". Click "yes". This copies the data files for the selected securities to the new folder. Exit the Explorer.

    6) Go to File, Open, and look in your MetaStock data folder. The newly created folder of securities should be there. The one we just created is highlighted in green.

    7) Then repeat the steps in the scanning procedure listed to attach fundamental information, starting with number 3.

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    MetaStock Power User Tip

    Interpreting and Using the Performance Indicator

    Contributed by Breakaway Training Solutions

    In this short video, Kevin will show you how to interpret and use the Performance indicator. You’ll also learn how to quickly compare the performance of different securities against each other.

    www.learnmetastock.com/FreeStuff/FreeVideos/PerfInd/PerformanceIndicator.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

    Back to top

    November - December 2011 MetaStock Monitor

     

    In this issue:

    Main Article

    Candlestick Signals - Making Trend Analysis Easy

    Contributed by Stephen Bigalow

    Trend analysis can be very simple when utilizing the inherent benefits built into candlestick analysis. The visual aspects produced by candlestick signals and patterns dramatically improve an investor’s ability to correctly assess the direction of the general markets.

    The Buy and Hold investment philosophy has not worked very successfully over the past two decades. Why? Because most money managers work off of a very simple premise. Buy a good strong company and hold it for long-term. You will do well. Unfortunately, they disregard one of the basics truths of price movement in the markets. Prices do not move based upon fundamentals. Prices move based upon the perception of fundamentals. There are many clear examples why fundamental analysis is not a primary factor for analyzing market trends. For example, at the end of 2007 analysts were recommending stocks such as US Steel Corp. at $180 a share because it was a fundamentally strong company. That analysis does very little for an investor when the price falls to $20 a share by the beginning of 2009. It is not the fundamentals of companies that move stock prices up or down. It is the investor sentiment pertaining to a stock that dictates whether it moves up or down. Candlestick analysis provides a very clear indication of what investor sentiment is doing in the markets.

    Japanese rice traders used the same information found on a standard bar chart. The difference is that they put more weight on the open and closing prices versus the high and the low of a time period. As illustrated in the US dollar chart, candlestick signals produce reversal signals that create a high probability that a new trend has occurred.

     

    The one basic factor built into Japanese candlesticks signals is that they are formed by the cumulative knowledge of all the investor input, the buying and selling, of a trading entity during a specific time period. No matter what you hear elsewhere about the direction of the market, candlestick signals tell you ‘exactly’ what investor sentiment is doing. Candlestick analysis allows investors to project market reversals with a relatively high degree of accuracy. This can be done when utilizing the 12 major candlestick signals. One misconception about candlesticks signals is that there are too many of them to learn. In reality, of the 50 or 60 candlestick signals, there are only about 12 signals that will occur a vast majority of the time. The Doji, the Bullish and Bearish Engulfing signal, the Hanging Man, Shooting Star, Hammer, the Bullish and Bearish Harami, the Dark Cloud, the Piercing pattern, and the Kicker signal. Although they may not sound sophisticated, the Japanese rice traders named these signals to make them easy to recognize as well as to understand. Knowing what the signals represent will dramatically improve your analysis of trend reversals and movements.

    Japanese Candlestick signals incorporate an extensive amount of information not found in other trading methodologies. Hundreds of years of observations not only allowed Japanese rice traders to successfully identify accurate reversal patterns, they could also describe the investor sentiment that formed the signals. This knowledge is a very accurate tool for projecting the next move in price. It is simplified for all investors, whether a novice or a professional investor, to greatly enhance returns.

    Identifying long established, statistically proven reversal patterns, as well as knowing how they were produced, provides a very powerful investment tool. Buy low, sell high. Amazingly simple! This should lead to a simple question. Who was buying when everybody was panic selling and who was selling when investors were running prices through the roof? Fortunately, these questions have been asked for centuries. Visual observations recognize the existence of fear and greed. Japanese rice traders recognized reoccurring patterns that depicted the reversals in trends, utilizing the price movements preceeding a major trend reversal.

    A candlestick signal formation has one major aspect that makes it more powerful than all other technical analysis. The signal is the result of the change in investor sentiment. This statement will be repeated for effect. The signal is the result of the change in investor sentiment. Not the anticipation of a possible change! The actual result is the change of trend direction. Having this as an investment tool can dramatically change an investors ability to maximize profits while reducing risk exposure. It allows the average man or woman investor to invest with the same temperament as the professional trader.

    Buy at the bottom, sell at the top. Pretty easy, right? Yet where does one grab the falling knife? When is high too high? Candlestick signals alleviate that problem. A candlestick ’buy’ signal, appearing after an extensive decline in a stock price reveals compelling information. ( All trading entities can be effectively analyzed with candlesticks. The term “stock” will represent all trading entities.) . This information inherently benefits investors, making for comfortable trading decisions.

    The basic function of investing is to make money. However, few investors develop a trading program that put the probabilities in their favor. If searching for the “Golden Goose” of investment programs, the criteria would be simple;well researched, proven track record, and easy-to-identify reversal points.

    All three of these elements are incorporated into Candlestick signals. Hundred of years of rice trading resulted in the identification high probability profitable trades. Make one assumption. The signals would not be around today if it were not for one convincing result. PROFITS! Candlestick signals exist today because of hundred of years of actual profitable trades. Not computer back testing. Not questionable results. Profits produced from utilizing the signals are the only reason we are witnessing these signals today. Reversal signals were identified by rice traders using very simple charting techniques. You can take advantage of these clear profitable signals?

     

    Trend analysis becomes much easier, as illustrated in the NASDAQ chart. The Doji, followed by a gap down, provides strong probabilities of a downtrend. The Bullish Engulfing signal, when stochastics are in the oversold condition, provide high probabilities of an uptrend. The non-signal after the first downtrend implies the possibility of some buying coming into the market but not any decisive trend reversal. As seen, the next two months consisted of indecisive waffling in a trend channel.

    As in any investment program, the underlying motive is to find characteristics that place the probabilities greatly in the investors favor. Logic implies that when you witness a Japanese candlestick “buy” signal in an oversold condition, you should have an extremely high probability that a bullish trade will be profitable. Oversold conditions can be defined as to when stochastics are in the area of 20 or below. Being able to add other conditions such as moving averages, Fibonnacci numbers, trendlines and trading channels, to a Japanese candlesticks signal in oversold condition only enhances the probability of making a correct trade. Putting all these observations together provides a compelling platform for market timing strategies.

    Utilizing the information from high probability patterns also allows investors to make a relatively accurate assessment of the market direction. Beginning in August of 2011, bullish Harami's indicated the end of the downtrend. The following eight weeks revealed an indecisive trading pattern called the Dumpling Top. The inherent trading forces build up in a dumpling top indicate a hard downtrend is about to follow. This can be seen in the dumpling top form in the Dow during the summer of 2008. Conversely, when a strong pattern is breached to the upside, the force of the upside move has to be substantial to offset the potential force to the downside. As witnessed, the breach of the upside rounding top trajectory would imply a very forceful breakout.

     

    Having this analysis capability in your arsenal allows the candlestick investor to have their portfolio positioned in the correct direction when a move occurs. Understanding the psychology of how the signals are formed provides investors with better foresight in where to have positions placed. The signals in the last week of January created the opportunity to add short positions to the portfolio whereas the signals in the first week of February produced high probability signals that would have covered the short positions and added long positions.

    This is not rocket science. This is simple investment philosophy’s put into a visual graphic. The 400 years of actual investment results from Japanese rice traders have provided high probability signal results. The candlestick signals illustrate the investor sentiment, mostly defined as fear and greed. Human emotion, when it comes to investing funds, will always have the same ingredients. The candlestick signals are simply the graphic depiction of investor sentiment. Candlestick signals were not discovered and tested by computer back testing simulations. Candlestick signals are the result of centuries of analyzing what human emotions effect a price trend. The occurrence of the signals, over and over, at specific points in a trend-reversaI, provides a statistically proven trading platform. If you understand how they are formed, you’ll understand what makes prices move.

    About Stephen Bigalow

    Stephen W. Bigalow is author of “Profitable Candlestick Investing, Pinpointing Market Turns to Maximize Profits”, “High Profit Candlestick Patterns” and “Candlestick Profits, Eliminating Emotions” is also principal of the CandlestickForum, the leading website on the Internet for providing information and educational material about Japanese Candlestick investing. Over 28 years of extensive study and utilization of candlestick analysis has produced an array of easy-to-learn educational material about Candlesticks. As one of the leading Candlestick experts in the nation, Mr. Bigalow, through consulting with major trading firms, has developed multiple successful trading programs from the day-trader to the long-term hold investor.

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    Support Tip

    QuoteCenter - TAS - Letter Definitions

    Contributed by MetaStock Support

    Have you ever wanted to know what all of the letters in the Time & Sales feature of QuoteCenter mean?

    If you answered "Yes", to the previous question this article is just for you! Below you will find a quick reference guide for meanings of all the letters in the Time & Sales area of QuoteCenter.

    1) Clink on the TAS link. This is found under the Reuters Navigator menu.
     

    2) After clicking on the TAS link, the following screen will appear.
     

    3) To investigate what the letters under the modifier and exchange columns mean, you need to open up an analytics window. To do this, go to "Edit", select "Add Display", and click on "Analytics".





    4) After opening the analytics window, you can search for modifiers by entering [mod or exchanges by entering [exch.

    Modifer search


    Exchange search


    5) Click on the red area next to the corresponding country (for exchange searches) or beginning letter of the modifier (for modifier search) to learn more about the letters in the modifier and exchange columns.

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    MetaStock Power User Tip

    Disappearing Chart

    Contributed by Breakaway Training Solutions

    Have you ever tried to open a chart and for some reason the price bars weren’t displayed? If so, watch this short how to video to quickly get you back up and running.

    https://www.learnmetastock.com/FreeStuff/FreeVideos/DelBaseSec/DeleteBaseSecurity.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

    Back to top

    March - April 2012 MetaStock Monitor


    In this issue:

    Main Article

    Creating and Compounding Wealth via Trend Following

    Contributed by Andrew Abraham

    I started trading (in particular trend following) in 1994. I was overwhelmed with all the books and courses offering so called “magical success” and millionaire traders who really weren’t. I wanted to know who was succeeding and what they were doing. My broker told me the most successful client of his company was a dentist. He was not a Harvard graduate nor a partner in Morgan Stanley. Yes, he was a dentist! I was told he invested $200,000 in a robust trend following concept in 1979. He let that money compound over time. He currently has an account of $5,000,000 plus he has made over $12,000,000 from trading the markets over the years.

    The dentist was the exception. Most clients of the brokerage did not make money. Most clients actually lost money. The difference between the majority of the clients that lost money and the dentist was he had a trading plan with risk management and he followed it with patience and discipline. Even with his plan he always had numerous loses, went through drawdowns and even long periods of time when he did not make money. However, he did not give up or start to look for a new methodology.

    He did not have any magical holy grail formula. He is a trend follower who had a simple robust methodology and, more importantly, knew how to properly condition his thought processes to get through all the tough drawdowns and long periods when he was not making money. What encouraged me over the years was if the dentist can do this, so can I. Another example to me was Richard Donchian who traded his trend following breakout strategy into his 90’s. If the dentist can do this and Richard Donchian can do this, so can you!

    There is nothing perfect in this world. There are no perfect systems or even traders. Every system and methodology has drawdowns and losses. Traders need to accept losses as a natural process of trading. Those that cannot accept losses jump from one system or one indicator to the next seeking the elusive holy grail. Traders need to realize success in trading is a process and takes time. They need to have patience with themselves and apply themselves to a methodology fitting their personality. Doctors do not become proficient overnight. Neither do lawyers.

    I want to share with you one of the methodologies I have traded over the last 18 years. Trend following can be simple, but don’t make the mistake of thinking it is easy! We seem to convolute it via our fear and greed. There are countless websites and late night infomercials trying to tell you differently. They make you think you just have to read a few pages or attend an online class, and then, magically you’ll become a successful trader.

    Don’t be misled!

    Trend following is not retirement in a box! You need to do your work!

    One of my methodologies is very simple and robust. It works on all platforms, time frames and markets. It is one of two general approaches in order to attempt to catch and ride trends I utilize. They both attempt to put on low risk trades in the direction of a trend and have various similarities.

    Trend Break Out and Trend Retracement

    For the sake of this article I am going to focus on one issue:Trend Retracement. The concept of trend retracement is that we are already witnessing a trend and we are looking for a low risk method in order to participate and enter in the direction of the trend. I believe in keeping things very simple as when we are trading we know what we must do and we have a well thought out plan in advance. Do not confuse the word simple with unsophisticated or not possible to generate money. This methodology is used by many successful traders.

    This Trend Retracement is a four bar setup:

    1. Identify a strong trend either by a high RSI or an ADX which is above 30.
    2. We want to see a retracement against that trend where we have 3 lower lows.
    3. On Bar 4 we will simply buy a breakout of the Bar 3 high.
    4. If we do not have a breakout buy on Bar 3 – Buy the breakout of Bar 4 as demonstrated below.



    As you can see in this hypothetical example one would have bought the breakout of Bar 4.

    There is more to just the Trend Retracement Entry. One needs to think of how many shares to put on. What I suggest is looking at the range from the high to the low of the 4th bar to determine how many shares we can put on. The high of the 4th bar was $610.01 and the low was $607.68. The difference is $2.33. What one needs to do is look at their account size and how much of that account size are they willing to risk on anyone trade. For example if I was trading a $30,000 account and wanted to risk 1% on any trade I could risk and potentially lose $300 on a trade. If I wanted to risk 2% on a trade I could risk and potentially lose $600. The more risk per trade the more potential profit as well as the more potential loss. Let’s examine what would have transpired in this hypothetical example with Google running to its high of $619.77. (Clearly we would not have gotten out at the top, but we can use it as a reference to just highlight the difference in position sizing and position percentage risk).

    Entry $610.01 to $619.77;difference is $9.76.

    1. Risking 1% of $30,000 was $300 risk allowed us to purchase 128 shares X $9.76 = $1249.28.
    2. Risking 2% of $30,000 was $600 risk allowed us to purchase 257 shares x $9.76 = $2508.32.

    As you can clearly see there is more entailed than just using a specific setup. One needs to think about risk per trade.

    Please also realize any trade is 50/50. After this nice trade there could have been another trade as there were 4 down bars with a breakout that did not work as this trade did.

    There are only four potential out comes when we trade.

    1. Big losses - however we had an immediate stop placed to prevent.
    2. Small losses - these will happen all the time.
    3. Small profits - these also will happen all the time and cancel out the small losses.
    4. Big profits - These are rare and make up for all the small losses are small profits do not offset.

    Too many times system sellers & promoters just give you a setup. It is paramount to know where to exit either with a loss or a profit. Too much emphasis is placed on setups, patterns, and entries. In order for trading success one needs a complete trading plan that states when to enter, how much to buy/sell, when to exit with a profit and loss. On a slightly more deep level one also needs to know what to trade which I detail in my courses.

    I like to keep my exit rules simple. An easy exit rule in where you lock in profits when trades work and exit you when trades do not work is a trailing 3 bar low as an exit when you buy and a 3 bar high when you go short.



    Trend followers do not worry what the markets are going to do tomorrow. They have an exact plan with all contingencies thought out ahead of time. Trend followers are like surfers and look to ride the waves.

    Trend followers have an exact plan. This plan is based on objective and automated set of rules.

    Trend followers follow their plan without second guessing it. A trading plan makes life easier by eliminating emotions from trading decisions. A trading plan forces discipline. If you do not follow the trading plan you will not succeed. Do not even start if you cannot follow the plan. The above examples are not complicated yet they are an effective way of taking money out of the markets.

    Trend following entails having a defined plan and strategy to put money into trade to achieve one and only goal:PROFIT! 

    About Andrew Abraham

    Andrew Abraham has been investing in commodities and managed futures since 1994. He adheres to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets Andrew's strategy apart from other traders is that he is not only concerned about the return on investment but also with how much risk should be tolerated to achieve goals. For more information, contact Andrew via his website (TrendfollowingMentor.com), email, or Skype:Abraham Investment Management.

    ***Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

    HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT.

    IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. ALL TRADING DECISIONS ARE SOLELY YOUR RESPONSIBILITY.

    THE MATERIAL IS INTENDED FOR EDUCATIONAL PURPOSES ONLY.

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    Support Tip

    How do I add new Data on Demand symbol to MetaStock?

    Contributed by MetaStock Support

    Are you trading a security, stock, commodity, etc. that is not included with the thousands of symbols that come with MetaStock's data feed? This happens from time to time but it is very easy to add the symbol to your MetaStock data feed. For Data on Demand symbols, remember to enter ALL symbols in upper case. Here's how:

    1) Start MetaStock.

    2) Click "File", then "Open".


    3)Click "Tools", then "New Symbol".


    4) Type the name of the symbol into the name field. Type the desired symbol into the symbol field. Select the proper exchange;if you are not sure this option can be left blank. For this example, we will add the USD - Gold Spot Price. You can add the type field and the start and end times of when the security trades, but it is not necessary. If you do, make sure the hours listed are in your time zone. The Type field tells you what folder structure in the symbol database the security will be added. We recommend leaving this as "Other". Once you have filled out all of the applicable fields, click "OK" to continue.


    5) After clicking "OK", you can search for the symbol you created.


    6) Here is a screenshot of the security we just added to our data base.


    Helpful Hint:If you are adding a futures symbol that includes the specific month and year code for a specific contract make sure to select the TYPE as "OTHER".

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    MetaStock Power User Tip

    Want to find stocks that are moving?

    Contributed by Breakaway Training Solutions

    In this short four minute video, you’ll learn how to use a scan that you already have to quickly find those stocks on the move. Take a look!

    www.learnmetastock.com/FreeStuff/FreeVideos/PerfScan/PerformanceScan.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

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    January - February 2012 MetaStock Monitor

     

    In this issue:

    Main Article

    Mysteries of Trader Tax Status

    Contributed by Jim Crimmins

    Just because you call yourself a securities trader doesn’t make you one in the eyes of the Internal Revenue Service.

    In fact, Uncle Sam is predisposed to consider you merely a hyperactive investor—and thus deny you a more favorable tax status—unless you meet a number of criteria that are frustratingly open to interpretation.

    You read that right:the tax code contains no actual definition of trader tax status.

    Instead, the IRS has issued guidelines the tax courts have expanded upon with case law, most of which denied tax appeals by traders.

    What we’re left with is a blurred image, like a photograph of a trader taken from a speeding car.

    According to the IRS, to qualify as a trader:

    • You must seek to profit from daily market movements in the prices of securities and not from dividends, interest or capital appreciation;
    • Your activity must be substantial, and
    • You must carry on the activity with continuity and regularity.

    To help determine if you meet these three tests, the IRS considers these qualifiers:

    • Typical holding periods for securities bought and sold;
    • Frequency and dollar amount of trades during the year;
    • Extent to which you pursue trading to produce income for a livelihood, and
    • Amount of time you devote to the activity.

    Swoosh, right? What is “substantial” activity? “Continuity and regularity?” And what’s an acceptable holding period? Is a week too long? A month?

    We know who investors are:They’re our hardworking neighbors who buy securities and hold them for such long-term goals as a college fund or retirement.

    Traders, on the other hand, buy and sell securities solely to take advantage of short-term market changes. Your profits come from price swings, not dividends and interests. Since your holding period is brief, often a day at most—hence the term “day trader”—there’s no need to perform due diligence on the companies you trade.

    Who cares how the IRS classifies you? You do!

    Investors are subject to the 2% threshold for deductible investment expenses — and hence cannot write off most of their expenses—and are limited to a $3,000 capital loss deduction.

    But as a trader, you write off 100% of your expenses, and if you elect the mark-to-market accounting option, you can offset all of your losses against your earned income.

    Three Steps to Claim and Protect Your Trader Tax Status

    Step 1: Prove beyond doubt you are a bona fide trader — that is, you “seek to profit from daily market movements.”

    The best way to accomplish this is by showing a pattern of high trading volume and short holding periods. Keep your personal investments well separated from your trading business. The IRS is looking for “earnest intent;” that is, you work diligently to manage transactions, conduct strategy sessions and make frequent trades.

    Step 2: Clear the “substantial activity” hurdle.

    The hallmarks the feds are looking for here are “frequent, regular and continuous” trading. That means volume. One court case ruled that 330 trades a year was sufficient to warrant trader status. The feds need to know that you approach this as a business, not a hobby. Fail to convince them of that and you’re back in investor-land.

    Step 3: Trade with “continuity and regularity.”

    If you want trader tax treatment, it only stands to reason that you must actually be in — and remain in — the business of trading.

    Here’s where the IRS is looking for a healthy flow of trades, significant dollar amounts, short holding periods — all the signs that you are at least attempting to make a living as a trader.

    If you take the summer off or show other gaps in your trading, the IRS will be disinclined to grant you trader status. If you’re a newbie and flame out after nine months, while it seems unfair, the IRS has made it clear:no trader status for you.

    Once you obtain trader tax status, you’re not entirely in the clear. Owing to the capricious nature of appellate rulings and the ever - evolving tax code, there are no guarantees the trader status you enjoy today might not be gone tomorrow.

    One good way to secure your trader status is to trade under the umbrella of a business. That’s not only where the most lucrative tax advantages reside, but a legal entity such as a general partnership, Limited Liability Company or C corporation sends a strong message to the IRS that yours is an earnest and legitimate business enterprise worthy of trader tax status.

    My recommendation is for you to maintain a day timer devoted completely to tracking the amount of time you spend each day on your trading activities. If you are audited by the IRS chances are it will be two or three years after you have filed your taxes. The day timer will service as proof of how many hours you spend each week on your trading activities.

    About Jim Crimmins

    Jim has become a nationally known speaker on tax strategies, entity structuring, and lifestyle change. He delivers over 30 talks a year throughout America as well as speaking in several chat rooms each month. You can learn more at TradersAccounting.com.

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    Support Tip

    Why are my candles colored incorrectly?

    Contributed by MetaStock Support

    The up and down color options in the price properties windows is not based on the same open/close relationship that governs candlesticks. Candlesticks are solid (black) if the open is more than the close and hollow (white) if the open is less than the close. The price bars are colored by the properties window as up if the current close is more than the prior close and down if the current close is less than the prior close. If you want to have candles colored differently, you will need to use an expert with different highlights setup for white and black candles.

    You can do this with an Expert Advisor as follows:

    1) Start MetaStock.

    2) Display a candlestick chart.

    3) Click "Tools" and then "Expert Advisor".



    4)Click New.



    5) Click the Name Tab. Type "Candlestick Color Change" into the Name Field.



    6) Click the Highlights Tab. Click New.



    7) Type "UP CANDLE" into the name field. Set the color to green. Type "C>O" into the condition field and click OK.



    8) Click New again. Type "DOWN CANDLE" into the name field. Set the color to red. Type "C<O" into the condition field and click OK.



    9) Click OK and close the Expert Editor menu.



    10) Now, you can attach this expert advisor to any Candlestick Chart in MetaStock. Simply right click anywhere on the chart and select Expert Advisor, then Attach.



    11) Select the Candlestick Color Change Expert and click OK.



    12) Your candlestick chart should display candlesticks in red and green.

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    MetaStock Power User Tip

    Working with the Commentary in the Expert Advisor

    Contributed by Breakaway Training Solutions

    Using the Commentary in the Expert Advisor can be a great educational tool. To help you get the most out of it, watch this short 3 minute video for a couple of helpful tips.

    https://www.learnmetastock.com/FreeStuff/FreeVideos/eaww/ExpertAdvisor-WorkingWith.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2012

    Back to top

    September - October 2011 MetaStock Monitor

     

    In this issue:

    Main Article

    Two Patterns to Catch New Trends Early:The Bowtie and the First Thrust

    Contributed by Dave Landry

    The trend is your friend is one of the few true market adages. Critics will argue that a trend is your friend until it ends. And, admittedly, this is true. Trends do not last forever. Eventually they exhaust themselves but quite often, a new trend in the opposite direction emerges. However, established trends can often last much longer and go much further than most anticipate. Trying to buy a stock (or other market) because it is low or sell short a stock because it is high is a loser's game. The good news is that the stock will leave clues that a trend is turning and will usually have a minor correction before resuming its new trend. Looking to enter after that minor correction and only if the new trend shows signs of resuming is the goal of my transitional patterns and is illustrated below.

     

    When you catch a new trend early, the payoff can be huge. Unfortunately, since you are fighting what could turn out to be only be a correction in a longer-term trend, you have to realize that there will be a higher failure rate than trading pullbacks in established trends. Like the pioneers, when trading transitions you are either going to get the gold or the arrows.

    Let's look at two of my favorite transitional patterns, First Thrusts and Bowties.

    First Thrusts

    Markets in major trend transitions often begin with a bang. They make a sharp thrust in the new direction. This tends to catch participants off guard. Trapped on the wrong side of the market, they find themselves waiting for the market to reverse so they can get off the hook. Bottom pickers and top pickers who missed the top or bottom and do not want to pay up are also waiting for some sort of meaningful correction. Unfortunately for these traders, the meaningful correction may never come. Often, markets making a sharp thrust in a new direction only pull back very briefly before resuming their new trend. The old market participants will soon be forced out at adverse prices and the bottom/top pickers must pay up or risk being left behind. By waiting for the market to have a sharp thrust in the new direction, you avoid the pitfalls associated with picking tops/bottoms. By looking to enter at the first signs of a correction rather than waiting for something more substantial, there is the potential for your position to be helped along by the predicament of the aforementioned traders.

    Let's look at the pattern. Referring to figure below, after making a significant new low (1), the market should have a sharp thrust in the new direction (2) and then make a lower low and a lower high;in other words a 1-bar pullback (3).* Look to enter above the high of the pullback (4).

     

    *Rule 3(a). Occasionally markets are in such sharp reversals that they will only make a lower high (vs. lower high and lower low). These make for somewhat risker trades. With risk comes reward though. Sometimes you're able to get into a major trend early.

    The best transitional patterns come off of markets that are making major new lows for longs. This helps to ensure that the most people as possible are on the wrong side of the market when the trend turns. Notice below that Berry Petroleum is at its lowest level in over a decade (1). The stock then has a sharp thrust higher (2). The stock makes a lower-low and a lower high (3). Go long (4) above the high of (3).

     

    The great thing about transitional patterns is that they occur in all markets and in all time frames. Here's an example in the weekly Australian Dollar (AUD/USD). The currency makes an all-time high (1) and then begins to sell off (2). It then makes a higher high and a higher low (3) to complete the setup*(4). A short is triggered when the stock turns back down. The contract resumes its slide over the next few weeks.

     

    *Note:a somewhat more aggressive entry would have been to enter after the higher low only (a)

    Bowties

    The First Thrust is a fairly abrupt pattern that occurs over very short periods of time. These new trends begin with a bang. Sometimes though, new trends start more gradually. Markets go through a distribution phase and then begin to accelerate in the new direction as the new trend emerges.

    For this pattern, I use a 10 day simple, 20 day exponential, and 30 day exponential moving average. Although all indicators are prone to lag, I did notice that these moving averages would often come together and then spread out in the opposite direction right before a market makes a major transition. That is, they would go from proper downtrend order - the faster moving averages (shorter periods) below the slower moving averages (longer periods) - to proper uptrend order - the faster moving averages above the slower moving averages. When this happens over a short period of time, it gives the appearance of a Bowtie. This is illustrated below. Notice that the moving averages are in downtrend "proper downtrend order" 10-SMA <20-EMA <30-EMA but quickly flip over to uptrend proper order 10-SMA >20-EMA >30-EMA). Ideally, this should happen over a period of three to four days (1). After this occurs, it suggests that the market has made a major trend shift. However, it is still prone to correct. Therefore, you wait for the market to have at least a 1-bar pullback (2) and then look to enter after that minor correction (3).



    Like all my transitional patterns, I prefer those that come off of major highs or lows.

    Let's take a look at an example. USG Corp. (USG) makes 6-year plus lows (a). Notice that the Bowtie moving averages are in downtrend proper order (10SMA <20EMA <30EMA). Then as the stock begins to bottom, the moving averages come together and then change to uptrend proper order (10SMA>20EMA>30EMA) over a short period of time. This creates the appearance of a bowtie( 1). This makes a lower low and a lower high followed by another lower low and lower high (2). Enter when the high of (2) is taken out (3).



    Although I'm not a big fan of day trading, the following Bowtie caught my eye on the 5 minute chart when asked about the ETF during a recent webcast. It actually was triggering during the live show.

    The Direction Small Cap Bull Shares (TNA) make an intra-day high (a). In fact, this is actually also a multi-day high. The moving averages come together and quickly cross over to form the bowtie (1). The ETF pulls back (3). Enter as the trend begins to resume (3).



    Staying on the right side of the market

    Transitional patterns can often alert you to the fact that an old trend is coming to an end and a new one is emerging. In fact, they can signal the beginning of major bull or bear markets for stocks and other markets (e.g. Forex, commodities, bonds, etc). This is especially true if the market is making a longer-term high or low. If you study major market turning points - such as the stock tops in 2000/2007 and the bottoms in 2003/2009, and now the top (?) of 2011, you'll see that transitional setups occurred as the market turned on a variety of time frames. Not every transitional pattern will turn into a major top or bottom but all major tops or bottoms will have some sort of transitional pattern. Let me repeat, all major tops or bottoms will have transitional patterns. This is what makes watching for them so worthwhile.



    Summary

    Trying to picks tops or bottoms is a loser's game. You're much better off waiting for the market to show signs that the trend is turning and then look to enter after the first correction. The First Thrusts and Bowties are two of my favorite patterns I use to catch new trends early. The best setups occur after major highs and lows. Multi-year or even lifetime highs/lows work the best. This helps to ensure that the most traders are trapped on the wrong side of the market. Not all transitional patterns will turn into major tops or bottoms but all major tops or bottoms will have transitional patterns. Like the pioneers, when trading transitions you are either going to get the gold or the arrows. I think the chance for gold makes it all worthwhile.

    For more information

    For more information on trading transitions, see Dave Landry's 10 Best Patterns and Strategies (www.davelandry.com/books.htm) and his newest book "The Layman's Guide To Trading Stocks". Amazon.com:https://tinyurl.com/2vo395r

    About Dave Landry:

    Dave Landry has been have been actively trading the markets since the early 90's. In 1995 he founded Sentive Trading, LLC,(d/b/a www.davelandry.com)--a trading and consulting firm. He is author of Dave Landry on Swing Trading (2000), Dave Landry's 10 Best Swing Trading Patterns & Strategies (2003), and The Layman's Guide to Trading Stocks (2010). His books have been translated into Russian, Italian, French, Japanese, and Chinese. He has made several television appearances, has written articles for several publications including Technical Analysis of Stocks & Commodities, Active Trader, and Traders Journal-Singapore. He has been publishing daily web based commentary on technical trading since 1997. He has spoken at trading conferences both nationally and internationally. He holds a Bachelor of Science in Computer Science and has an MBA. He was registered Commodity Trading Advisor (CTA) from 1995 to 2009. He is a member of the American Association of Professional Technical Analysts.

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    Support Tip

    QuoteCenter Application Symbol Cheat Sheet

    Contributed by MetaStock Support

    Have you ever wanted to look up a symbol in MetaStock quickly but didn't know how to do it?

    If you answered "Yes", to the previous question this article is just for you! Below you will find tips on how to locate indices, futures, mutual fund, stocks and much more! The first step is to open up MetaStock. Once you are in, go to "file" and "new chart".



    After selecting the "new chart" option, the following screen will appear.



    This allows you to select how you would like to search;by symbol or by name. The following information below should help you determine how to search for the information you desire. To search for:

    Indices (QuoteCenter)
    All countries have indices. To locate indices in MetaStock, you need to know the country code. For this example, we will use the United States index code (us). All index symbols begin with either a (us;) or (us&) and must be all upper case.
    Examples:us&SPX (S&P 500 index)
    us;NDX (Nasdaq 100 index)

    Futures (QuoteCenter)
    There are two types of futures symbols:specfici and continuous.
    Specific contract:Each specfic contract symbol must always have a month and year code and always begin with the country code. For this example, we will use the United States (us). The symbol format is as follows:
    countrycode@basesymbolyearmonth
    So, the following symbol us@ES07U is for the SP Emini 2007 September contract.

    Here are the month and year codes:

    Month Codes
    January - F
    February - G
    March - H
    April - J
    May - K
    June - M
    July - N
    August - Q
    September - U
    October - V
    November - X
    December - Z

    Year codes
    2006 - 06
    2007 - 07
    2008 - 08
    2009 - 09
    2010 - 10
    2011 - 11

    Continuous futures symbols: us@basesumbol.1
    Example:@:ES.1 - SP Emini continuous contract

    Session specific symbols
    Futures contracts can trade on up to three different sessions. For example there is a day, night and overnight trading session and then the composite of all three. When searching by name in the symbol database for futures symbols you will see futures with multiple listings, see examples below for cattle feeder.

    Cattle Feeder Pit CME - us@FC - Day session
    Cattle Feeder Globex - us@LG - Night Session
    Cattle Feeder Composite - us@LCC - Both sessions

    Mutual Funds (QuoteCenter)
    All mutual fund symbols will contain five letters. EOD data only.

    Stocks
    All stocks begin with their country code followed by a (;), see examples below.
    US Stocks - us;(us;IBM)
    Cairo Stock Exchange - eg;(eg;AACO)
    Canadian Stocks - ca;(ca;CEE)

    FOREX (QuoteCenter)
    All forex symbols are upper case, see examples below.
    $$EURJPY - EURO\YEN
    $$GBPUSD - Pound\Dollar

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    MetaStock Power User Tip

    Working with Favorites Chart Setup in MetaStock

    Contributed by Breakaway Training Solutions

    In this second video on using the Favorites folder in MetaStock, you'll learn how to control how the charts will appear, how to control the appearance of your charts when scrolling, manage the folder lists and more. Have a look!

    https://www.learnmetastock.com/FreeStuff/FreeVideos/FavsChartSetup/FavoritesChartSetup.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

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    July - August 2011 MetaStock Monitor

     

    In this issue:


    Main Article

    The Essence of High Probability Trading

    Contributed by Jeff Kilian

    It would seem with the plethora of available stock trading software platforms and accompanying rocket science technical analysis techniques it should be a non-complex subject matter to once and for all define the essence of High Probability trade. However most of the inefficiencies associated with substandard trading results are to this day directly related to Backward Technical Analysis vs. Forward Technical Analysis. The before mentioned produces analytical findings and although factual are loosely based on independent indicator findings in isolation and therefore cannot produce the high probability trades we all seek to profit from. The after mentioned produces an entirely different outcome based on the desired result. The desired result now becomes our focus and the end goal is to trade only those stocks that have the highest probability of making an accelerated highly profitable move and do it in a short period of time. Before we proceed with making the case for superior single stock selection using this methodology we must first consider the definition of “essence” and its core value directly related to a trading methodology.

    Essence is the permanent as contrasted with the accidental element of being;and moreover the real and ultimate nature of a thing as opposed to its existence. Most Technical Analysts are searchers of the truth and in this case that truth becomes the objective findings that create actionable intelligence for real life profitable stock trading opportunities. A truly committed technician exists in the trading world where his/ her findings are either black or white as the grey area is for the participants we require in the marketplace to realize our profits from. Unfortunately most traders and investors drawn to the marketplace employ Backward Technical Analysis due to a lack of experience or simply have not yet discovered the essence of high probability trading. So now let’s present a closer look at a Methodology using a step by step approach that has stood the test of time in producing the type of trades we all want to make.

    Since the beginning recorded history in the US Stock Market;volume has been responsible for some of the most profitable moves in stock prices. By nature an unusually large or historical amount of positive volume at a certain price level clearly indicates accumulation. This accumulated buying as seen through the eyes of a seasoned investor or trader has great significance as this is a clear signal that a combination of insiders, pension fund managers, and financial institutions have made a decision to trade the security with a vested interest in selling it off at a forward date.

     
    Chart 1

    An example of how to determine that accumulation is in fact positive is evidenced by a volume spike of two maybe three or four or more times greater than the 21 period average daily volume or an accumulated high level of volume over a specified number of days that co insides with a newly formed Pivot Point low. Now in the case of an oversold or beaten down security, that pivot point low with the volume spike located directly underneath it could then be located at a previous price level established 6 months ago being the same level where another pivot point or base level formation had previously been established as well. The simple double bottom pattern now takes on a new significance as the smart money players have decided that this price level has now become the new intrinsic base value of the stock. The smart money or shall we say the people whom actually control stock prices have now taken a position with an intended intermediate to longer term hold time to surely sell it off with a huge profit. We know this because a vested interest in the accumulation of a stock by these people is one where there is an expected payback and is carefully orchestrated and is always realized. History has shown us time and time again that when the deal is sealed between the powers that be;the stock gets its big upward price move as surely as the sun rises and sets. So now that we have qualified the first step in indentifying a real high probability trade lets proceed with the integration of technical Indicators being graphical representations of mathematical formulas based on price and time as applied to Forward Technical Analysis.

    The MACD Indicator as applied to single stock trading using this methodology serves as a trend following indicator showing us where the trend is likely to change direction by the crossing of the MACD line from below to above the signal line, with being situated below the zero level. Dependent upon the current chart pattern formation it as well may be on a short or long term positive divergence additionally signaling pent up buying pressure within the security that has not yet been realized in the form of the stocks upward price movement. The ideal indicator formation is it being on a short to longer term positive divergence relative to the chart pattern formation and now having the MACD cross above the signal line but still below the zero level;but now with continued upward momentum signaling in isolation the stock has “alta probabilidades” or (high probabilities) for a substantial upside move.

     
    Chart 2

    The Stochastics Fast indicator as applied to single stock trading serves as a first responder providing us with advanced notice of the directional change in prices. Again let me say in another way, an advanced notification of future directional price movement before the stock price has made its reversal in direction. The 21 day Fast Stochastics has direct application to this methodology as when we have a security in an oversold environment it objectively provides us with a relative comparison in the form of its graphical representation of where today’s closing price is as compared to where it was 21 bars ago. Remember we are using objective analysis here and not subjective analysis where as objective analysis by nature is something that can be analyzed and the results are verified as being the truth.

     
    Chart 3

    The Money Flow indicator as applied to single stock trading now becomes the critical link between all of the indicators previously discussed. It is the ultimate indicator that confirms the tide of funds that have come into a security “desde principio” or (from the very beginning) was in fact the insiders, pension fund traders, the financial institutions that make the market all in unison initiating their positions for a forward dated highly orchestrated sell off for a substantial profit.

     
    Chart 4

    Now let’s integrate the 3 and 7 period pair of exponentially smoothed averages as the last confirmation that price movement and the momentum behind it are more than a mere aberration or anomaly and the train is now leaving the track being the first and official confirmed move of the intermediate or longer term stock price move that will play itself out over time. Exponentially weighted averages as in the preferred 3 and 7 day will guarantee us that we initiate our trades at the most opportune time and not come late to the party as SMA’s that the lesser experienced traders and investors would like to believe still have some validity.

     
    Chart 5

    Now that we have the set up and have successfully constructed a valid and powerful core Trading Methodology for single stock selection, we have to decide when to execute the trade. Basing our entry on only a specific predetermined day can lead us to miss the correct entry and get shaken out of the trade only to see the stock catapult upwards. So how do we deal with the time element as it relates to the move? The answer is to expand the window of opportunity by widening the time period we allow ourselves to actually take the trade and by allowing all conditions to be met in any order that they may appear within it! Again we do not need a specific order for all the conditions to be met before we trade. All conditions met within per say a 10 bar period parameter now allows the trader the flexibility where not previously possible, for the trigger day to be located anywhere between day 1 and all the way up through day 10.

    Whether you are a beginning trader or a seasoned professional. Following and staying true to this methodology will allow you to consistently maximize your profit potential and minimize your downside risk other methodologies only aspire to. Now this my fellow traders and investors we can all agree is ”the essence of high probability trading”.

    About Jeff Kilian:

    Jeff Kilian is a 13 year veteran trader, technical analyst, and educator. He is the founder of www.theinsidetechnician.com specializing in “one on one’ developmental training for those whom aspire to become real life profitable traders.

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    Support Tip

    Can I create a spread symbol for Market Watch in QuoteCenter?

    Contributed by MetaStock Support

    For QuoteCenter Only

    Have you ever wondered what spreads do?

    Spreads compare two securities to show how the securities are performing relative to each other. Traders normally use spreads for calculating futures. Spreads are calculated by subtracting the value of one security from the value of another security.

    Here's how you can create a spread symbol in QuoteCenter:


    1. In QuoteCenter go to "Tools" then "Plug-in Manager".


    2. Select "Derived Vehicles". Click "OK".


    3. Click on "New". Give the Name and Description fields the same name.


    4. Set Display Units to Dot # (# = the number of digits past the decinmal point you wish to use).


    5. In Var:A type the first symbol. In VAR:B type the second symbol.


    6. In the formula area, enter how you would like to have the spread calculated. You will reference the variables you assigned in the previous step (in this case, A and B). This will automatically populate below in the expanded formula area. You may use +, -, *, and / for functions.


    7. At this point, your new spread symbol should be created and saved. To access it, you need to open Market Watch. To do this, you need to open a new blank workspace.


    8. Double click anywhere in the work area and select the MarketWatch option.


    9. Under the symbol field, click and type in D:name of the custom symbol. For this exampl, it would be D:IBM - AAPL.


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    MetaStock Power User Tip

    Opening Charts

    Contributed by Breakaway Training Solutions

    In this six minute video, you’ll learn some tips and tricks when opening charts, problems that some people experience and shortcuts that might be of help to you. Have a look!

    https://www.learnmetastock.com/FreeStuff/FreeVideos/OpenCharts/OpenCharts.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

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    May - June 2011 MetaStock Monitor

     

    In this issue:


    Main Article

    The Leibovit Volume Reversal Toolkit in Action

    Contributed by Mark Leibovit


    As many of you know, MetaStock has just released my Leibovit VR Add-on and I’ve been asked to write a short article discussing those indicators. The Leibovit Volume Reversal add-ons are the result of 35 years of technical analysis work and study in this industry. Old-timers may remember that I first launched the ‘Volume Reversal Survey’ newsletter way back in July 1979. In the mid-1990’s with the introduction of the internet, the Volume Reversal Survey became VRsurvey.com and later VRtrader.com. As you know, two technicians can look at the same chart and often come up with differing views. My effort here was to try and avoid such an occurrence. Fortunately, within the last 18 months I had the opportunity to work with an excellent programmer associated with MetaStock who helped me fine tune the use of my Leibovit Volume Reversal in a format that could be adapted to the MetaStock platform and which would be easy to understand and use by MetaStock subscribers. The formula for the Leibovit Volume Reversal remains proprietary, but its use and dynamics are now clearly transparent to those who wish to incorporate it in their own trading and investment strategies. The beauty of the various Leibovit Volume Reversal indicators are that they can be used in all time frames satisfying a broad-range of trader and/or investor needs. A whole new world has opened up;even very short-term traders will find opportunity in the 60 minute charts and money-managers or longer-term investors will find opportunity in the weekly and monthly charts.

    This article will present three examples of the Leibovit Volume Reversal Add-On - the Leibovit VR Sequential Expert, The Leibovit VR Directional Expert, and the Leibovit VR 2 Day Expert. The Leibovit VRs are based on the premise that volume precedes price. The theory is basic and the question is always the same. Are there more buyers than sellers or sellers than buyers? When a Leibovit Volume Reversal is generated, it is anticipated the price movement will follow through in the same direction. We are not looking at a delayed indicator, we are looking at an indicator that at that moment, buyers have shifted to the plate or sellers have shifted to the plate. It is displayed as a Positive VR or a VR+ on the chart.

    Let’s briefly review the theory behind each of the Add-Ons, before showing you recent examples.

    Leibovit VR Sequential

    The Leibovit VR Sequential expert displays all historical and current Positive VRs and Negative VRs from the market data selected. Leibovit VR signals can provide some of the best leading reversal and trend continuation signals available in the financial trading industry as well as early warning signals prior to major market moves. The Leibovit VR Sequential expert can also be utilized as a component in a trading system and allows for additional trading indicators to be applied to the same expert chart. The VR indicator can be both saved as a chart and as a custom MetaStock template should you choose to use it as part of your trading indicators. In the Leibovit VR Sequential expert, every VR on the chart is labeled;a VR+ for a Positive VR, or a VR- for a Negative VR. As shown in the next example, a number is also displayed next to each VR identifying how many successive VRs have occurred in the same direction. VRs are assigned the following numbers in sequence:1-5 and 6+.


    Chart 1

    If a 6+ is displayed after the VR, it means there have been 6 or more Positive or Negative VRs in a row. While the chart will display the number as 6+, the VR Trader Sequential expert commentary will display the exact number of successive VRs in the same direction inclusive of the most current VR signal. The VR Sequential Expert will also display if the VR signal was confirmed by volume and price follow through. A follow through will be displayed on the bar immediately following the VR signal bar if both the volume increased and price moved further in the same direction as the VR. The bar immediately after the displayed VR will be colored in the same color.

    Leibovit VR Directional 

    Leibovit VR Directional can be used alone or can be the basis for a template for use with your own trading indicators. Unlike the VR Sequential Expert which shows all successive VRs in the same direction, the Leibovit VR Directional Expert only shows a newly generated VR when it is in the opposite direction of the previous VR, or the previous VR has hit its defined stop-loss level. As long as a VR has not been stopped out, only the initial VR signal in the direction of a trend is displayed. Sequential VRs are not included in this expert. Since the Leibovit VR Directional Expert can also be utilized for trading, a feature of this expert is that stop losses are placed on the chart as well as included in the commentary. The Leibovit VR Directional Expert also presents its commentary in a trading friendly format including order placement and stop loss levels. Since the only VRs displayed by this expert are the initial VRs in a given direction, several market conditions may be more easily identified. One such condition is that of the trend reversal. These initial directional VRs confirm that shift in control from buyers to sellers or from sellers to buyers, which is the hallmark of the indicator. Intermediate term tops and bottoms are often seen after a trend has been in motion for a period of time.

    Below is an example of Directional VRs generated at the beginning and end of an uptrend.


    Chart 2

    On the left side a Negative VR triggered a downtrend until a Positive VR was generated. Price then rallied for a period of time until a Negative VR showed that the trend had ended.

    The next condition is when several opposing VRs happen in short succession, or when a tight group of VRs in the same direction keep getting stopped out in a short amount of time. These are often little bouts of time when there is a sideways channel and a breakout of the channel is trying to occur. The last VR in the group is usually the successful one, letting you know which way to watch for the breakout. The example below shows a quick succession of VRs with reversals and stops in short succession with a Positive VR at the very end which led to a channel breakout to the upside and that became the more powerful signal. During the course of the channel you can see there were a couple of trades along with a stop (the small blue stop sign on the left side of the chart) where a Positive VR did not work out. The stop said to exit the trade.


    Chart 3

    Leibovit VR 2 Day 

    While the name of the expert refers to a 2 Day concept, it really means 2 bars. It is perfectly fine to use this expert on lower or higher timeframes rather than just daily bars. The VR 2 Day expert is another VR expert that can also be used as a trading system all by itself. The principle behind this expert is simple.

    When a VR is generated this expert will exit the position on one of three conditions:

    1. A stop loss is triggered
    2. An opposing VR occurs
    3. Two trading bars have passed

    The last rule is what makes this expert different as it is designed to get out of a position quickly. In fact some of the studies we have done show that on the 2 Day daily plays, a 70% reliability factor exists.

    The example below shows a string of four profitable Leibovit VR 2 Day trades in a row. Each trade was entered at the open of the bar after the VR was generated and exited at the close of the following bar.


    Chart 4

    Because of the fast nature of this expert it allows for more positions to be entered and exited during the same time that other experts may hold on to a position that an initial VR signal generated.

    When trading this expert, the 2 Day exit should be taken as close to the close of the exit bar as possible instead of waiting until the opening of the next bar. The gaps that occur between the closing and opening of bars in this expert can mean the difference between a profitable trade and a losing one.

    One important point to make here is MetaStock shows only one symbol on a chart for any given bar. Because of this occasionally an exit signal will not be displayed on a chart after the two bars have passed. This happens when there is a new VR signal on the second bar after an initial VR signal. With a new VR signal occurring, it is deemed more important to chart the new VR signal than to show the exit on the chart as the new VR signal would result in the previous entry having to be exited anyway.


    Chart 5

    Even though the exit does not show on the chart, all of the information concerning the trade is shown properly in the expert advisory commentary which can be pulled up on your MetaStock screen.

    The example below shows a string of four profitable Leibovit VR 2 Day trades in a row. Each trade was entered at the open of the bar after the VR was generated and exited at the close of the following bar.

    Applying the Leibovit Volume Reversal Add-Ons to the SIVR Weekly charts

    Below, is an example of the Leibovit VR Sequential, the Leibovit VR Directional and the Leibovit VR 2-Day applied to the weekly chart of SIVR (the ETFS Physical Silver Shares ETF). I chose SIVR because of the recent heightened interest in Silver and because of the strong correlation of my Leibovit VR signals to movement in the security. I chose a weekly chart to demonstrate that the applicability of my indicators are not necessarily for trading and can of great use for longer-term investors and for money managers seeking an intermediate timing tool.

    In the recent strong Silver market, it can be legitimately argued (in hindsight) that a buy and hold strategy would have made more sense than any trading system or discipline. That said, both the Leibovit VR Sequential and the Leibovit VR Directional have caught the lion share of the recent move, while the Leibovit VR 2-Day did exactly what it was supposed to do – get you out with a quick trade in two bars!

    SIVR WEEKLY LEIBOVIT VR SEQUENTIAL:



    SIVR WEEKLY LEIBOVIT VR Directional:



    SIVR WEEKLY LEIBOVIT VR 2-Day:


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    Support Tip

    How do I get Greeks in QuoteCenter?

    Contributed by MetaStock Support

    For QuoteCenter Only

    Have you ever wondered why the Greeks are so important for options traders? Well, the Greeks tell traders how much risk their option positions have.

    There are many ways of estimating the risks associated with options, such as the risk of the stock price moving up or down, implied volatility moving up or down, or how much money is made or lost as time passes. These risks are determined through mathematical formulas collectively known as the "greeks", because most use Greek letters as names. Each greek estimates the risk for one variable:delta measures the change in the option price due to a change in the stock price, gamma measures the change in the option delta due to a change in the stock price, theta measures the change in the option price due to time passing, and vega measures the change in the option price due to volatility changing.

    Here's how you can look up the Greeks in QuoteCenter:


    1. Open a new workspace by going to "File", then "New Blank Workspace".



    2. Double click anywhere in the new workspace.
    3. Select OptionWatch and click "OK".



    4. Double click again in the white space and select Analytics. Click "OK".



    5. Click on the chain icon or go to "Edit", then "Add/Delete Visual Link" from the tool bar.


    Chain Link


    Edit - Add/Delete Visual Link


    6. You pointer should have a little chain link at the bottom. Click the black area of the OptionWatch window, hold, and drag it to the Analytics1 window.
    7. When asked what kind of link you want to create select "Display Analytics Page". Click "OK".



    8. When asked "What parameters do you wish to use?" select or enter "/T".
    9. In the OptionWatch window, type in your ticker symbol and hit enter.
    9. Click on any green or red symbols in the OptionWatch window. These are the options contracts currently active. Double clicking will display all of the Greeks for the selected option in the Analytics window. The Greeks will appear in the bottom right hand corner.



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    MetaStock Power User Tip

    Creating a Custom Watch List

    Contributed by Breakaway Training Solutions

    In this six minute video, you’ll learn how to create your own watchlist of securities using MetaStock’s Favorites folder. You’ll also discover how to modify the list of securities, add multiple securities at one time and scroll through your favorite charts quickly to find buy and sell signals. Have a look!

    https://www.learnmetastock.com/FreeStuff/FreeVideos/Favorites/FavsWorkingWith.html

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

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    March - April 2011 MetaStock Monitor

     

    In this issue:


    Main Article

    Importance of Understanding Support & Resistance Levels

    Contributed by Dr. John Keppler

    Trending & Non-Trending Markets

    If we take a close look at any price chart of a liquid and active financial instrument, we will immediately notice that prices usually move in a series of waves or peaks and valleys on the chart.
     
    The direction of these consecutive peaks and valleys provide us with a lot of valuable information about price action and market sentiment. They actually help us to determine the direction of a trend and identify key levels of support and resistance. These valleys and peaks create trading opportunities for traders to enter or get out of trades. Professional traders always like to buy at support and sell at resistance, since these trades will usually have a much higher probability of success.

    To help us in understanding theses valleys and peaks, traders need to always keep in mind that an uptrend is defined by a series of consecutive higher peaks or higher highs and higher lows. A down trend, on the other hand, is established when prices follow a sequence of lower highs and lower lows.

    In a non-trending market prices stay within a sideways range, we tend to see prices making equal highs and equal lows. The highs and lows are not always at the exact point, but they are usually close to one another. When this occurs in the market, prices are usually consolidating prior to a move. There is no directional conviction in the market when prices become range bound in a sideways market. It is a period of uncertainty;many traders take a wait and see approach to the market.

    Support & Resistance

    The valleys or lower pivots help us in identifying the support levels, while the peaks highlight price resistance points. A price support point or level is a place where buying interest is sufficiently strong to overcome selling pressure. As a result, prices hold at this level and eventually start to rise. Consequently, they provide great buying opportunities. On the other hand resistance points are the exact opposite of support, they represent price levels where sellers dominate and are able to overcome buyers. Price increases are halted by resistance and eventually prices start to drop.

    It’s important to understand that in an uptrend, resistance levels may represent pauses or resting periods in the uptrend and not necessarily reversal points. Similarly, support points in a downtrend may also be a brief intermission in the downtrend and not a reversal of price direction.

    It’s critical for a trader to recognize that an uptrend is not broken until prices start to create lower highs and lower lows. Similarly, a downtrend ends as soon as prices start to make higher highs or higher lows.

    If a corrective drop occurs in an uptrend that causes prices to drops all the way down to the previous low, but then prices continue to move back up, it may be an early warning sign that the uptrend is weakening and may in fact be close to ending. However, technically speaking as long as the prior low was not broken the uptrend was not broken. Sometimes, the trend is not broken and prices will move sideways for a period of time before continuing to move back up again. Trends are very powerful forces in the market and smart traders should always do their best to stay on the right side of a trend.

    Support & Resistance Psychology

    To understand the psychology of activity at support and resistance, we need to first understand the different postures or positions that traders may have at any price point. When we arrive at a support level, we are going to find traders that are holding long positions, traders that are holding short positions and traders that are holding no positions but are looking to get in.

    At the support level, strong buyers are stepping in and prices are starting to hold. Traders with a long position that entered the trend at a wrong point, and were previously in a losing position, are now pleased that their losses are starting to dwindle and that new prices will start to move their way. They may in fact be looking to add to their positions.

    On the other hand, when traders who are short will recognize the support level, they will exit and cover their shorts generating more buying power. Traders that are still outside will fall into two groups, one group realizes prices are rising and they decide to immediately enter and thus help propel prices higher. The other group is still waiting for prices to dip back so they can enter at a better price.

    So as you can see there are several groups that are eagerly waiting to buy a price dip. Naturally, if and when prices decline back near support more buying takes place. The support level becomes stronger and prices get an upward lift. Consequently prices continue to push up, until they encounter resistance.
     
    Once again, when we arrive at a resistance level, we are basically encountering supply or strong selling pressure. Recognizing this fact, many traders that are holding long positions will want to get out quickly to capture their profits and thus create an increase to the selling pressure. Traders that did not exit quickly are now dealing with the psychology of watching profits slip away as prices continue to drop before their eyes. They are praying and wishing for prices to move back up to capture a little more profit and capture some of the gains that they had previously seen.

    As soon as prices pull back up towards resistance they see this as their opportunity to immediately get out and sell their long position. This in turn creates another wave of added selling pressure. Traders on the sidelines are watching prices and they can see that even when prices pulled back towards resistance they dropped again, this gives many traders on the outside their queue to short and get into the market. Sure enough this creates more added selling volume and continues to push prices lower. The resistance point holds and prices continue to drop until buyers decide to step in creating a level of support. This behavior occurs continuously in the market in every time frame. Consequently, it’s helpful for traders to understand the psychology behind the opportunities that present themselves. It helps them to time their entries better and gain a greater sense of confidence in the market. Knowledge and education are always the best foundation for profitable trading.

    About Dr. John Keppler 
    The Strategic Trading Institute was founded by Dr. Keppler. It provides traders and investors with an outstanding education and powerful set of trading strategies. Its programs deliver a solid & practical market education for trading Stocks, Futures, Forex and Options.Our lead instructor, Dr. Keppler, brings an exceptional level of expertise and teaching experience to all of the courses offered.

    Dr. Keppler holds a Bachelor’s degree in Electrical Engineering, a Bachelor’s degree in Business Finance, an MBA and a PhD in Business. He has taught at the University Of Utah School Of Business, the University of California and the College of Notre Dame. He has been a business professor and a strategic trader for over twenty years.

    Dr. Keppler has developed a variety of proprietary strategic trading systems and indicators. Utilizing his trading knowledge and educational expertise, he has designed and developed a number of strategic trading educational program. These simple and systematic programs help guide beginners, new traders and investors through the maze of financial markets. Dr. Keppler is nationally recognized for his unique and dynamic style of teaching;he thrives on interacting and coaching his students towards the path of financial freedom.

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    Support Tip

    How do I install Reuters Tools into Excel so that I can set up a DDE link between QuoteCenter and Excel?

    Contributed by MetaStock Support

    For QuoteCenter Only

    Have you ever wanted to combine the power of QuoteCenter with Excel? This tip helps you do just that! Linking QuoteCenter and Excel together allows you to export data directly from QuoteCenter into Excel with minimal effort. Once exported into Excel, the data will continuously update itself as long as the market is live. This is also a great way to take advantage of Excel's charting capabilities with QuoteCenter data.

    1. Click Customize Quick Access Toolbar pull-down menu.




    2. Click "More Commands".
    3. Click "Add-ins".
    4. Select "Manage Excel Add-ins".
    5. Click "Go".



    7. Click "Browse".
    8. Browse to:C:\ QuoteCenter\USERFILES\XL_Files or C:\Program Files\Equis\QuoteCenter\XL_Files (in older versions of QuoteCenter).
    9. Double click "Btools.xla".
    10. Click "OK".
    11. To use, open Add-ins menu.
    12. Select Reuters Tools and desired tool (such as symbol table).

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    MetaStock Power User Tip

    Backing Up MetaStock

    Contributed by Breakaway Training Solutions

    Do you have a backup of your important MetaStock files for safe keeping?

    Computer problems are no fun for anyone so it's extremely important that you always have a backup of your important files. Here's a really simple way to back up your MetaStock program so you don't lose your hard work.

    First of all, you need something to store your backup on. If you don't have something already, I would recommend that you take a look at an external hard drive. For less than $100, you can get one that will hold 500 gigabytes or more. One of the nice things about an external hard drive is that when you're done, you can disconnect it from your computer and store it in a safe place.

    To make your backup of MetaStock, all you need to do is make a copy of the Equis folder and paste it in the storage device location. If you installed your program using the default settings, you'll find it located under C:\Program Files. Locate the folder called Equis, right-click on it and choose Copy. Navigate to where you're going to place the backup folder, right-click and choose Paste.

    To make a backup of your MetaStock data files, you'll find a folder called MetaStock Data located directly under your C drive. Once you find it, just right-click on the MetaStock Data folder and choose Copy. Navigate to where you want to place the backup data folder and paste it in that location. It's that easy!

    To see Kevin Nelson demonstrate this lesson, just watch this three minute video.

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

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    January - February 2011 MetaStock Monitor

     

    In this issue:


    Main Article

    How to Cash in on Temporary Inefficiencies in the Equities Market

    Contributed by Dr. Stephen Cooper

    One of the debates that have been carried out in certain financial circles is the idea of "market efficiency" as it relates to the Stock Market. It goes something like this:Are the current prices of stocks and other instruments representative of realistic value? It is argued that by the time an individual investor considers the purchase of a particular stock, future expectations or concerns for example, all the reports (good or bad) have already been factored into the current share price.
     
    If this "efficient market" theory is correct then it becomes challenging for a stock market speculator to find under priced stocks to buy. Viewed on the whole, the stock market certainly does display price efficiency over time. But there is an important dynamic involved that opens windows of opportunity if you know how to find them.

    There are in fact brief periods of clear inefficiency in pricing that allow individuals chances to cash in. Because of over-reactions to news or world events, whether good or bad security prices may swing wildly and exceed reasonable short-term valuation changes. These over-exuberant buying or selling sprees pull prices into a condition of imbalance. The market will soon pull these inefficient prices back toward a more normal range and thus return them to relative efficiency.

    One of the best ways that I know of to make consistent profits in the stock market is to capitalize on these brief departures from normal/efficient territory by opening positions that benefit from their return to efficiency. I'll show you what I mean.


    Figure 1

    Share prices of CAH dropped about $10 in one single day in July. This was an enormous percentage loss for CAH. When you see this kind of price change in one day the first question to be asked and answered is, "Why?" What could be so terrible as to cause this kind of carnage? Here is the interesting thing in all this. Quite often the bad news just isn't so bad. Here is an example of the overreaction I mentioned earlier. Market participants both professional and novice very frequently hear some bad or good news and then just go crazy! As price begins to move in reaction to the news a snowball effect can set in where the buying or selling frenzy pulls in more and more traders, exacerbating the situation. When this happens we have a prime opportunity to make some money. What if we were to buy some shares of CAH after we checked the news and decided that the bad news wasn't really so bad after all and that CAH is not going belly up tomorrow morning as the selling might indicate? On the next chart we'll add the price action that took place on the very next day after this incredible selling fit.


    Figure 2

    In spite of the incredible amount of selling and resultant price loss of CAH during one trading session the very next session showed a good amount of buying and price increase. Enough people had woken up the next morning and said to themselves, "Hey, it's not that bad. CAH is actually a bargain at this price. I think I'll buy me some!" And buy they did.

    In fact the buying was not restricted to the day immediately after the plunge but continued on through a number of trading sessions as shown in the third chart, below.


    Figure 3

    There are a number of trading techniques that take advantage of temporary market pricing inefficiency. Until you become accustomed to using them it does take a bit of courage to go against the stampede of other investors and traders but if you do, the pay-offs can make it well worth the effort.

    I suggest that you try this simple technique as explained here with paper trading first. Here is how to do it step by step. I call this "Slamming".

    1. Find stocks that have been hammered by 15% or more in one day. You can find these listed at www.OnlineOption.com under RESOURCES/SLAMS.
    2. Choose only strong, well known companies to do this with such as those listed on the NYSE.
    3. On the day following the slam enter a long position provided that price is rebounding.
    4. As with all trades, immediately place a trailing stop order after the position has been opened. With stocks use a dollar amount equal to 10% of the share price paid.
    5. If the stock immediately rebounds after the slam day tighten your trailing stop or sell your shares for 10% or more gain.

    Conclusion 

    Though the stock market retains general price efficiency over time there exist brief periods of distinct price inefficiency which can provide highly profitable opportunities for anyone willing to capitalize on them. By following a clear plan of action you can make excellent short-term gains with high probability trades. Open these positions with a small number of shares or contracts, especially if you are a beginning trader. Be sure to first paper trade to gain experience and confidence before committing your dollars to the markets.

    About Dr. Stephen Cooper

    Dr. Stephen Cooper began studying the stock market in 1985 while in private chiropractic practice. He started his trading experience in the commodities market. This practical experience was followed by stock and option trading. This interest became a passion and Dr. Cooper continued studying the markets and chart analysis along with actively trading over the next 13 years while continuing practice. In 1998, Dr. Cooper retired from his chiropractic practice to become a full-time trader.

    Because of his trading success over a number of years, Dr. Cooper was urged to share his trading philosophy and techniques with others. As a result, he authored The Online Option Trader in 1999. This work is designed to take the student from little or no knowledge of the stock market to proficiency in trading stocks and options.

    The popular stock and option training site www.OnlineOption.com was created in late 1999 to augment resources available to his students. Now in its 11th year OnlineOption.com has become the research and interaction hub of a vibrant community of traders from around the world.

    In 2001, following numerous requests for further training and help with stock charts, Windows to Wealth was completed. This 327 page book is dedicated to the understanding and practical application of chart principals and techniques.

    Dr. Cooper is also a popular speaker, writer and trainer, conducting live trading workshops, online courses, personal one-on-one coaching, and ongoing market commentary.

    Back to top


    Support Tip

    How do I create a custom symbol list for a particular index in the QuoteCenter application?

    Contributed by MetaStock Support

    For QuoteCenter Only

    1. Go to your computer and access the Equis International folder.



    2. Open the QuoteCenter application. Once in QuoteCenter, go to file and open "New Blank Workspace".



    3. Double click anywhere in the whitespace.
    4. Select "Marketwatch". There is a list of pre-populated Marketwatch lists on the right hand side under "Select SymbolList". If you want to create your own, select "OK".



    5. Type in the symbol field. (This is the first column on the left.)
    6. In the symbol field of a MarketWatch type in "..!CountryCode!Symbol". The country code must be in lower case and the symbol must be in all caps. After entering this, you must hold shift when you hit enter.
    6a. Example:..!us!SPX then SHIFT+ENTER.



    7. This will populate the marketwatch with all of the symbols contained with the given index symbol.
    8. Right click onto the back ground of the MarketWatch and select "SymbolList", then "Save As...". Give it a name and hit "OK".


    Back to top


    MetaStock Power User Tip

    How to Create a Toolbar Shortcut

    Contributed by Breakaway Training Solutions

    Do you find yourself always applying the same template, layout, or chart? If so, you might want to consider creating a shortcut in order to save time.

    At the bottom of your screen, you'll find the existing shortcut toolbar.



    Open it up by right clicking anywhere in the toolbar, and select Custom Toolbar Properties. Here you'll be able to create your own shortcut.

    Begin by clicking on the New button.



    Select Browse.



    If you installed your MetaStock program with the default settings, you'll find your templates, layouts and charts installed under C:\Program Files\Equis\MetaStock\Charts.



    At the bottom of this window under the Files of Type selection, you'll be able to choose either Template, Layout, or Chart.

     

    Once you make your selection, click the Open button and click the Next button.

    Here you'll be able to select the icon that you want to associate with your shortcut.



    Once you've made your selection, click Next, Finish and, finally, OK.

    If you created a shortcut to a template, you'll first need to make sure that you have a chart loaded on your screen. You should then see your shortcut icon displayed, which you can use immediately to apply your template.

    To see Kevin Nelson demonstrate this lesson, just watch this three minute video.

    For more MetaStock training, make sure to visit us at www.learnmetastock.com or email us at admin@learnmetastock.com.

    About Kevin Nelson 

    Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

    ©Breakaway Training Solutions, Inc. 2011

    Back to top

    November - December 2010 MetaStock Monitor

     

    In this issue:


    Main Article

    Gap Quotient

    Contributed by Steve Lentz

    Gaps are the enemy. Yes, that's right. Some traders have real enemies in life and gaps can rank right up at the top.

    At DiscoverOptions, we teach non-directional short option premium strategies used successfully by both our mentors and money manager students. One fly in the ointment for these approaches is price gap in the underlying asset from the closing price to the next day's open price. Large gaps can occur quite often with individual stocks due to company announcements and unexpected events. That's why we prefer applying these strategies with index options so that company risk is greatly mitigated.

    But regardless of what underlying assets you trade, you should be aware how gaps affect that market relative to other assets. To illustrate, let's take in Figure 1 below at the gap behavior of the SPY during the crash of 2008.


     
    Figure 1

    Before September 2008, SPY opening gaps were well under 1%. But then on 9/19 and 10/13 of that fall, the SPY had gaps of 5.5% and 6.0% respectively. Up to this time, these were rivaled only by the post 9/11 gap on 9/17/01 of 8.2%.

    More important, though, is the overall character of an asset's gap behavior. We calculate this through the use of average gap levels. Although daily gaps are charted in Figure 1 above, we can take an average of the most recent 20 trading days' gaps and display it with the gap levels.


    Figure 2 

    The gap levels were multiplied by 100 for decimalization and scaling purposes.

    In Figure 2 above, the solid black line is the Gap Quotient (GQ) which is a 20-day simple moving average of the opening gaps. See how the GQ before September was well under 1% and then rose to over 2% by the end of September 2008.

    It's now time to rank several assets by their Gap Quotients, and in MetaStock we do this through the Explorer feature. Figure 3 below displays the formula for the Gap Quotient within the Explorer feature. Digitally, it reads as follows:

    Mov((Abs(OPEN-(Ref(C,-1)))/Ref(C,-1)),20,S)*100

     
    Figure 3:Gap Quotient Formula

    We now run Explorer on a group of pre-selected candidates and, for us at DiscoverOptions, we like to use a list of underlying assets with very tight spreads between the option bid and option asked prices.

    Figure 4 below displays Gap Quotient Rankings from a list of 21 stocks and ETFs that have very tight option bid/asked spreads. These came from a scan I did within OptionVue's OpScan service that can query option bid and asked prices.


    Figure 4:Gap Quotient Rankings 

    With a GC of .306%, the DIA clearly has more stable opening gap behavior than FCX with a GC of over three times as much at 1.167%. This is valuable information if you are an option premium seller and wish to avoid the early morning excitement that opening gaps can bring.

    Of course, some trading approaches might favor opening gaps and in that case a trader could invert the approach and rank assets with the highest Gap Quotients at the top. In this case, I suppose we could amend the opening declaration to say, "Gaps are my best friend".

    About Steve Lentz

    Steve Lentz is the Director of Education and Research at DiscoverOptions, the educational arm of OptionVue Systems, Inc. He can be reached via email at Steve@DiscoverOptions.com or via phone at 847-816-6610.

    Back to top


    Support Tip

    What are the various country codes for the QuoteCenter application?

    Contributed by Equis Support

    For all QuoteCenter and MetaStock versions 9.1 - 11

    Country codes are used as a prefix to symbols (see examples below)

    US;IBM (US = United States)
    AU;AAC (AU = Australia)
    AE;ACICO (AE = United Arab Emirates)

    Country Codes

    AE=United Arab Emirates
    AF=Afghanistan
    AG=Antigua and Barbuda
    AL=Albania
    AM=Armenia
    AN=Netherlands Antilles
    AO=Angola
    AQ=Antarctica
    AR=Argentina
    AS=American Samoa
    AT=Austria
    AU=Australia
    AW=Aruba
    AZ=Azerbaijan
    BA=Bosnia and Herzegovina
    BB=Barbados
    BD=Bangladesh
    BE=Belgium
    BF=Burkina Faso
    BG=Bulgaria
    BH=Bahrain
    BI=Burundi
    BJ=Benin
    BM=Bermuda
    BN=Brunei
    BO=Bolivia
    BR=Brazil
    BS=Bahamas
    BT=British West Indies
    BV=Bouvet Island
    BW=Botswana
    BY=Belarus
    BZ=Belize
    CA=Canada
    CC=Cocos Islands
    CF=Central African Republic
    CG=Congo
    CH=Switzerland
    CI=Cote D'ivoire
    CK=Cook Islands
    CL=Chile
    CM=Cameroon
    CN=China
    CO=Colombia
    CR=Costa Rica
    CU=Cuba
    CV=Cape Verde
    CX=Christmas Island
    CY=Cyprus
    CZ=Czechoslovakia
    DE=Germany
    DJ=Djibouti
    DK=Denmark
    DM=Dominica
    DO=Dominican Republic
    DZ=Algeria
    EC=Ecuador
    EE=Estonia
    EG=Egypt
    EH=Western Sahara
    ER=Eritrea
    ES=Spain
    ET=Ethiopia
    FI=Finland
    FJ=Fiji
    FK=Falkland Islands
    FM=Micronesia (Federated States of)
    FO=Faroe Islands
    FR=France
    FX=France (Metropolitan)
    GA=Gabon
    GB=United Kingdom
    GD=Grenada
    GE=Georgia
    GF=French Guiana
    GH=Ghana
    GI=Gibraltar
    GL=Greenland
    GM=Gambia
    GN=Guinea
    GP=Guadeloupe
    GQ=Equatorial Guinea
    GR=Greece
    GS=South Georgia and The South Sandwich Isl
    GT=Guatemala
    GU=Guam
    GW=Guinea-Bissau
    GY=Guyana
    HK=Hong Kong
    HM=Heard-McDonald Islands
    HN=Honduras
    HR=Croatia
    HT=Haiti
    HU=Hungary
    ID=Indonesia
    IE=Ireland
    IL=Israel
    IM=Isle of Man
    IN=India
    IO=British Indian Ocean Territory
    IQ=Iraq
    IR=Iran
    IS=Iceland
    IT=Italy
    JM=Jamaica
    JO=Jordan
    JP=Japan
    KE=Kenya
    KG=Kyrgyzstan
    KH=Kampuchea
    KI=Kiribati
    KM=Comoros
    KN=Saint Kitts And Nevis
    KP=North Korea
    KR=Korea
    KW=Kuwait
    KY=Cayman Islands
    KZ=Kazakhstan
    LA=Lao People's Democratic Republic
    LB=Lebanon
    LC=St. Lucia
    LI=Liechtenstein
    LK=Sri Lanka
    LR=Liberia
    LS=Lesotho
    LT=Lithuania
    LU=Luxembourg
    LV=Latvia
    LY=Libyan Arab Republic
    MA=Morocco
    MC=Monaco
    MD=Moldova
    MG=Madagascar
    MH=Marshall Islands
    MK=Macedonia
    ML=Mali
    MM=Burma
    MN=Mongolia
    MO=Macau
    MP=Northern Mariana Islands
    MQ=Martinique
    MR=Mauritania
    MS=Montserrat
    MT=Malta
    MU=Mauritius
    MV=Maldives
    MW=Malawi
    MX=Mexico
    MY=Malaysia
    MZ=Mozambique
    NC=New Caledonia
    NE=Niger
    NF=Norfolk Island
    NG=Nigeria
    NI=Nicaragua
    NL=Netherlands
    NO=Norway
    NP=Nepal
    NR=Nauru
    NU=Niue
    NZ=New Zealand
    OM=Oman
    PA=Panama
    PE=Peru
    PF=French Polynesia
    PG=New Guinea
    PH=Philippines
    PK=Pakistan
    PL=Poland
    PM=Saint Pierre And Miquelon
    PN=Pitcairn
    PR=Puerto Rico
    PT=Portugal
    PW=Palau
    PY=Paraguay
    QA=Qatar
    RE=Reunion
    RO=Romania
    RU=Russian Federation
    RW=Rwanda
    SA=Saudi Arabia
    SB=Solomon Islands
    SC=Seychelles
    SD=Sudan
    SE=Sweden
    SG=Singapore
    SH=St. Helena
    SI=Slovenia
    SJ=Svalbard and Jan Mayen
    SK=Slovakia
    SL=Leone
    SM=San Marino
    SN=Senegal
    SO=Somalia
    SR=Surinam
    ST=Sao Tome and Principe
    SV=El Salvador
    SY=Syrian Arab Republic
    SZ=Swaziland
    TC=Turks and Caicos Islands
    TD=Chad
    TF=French Afars + Issas
    TG=Togo
    TH=Thailand
    TJ=Tajikistan
    TK=Tokelau
    TM=Turkmenistan
    TN=Tunisia
    TO=Tonga
    TR=Turkey
    TT=Trinidad + Tobago
    TV=Tuvalu
    TW=Taiwan
    TZ=Tanzania
    UA=Ukrainian SSR
    UG=Uganda
    UM=United States Minor Outlying Islands
    US=United States
    UY=Uruguay
    UZ=Uzbekistan
    VA=Vatican City State (Holy See)
    VC=Saint Vincent And The Grenadines
    VE=Venezuela
    VG=Virgin Islands (British)
    VI=Virgin Islands (U.S.)
    VN=Vietnam
    VU=Vanuata
    WF=Wallis and Futuna Islands
    XS=Multi Country
    YE=Yemen
    YT=Mayotte
    YU=Yugoslavia
    ZA=South Africa
    ZM=Zambia
    ZR=Zaire
    ZW=Zimbabwe

    Names

    Afghanistan=AF
    Albania=AL
    Algeria=DZ
    American Samoa=AS
    Angola=AO
    Antarctica=AQ
    Antigua and Barbuda=AG
    Argentina=AR
    Armenia=AM
    Aruba=AW
    Australia=AU
    Austria=AT
    Azerbaijan=AZ
    Bahamas=BS
    Bahrain=BH
    Bangladesh=BD
    Barbados=BB
    Belarus=BY
    Belgium=BE
    Belize=BZ
    Benin=BJ
    Bermuda=BM
    Bolivia=BO
    Bosnia and Herzegovina=BA
    Botswana=BW
    Bouvet Island=BV
    Brazil=BR
    British Indian Ocean Territory=IO
    British West Indies=BT
    Brunei=BN
    Bulgaria=BG
    Burkina Faso=BF
    Burma=MM
    Burundi=BI
    Cameroon=CM
    Canada=CA
    Cape Verde=CV
    Cayman Islands=KY
    Central African Republic=CF
    Chad=TD
    Chile=CL
    China=CN
    Christmas Island=CX
    Cocos Islands=CC
    Colombia=CO
    Comoros=KM
    Congo=CG
    Cook Islands=CK
    Costa Rica=CR
    Cote D'ivoire=CI
    Croatia=HR
    Cuba=CU
    Cyprus=CY
    Czechoslovakia=CZ
    Denmark=DK
    Djibouti=DJ
    Dominica=DM
    Dominican Republic=DO
    Ecuador=EC
    Egypt=EG
    El Salvador=SV
    Equatorial Guinea=GQ
    Eritrea=ER
    Estonia=EE
    Ethiopia=ET
    Falkland Islands=FK
    Faroe Islands=FO
    Fiji=FJ
    Finland=FI
    France (Metropolitan)=FX
    France=FR
    French Afars + Issas=TF
    French Guiana=GF
    French Polynesia=PF
    Gabon=GA
    Gambia=GM
    Georgia=GE
    Germany=DE
    Ghana=GH
    Gibraltar=GI
    Greece=GR
    Greenland=GL
    Grenada=GD
    Guadeloupe=GP
    Guam=GU
    Guatemala=GT
    Guinea=GN
    Guinea-Bissau=GW
    Guyana=GY
    Haiti=HT
    Heard-McDonald Islands=HM
    Honduras=HN
    Hong Kong=HK
    Hungary=HU
    Iceland=IS
    India=IN
    Indonesia=ID
    Iran=IR
    Iraq=IQ
    Ireland=IE
    Isle of Man=IM
    Israel=IL
    Italy=IT
    Jamaica=JM
    Japan=JP
    Jordan=JO
    Kampuchea=KH
    Kazakhstan=KZ
    Kenya=KE
    Kiribati=KI
    Korea=KR
    Kuwait=KW
    Kyrgyzstan=KG
    Lao People's Democratic Republic=LA
    Latvia=LV
    Lebanon=LB
    Leone=SL
    Lesotho=LS
    Liberia=LR
    Libyan Arab Republic=LY
    Liechtenstein=LI
    Lithuania=LT
    Luxembourg=LU
    Macau=MO
    Macedonia=MK
    Madagascar=MG
    Malawi=MW
    Malaysia=MY
    Maldives=MV
    Mali=ML
    Malta=MT
    Marshall Islands=MH
    Martinique=MQ
    Mauritania=MR
    Mauritius=MU
    Mayotte=YT
    Mexico=MX
    Micronesia (Federated States of)=FM
    Moldova=MD
    Monaco=MC
    Mongolia=MN
    Montserrat=MS
    Morocco=MA
    Mozambique=MZ
    Multi Country=XS
    Nauru=NR
    Nepal=NP
    Netherlands Antilles=NR
    Netherlands=NL
    New Caledonia=NC
    New Guinea=PG
    New Zealand=NZ
    Nicaragua=NI
    Niger=NE
    Nigeria=NG
    Niue=NU
    Norfolk Island=NF
    North Korea=KP
    Northern Mariana Islands=MP
    Norway=NO
    Oman=OM
    Pakistan=PK
    Palau=PW
    Panama=PA
    Paraguay=PY
    Peru=PE
    Philippines=PH
    Pitcairn=PN
    Poland=PL
    Portugal=PT
    Puerto Rico=PR
    Qatar=QA
    Reunion=RE
    Romania=RO
    Russian Federation=RU
    Rwanda=RW
    Saint Kitts And Nevis=KN
    Saint Pierre And Miquelon=PM
    Saint Vincent And The Grenadines=VC
    San Marino=SM
    Sao Tome and Principe=ST
    Saudi Arabia=SA
    Senegal=SN
    Seychelles=SC
    Singapore=SG
    Slovakia=SK
    Slovenia=SI
    Solomon Islands=SB
    Somalia=SO
    South Africa=ZA
    South Georgia and The South Sandwich Isle=GS
    Spain=ES
    Sri Lanka=LK
    St. Helena=SH
    St. Lucia=LC
    Sudan=SD
    Surinam=SR
    Svalbard and Jan Mayen=SJ
    Swaziland=SZ
    Sweden=SE
    Switzerland=CH
    Syrian Arab Republic=SY
    Taiwan=TW
    Tajikistan=TJ
    Tanzania=TZ
    Thailand=TH
    Togo=TG
    Tokelau=TK
    Tonga=TO
    Trinidad + Tobago=TT
    Tunisia=TN
    Turkey=TR
    Turkmenistan=TM
    Turks and Caicos Islands=TC
    Tuvalu=TV
    Uganda=UG
    Ukrainian SSR=UA
    United Arab Emirates=AE
    United Kingdom=GB
    United States Minor Outlying Islands=UM
    United States=US
    Uruguay=UY
    Uzbekistan=UZ
    Vanuata=VU
    Vatican City State (Holy Sea)=VA
    Venezuela=VE
    Vietnam=VN
    Virgin Islands (British)=VG
    Virgin Islands (U.S.)=VI
    Wallis and Futuna Islands=WF
    Western Sahara=EH
    Yemen=YE
    Yugoslavia=YU
    Zaire=ZR
    Zambia=ZM
    Zimbabwe=ZW

    Back to top


    MetaStock Features

    MetaStock Wrote the Book on Technical Analysis

    Contributed by Derek McKusick

    Steven Achelis, the founder of MetaStock, published the first edition of the hugely popular reference guide Technical Analysis from A to Z in 1995. Since then it has established itself as required reading for anyone serious about learning and mastering technical analysis.

    Whether you are a novice technical analyst or an exceptionally experienced trader, Technical Analysis from A to Z must be included in your library.

    Overviews, interpretations, explanations, real-world examples, and numerous detailed insights to the calculations behind the indicators are all laid out in an easy to follow format.

    It is comprehensive, concise and "user friendly". Its expansive range of information begins simply with common technical analysis terminology and history and eventually encompasses, with full explanations, an incredible range of 135 of the most popular technical indicators. From line charts to Fibonaccis, from Moving Averages to William's %R, from Absolute Breadth Index to Zig Zag. From A to Z....

    Technical analysis is predicated on the premise that the better informed and more disciplined a trader becomes, the more sound his trading decisions will be. Consider including Technical Analysis from A to Z in your trading arsenal. Whether you are just beginning to learn or want a refresher, the increased level of expertise will give you the extra fire power to win in the markets.

    Feel free to contact us for more information on Technical Analysis from A to Z via telephone 800.882.3040 (US) or 001.801.265.8886 (International) or email.

    Insider tip: When you make your next purchase or subscription to a MetaStock Product or add-on, mention this article and you will receive a free copy of Technical Analysis from A to Z.

    Back to top

    September - October 2010 MetaStock Monitor

     

    In this issue:


    Main Article

    You know Fibonaccis, but do you know Fibonacci Time Studies?

    Contributed by John Jagerson

    Most traders using Fibonacci analysis will stick to retracements, projections and fans, which is fine but Fibonacci analysis can be enhanced by using time projections as well. Fibonacci time forecasts are applied to a chart like other Fibonacci studies but are based on the actual number series rather than the ratio between the numbers in the Fibonacci series.

    What is a Fibonacci Time Study? 

    A time forecast uses the Fibonacci number series (1,1,2,3,5,8,13,21...) to identify potential "areas of interest" in the future. They are applied easily to a chart at a significant price bottom or top. Usually it is applied at the same price point you would have used for the first or second anchor point of a Fibonacci retracement or fan study. The study appears on the chart as a series of progressively wider vertical lines.

    Fibonacci Time Study applied to a chart of the SPDR S&P 500 ETF (SPY)
     
    In the chart above you can see how the vertical lines coincided with a short correction to the downside in July and a strong bounce off support recently at the end of August. Picking those two points out of the other potential signals was intentional. Later in this article I will explain why these two points were so interesting.

    Most of the time, you should ignore the first five or six very closely clustered vertical lines as noise and not very relevant. However, you should start paying attention to the wider spaced 7, 8, 9 and 10 lines. There are lines beyond that, but they begin trending out so far into the future that you will probably have updated your analysis by then.

    When to use Fibonacci time studies 

    Whenever you're in a trade the time study will help you watch for levels at which reversals are more likely to occur. When you are looking for new trade opportunities with a retracement or fan study, the time forecast can be used to add to the probability of a successful outcome.

    Time forecasts also add weight to potential support or resistance levels and help identify when a bounce or change of trend could appear. Knowing where and when you may want to pay the most attention to your analysis is a great way to optimize your trading efforts.

    Fibonacci time studies in action 

    Combining the Fibonacci time projection with a Fibonacci retracement can help clarify the signals and make them much more predictive. In the next chart I have left the time projection at the same point but have layered a Fibonacci retracement anchored between the major high in April and the lowest point of the current channel in July. The chart is getting a little crowded but with a little practice it isn't too difficult to see the signals.

    Fibonacci Time Study and Retracement applied to a chart of the SPDR S&P 500 ETF (SPY) 


    The time study coincided with two of the retracement levels on the chart. Unlike most technical indicators that rely on historical data, Fibonacci retracements and time studies aren't relying on historical data and therefore don't necessarily add any lag to your entries or exits. This is a big advantage when using more than one indicator at a time.

    The time projection can tell you, in advance, when you should be paying the most attention to a potential support or resistance bounce. Expanding your chart to the right can show you the future time study levels so you can make sure you are paying attention on those dates specifically.

    How to draw time projection studies 

    We recommend the Fibonacci time projection be applied in combination with a retracement or fan study. The time projection should be attached to a major top or bottom in the trend just like you would with other fibonacci studies. Because the time projection lines or intervals are fixed, a second anchor point is not usually required.

    Ignore the first five intervals

    Because the time projection is based on the Fibonacci number series the first interval will be drawn one candle away from the anchor, the second interval will also be one candle beyond the first one, the third will be 2 candles away from the second interval, the fourth interval will be 3 candles from the third, the fifth interval will be 5 candles away from the fourth and so on... (1,1,2,3,5,8,13...)

    As a result, the first few intervals are not much more than static. Save yourself some effort and feel free to ignore them. The sixth interval is where you should begin your analysis.

    Planning a trade

    You should design your trade in the same way you would when using a Fibonacci retracement. Do not take more risk than you might normally, as trading is all about consistency and it is bad practice to radically change your position size from trade to trade.

    Using time studies to control risk

    As with all Fibonacci studies, time projections can be a good warning the current trend could be disrupted. It does not mean you have to get out of your trade just because a time projection interval appears, but it may be a great time to be more conservative in your risk control.

    Frequently however, traders get a 'lot size' mentality. They are comfortable trading one contract of many markets, but get skittish at the possibility of having 10 contracts on one instrument and 2 on another. Many traders become anxious if they have different contract sizes in different markets. If you suffer from this anxiety don't let it get you down. Professional and seasoned traders get caught in this trap.

    John Jagerson, Analyst at Learning Markets

    About Learning Markets

    Learning Markets offers daily articles, videos and investing guides - for free - about everything from investing in stocks and options to trading currencies in the forex market and more. Visit LearningMarkets.com to learn more about investing and to interact with other investors just like you.

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    Support Tip

    How can I find a MetaStock User group in my area?

    Contributed by MetaStock Support

    For all MetaStock versions

    MetaStock has many active user groups located around the world. User groups are created by MetaStock enthusiasts as a place where MetaStock users can meet, share ideas, and learn how to better use their MetaStock software. Most user groups do not have any fees associated with them and meet on a regular basis.

    User Group Search (United States and International): https://www.metastock.com/customer/resources/usergroups/ 

    MetaStock Public Forum: https://forum.metastock.com/search/SearchResults.aspx?q=user+groups


    Back to top


    MetaStock Features

    John Murphy's Chart Pattern Recognition Review

    Contributed by Ken Spelman

    This multi-award winning add-on from John Murphy is one of the most popular and easiest to use add-ons available for MetaStock. If you can run a basic scan using the Explorer tool in MetaStock, you can use this program.

    CPR can be used for all types of securities - Stocks, ETF's, Commodities, e-mini's or Forex. It should be used with daily data and I have found it best when used on a large block of securities. The program can scan for both Reversal Patterns and Continuation Patterns. Here are the patterns it scans for:

    Reversal Patterns: 

    Head and Shoulders
    Inverse Head and Shoulders
    Triple Tops
    Triple Bottoms
    Double Tops
    Double Bottoms

    Continuation Patterns: 

    Symmetrical Triangles
    Ascending Triangles
    Descending Triangles

    John Murphy's Chart Pattern Recognition scans for all patterns at one time and gives you a nice, easy report. CPR goes beyond simply identifying the patterns on your chart. Each pattern is computer-verified and supplemented with John Murphy's own expert commentary. Simply click on the identified pattern to read the specific details on how he feels this pattern rates. Was the breakout from the pattern significant enough to warrant a trade? What is the likely price projection for this type of pattern? How long will it likely take to reach the projected price? You'll get all of this trading detail and more!

    Chart Pattern Recognition has won numerous awards from the prestigious Technical Analysis of Stocks and Commodities Magazine Readers' Choice Award plug-ins category. It was the winner from 2006-2009 and first runner up from 2004-2005 and 2010.

    If you have any questions regarding this software please call Ken Spelman at 1-800-587-8018 or 001-801-270-3112 or email at Ken.Spelman@thomsonreuters.com.

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    July - August 2010 MetaStock Monitor

    In this issue:


    Main Article

    Up In Arms

    Contributed by Dick Arms

    All of the opinions expressed are based entirely on technical considerations, and founded on the unique methods discussed in Mr. Arms' various books. These are trading suggestions, and are often in fast moving and speculative issues. Traders should be aware of the risks involved in such an approach. Illustrations are Equivolume charts. In this charting method volume rather than time is used for the horizontal axis. Each box, therefore, represents one day of trading, with its width representing the relative volume for that day, and its top and bottom representing the high and low for the day. Readers may want to familiarize themselves with this methodology by reading one or more of the books. The charts are shown courtesy of MetaStock. For more information see www.metastock.com/arms.

    ABSOLUTE PERCENT CHANGE (APC)

    In recent columns I have referred to the Absolute Percent Change, or APC, usually when writing about market indicators but I have not gone into details on its derivation, its interpretation, or its importance. Therefore, instead of my usual column I would like to spend a little time explaining this simple but valuable indicator I recently developed. It is a very basic market measurement that should, one would think, have been developed and studied a century or more ago, but I have been unable to find any reference to this calculation in any of my references. I stumbled across the idea and started to look at it in a basic form, applying it to the Dow Industrials some years ago, but more recently I have become aware that it is applicable to individual stocks and even to other instruments such as commodities.

    THE BASIC REASONING

    I observed markets (and later stocks and commodities) tend to show less movement as they get near tops. On the way up or down the day-to-day changes tend to be larger;larger in both directions. And, surprisingly, the biggest changes tend to come in on bottoms. Evidently fearful selling at bottoms is a far more powerful emotion than the excessive greed evident as tops are made. Therefore it made sense to try to illustrate this. To do so I merely calculated the day-to-day percentage change, ignoring whether it was up or down, and smoothed the results. The result was amazing.

    CALCULATION 

    One needs only to take the change in price from one day to the next, and divide it by the current price in order to eliminate price bias. The result is expressed as an absolute. In other words, whether the change is up or down is immaterial. I then run a moving average of the data, usually using a ten-day. To make it easier one can apply a simple formula to MetaStock charts as shown in the examples that follow. I prefer to change the vertical scale by inverting it and using a log scale, in order to make the results easily equated to price. The highs in the APC thereby tend to align with highs in the security, and vice versa.

    On the chart below we are looking at a daily chart of the Nasdaq Composite, using the Equivolume methodology. Above it is the APC, inverted and on a log scale. Note how well the highs and lows of the APC match the highs and lows of the Nasdaq. It is apparent that extremes in the APC are strong signals of likely future direction. Selling when the APC is low, or buying when it is high could prove unhealthy in most cases. Keep in mind the APC is an oscillator, and does not contain a price level. So, whereas a market can go higher and higher or lower and lower, an oscillator is restricted to a band. The Nasdaq has been in a steady climb, but the APC has gone to plus and minus extremes, alerting us to the swings on the way up.

     

    Now let's look at an individual stock. Here is Microsoft over the last nine months. Again, look at the way in which an erratic series of waves has been defined with an oscillator.

     

    And finally, let's take a look at Crude Oil. It too seems to be giving us good signals.

     

    In future columns I will often be referring to the APC, and including it on many charts. Readers who want to do it themselves might wish to check out the MetaStock charts at www.MetaStock.com/arms. The formula needs to be inserted as it is not yet a part of the MetaStock menu. It is:Mov(Abs((C-Ref(C,-1))/C),10,SIMPLE);

    About Dick Arms 

    Dick Arms' Equivolume charting and Arms Index are a part of the MetaStock programs. He is the author of six investment books, and writes a twice weekly column for the Realmoney site on thestreeet.com, as well as a weekly advisory letter for institutions.

    Article reprinted by permission from thestreet.com.

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    Support Tip

    How do I change to the next security without using the mouse?

    Contributed by Equis Support

    For MetaStock versions 6.52 - 11

    First you must have an open chart in MetaStock.

    • ALT + Left arrow will display the previous security

    • ALT + Right arrow will display the next security

    If you have opened a security in a local folder or a group or sub group of the symbol database (let’s take the NASDAQ 100 for example), when using the above method, you will scroll from one security to the next (in alphabetical order) in the NASDAQ 100 folder.

    If you open a security from the root level of data on demand (using the Reuters DataLink or QuoteCenter/eSignal button), it will go to the next security within the entire symbol database alphabetically. For example, if you open Google and scroll to the next security, it would open Golden Opportunities Corp.

    There are additional parameters that can be applied to this scroll function. To learn more, please visit the help within MetaStock, searching on “scanning charts”.

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    MetaStock Features

    Fine Tuning Your Trading with MetaStock

    Contributed by Derek McKusick

    The most successful traders are systematic and methodical. MetaStock has been the industry’s technical analysis standard bearer for decades precisely because it equips traders with the best tools allowing them to make trading decisions based on set criteria and reliable analysis rather than emotion and spur of the moment hunches. There is much wisdom in the “if it ain’t broke, don’t fix it” maxim when it comes to a trader’s system and approach to buying and selling in the markets.

    However, MetaStock also provides extraordinarily comprehensive, versatile and customizable features and tools so a trader may adapt to changes in their trading environment. It could be worthwhile to occasionally look for opportunities to expand beyond your current approach to trading.

    Just a few MetaStock features for your consideration that may help maximize your trading experience with MetaStock:

    • A library of add-ons and plug-ins developed in conjunction with trade experts to bring additional expertise to your desktop.
    • The Formula Primer to teach you the process of creating your own customized Indicator, System Test, Exploration and Expert Advisor. There is an impressive database of custom formulas easily accessible from our website. The MetaStock Support team also offers a formula writing service.
    • A vast array of live, recorded and written resources that teach the specific features of MetaStock products and trading insights from industry experts.
    • Various subscription and purchase options to get the best value for your current or new MetaStock product.
    • Learn from and interact with experts at live seminars and at our upcoming annual MetaStock Conference 2010.
    • Comprehensive technical support.
    • The User Groups and the MetaStock Forum provide the benefits from sharing expertise, experience and knowledge within a community of MetaStock users.

    • Take a momentary step back from your current trading and if you can identify an opportunity to fine tune your approach;just give our team a call and they will be happy to assist you in finding the best available resources and products for more profitable trading. 1-800-882-3040 or 001-801-265-8886 email:sales@metastock.com 

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    May - June 2010 MetaStock Monitor

     

    In this issue:


    Main Article

    Trend Following

    Contributed by Michael W. Covel

    Answer the following five questions below and you have the core components of a trend following trading system:

    1. How does the system determine what market to buy or sell at any time?
    2. How does the system determine how much of a market to buy or sell at any time?
    3. How does the system determine when you buy or sell a market?
    4. How does the system determine when you get out of a losing position?
    5. How does the system determine when you get out of a winning position?

    Although these five questions are seminal to trend following, no less critical is your attitude. Don't forget to ask yourself:What do you really want? Why are you trading? What are your strengths and weaknesses? Do you have any emotional issues? How disciplined are you? Are you easily convinced? How confident are you in yourself? How confident are you in your system? How much risk can you handle?

    Let's jump into a few of those questions.

    When do trend followers enter?  

    After a trend has begun. Why? Trend followers have no ability to predict when a trend will start. The only way to know a trend has started is when it starts to move either up or down. For example, let's say Apple is trading between $200 and $220 for six months. All of a sudden Apple jumps, or breaks out, to a price level of $230. That type of upward movement from a range is a trigger for trend followers. They say, "I might not know that Apple is going to continue upward, but it's been going sideways for a while, and all of a sudden, the price has jumped to $230. I'm not in this game to try and find bargains or cheap places to buy. I'm in this game to follow trends, and the trend is up."

    This approach is counter-intuitive for many. One trend trader outlined the simplicity:

    "As our systems are designed to send a buy or sell signal only when a clear trend develops. By definition, we never get in at the beginning of a trend or get out at the top."

    If your goal is to ride a trend that starts at $50 and perhaps goes to $100, does it really make a difference whether you got in at $52 or $60 or $70? Even if you got in at $70 and the trend went to $100, you still made a lot, right? Of course if you got in at $52 (and how you think you might predict the bottom, I will never know), you made more money than if you got in at $70. There are plenty of traders out there who think, "Oh, I couldn't get in at $52, so I don't get in at all, even if I have the chance to get in at $70."

    Famed trader Richard Dennis elaborates:

    "Anytime the market goes up a reasonable amount, say a strong day's work - after you've put on a position, it's probably worth adding to that position. I wouldn't want to wait for a retracement. That is everyone's favorite technique - to buy something strong that retraces. I don't see any justification in the statistics for that. When beans are at $8.00 and go to $9.00, if the choice is to buy them at $9.00 or buy them if they retrace to $8.80, I'd rather buy them at $9.00. They may never retrace to $8.80. Statistics would show that you make more money buying them and not waiting for a retracement."

    Even if people are familiar with Dennis' approach to trading, they still focus on entry - a misdirection of energy and focus. Another great trend trader dead-panned:

    "The entry is a big concern before it happens, a small concern thereafter."

    He is saying after you are in a trade, the entry price isn't important. You have no idea how high the market is going to go, right? You should be concerned about protecting your downside in case the market goes against you as opposed to creating dramas associated with entry. How long can trend following trades last? Another trend trader opined:

    "Positions held for two to four months are not unusual, and some have been held for more than one year, says a spokesman. Historically, only 30-40 percent of trades have been profitable."

    The words of great baseball player Ted Williams immediately come to mind:"Hitting a baseball, I've said it a thousand times, is the single most difficult thing to do in sport. If Joe Montana or Dan Marino completed 3 of every 10 passes they attempted, they would be ex-professional quarterbacks. If Larry Bird or Magic Johnson made 3 of every 10 shots they took, their coaches would take the basketball away from them."

    However analogous it is to baseball, only 40 percent winners is hardly a percentage worth most people would think wise to emulate. So how is it possible to make money with 40 percent of your trades winners? Jim Little of trend follower Campbell and Company was clear:"Say, for example, on the 60 percent, you lose 1 percent of your capital, but on the 40 percent winning trades you make 2 percent. Over longer periods of time, say a year or more, this would net 20 percent on a broadly diversified program."

    In other words, winning and losing trades over time are blended together. Winners make up for small losers. Trend followers rules to enter and exit are driven by what many call technical indicators. The technical indicator for trend followers is price action. However, most traders remain preoccupied with the hundreds upon hundreds of other indicators that promise 'prediction.' They discuss and debate which is better:MACD or Bollinger Bands? Which is more profitable:ADX or Williams %R?

    Of course the answer is:none of them. Technical indicators are small components of an overall trading system and are not a complete system. They are like a couple of tools in a toolkit, not the kit itself. A technical indicator accounts for typically 10 percent of the overall trading success of a trend following system. When traders say, "I tried Indicator X and found it was worthless" or "I tried Indicator Y and found it useful," they make no sense. These statements imply an indicator is the actual trading system. By itself, a technical indicator is meaningless. Bottom line, because trend followers never know which trend will be their big winner, they accumulate small losses trying to find it. It's like sticking the toothpick in the cake to find out if it's done. They are testing the market to find out if the little trend will grow into a big trend. Hence, you can end up with the 60-percent losing trades.

    All this said what is a concrete example of entry?

    The famed trend following "Turtles" learned two breakout variants or 'systems.' System One (S1) used a four-week price breakout for entry and a two-week price breakout in the opposite direction of the entry breakout for an exit. If a market made a new four-week high, the Turtles would buy. They would exit if/when it made a two-week low. A two-week low was a ten-day breakout - counting trading days only. While the System One entry rule is straightforward, the Turtles were taught extra rules to confirm whether or not they should take the four-week breakout. The extra rules were called 'filters,' and they were designed to increase the odds that when the Turtles took a four-week breakout signal, it would continue as a potentially big trend. The filter rule:The Turtles ignored the System One four-week break-out signal if the last four-week breakout signal was a winner. Even if they did not take the last four-week breakout signal, or even if it was just 'theoretically' a winning trade, the Turtles still didn't take the System One breakout. However, if the trade before a current four-week breakout was a 2N loss, they could take the breakout ('N' was simply their measure of volatility). Additionally, the direction of the System One four-week breakout was irrelevant in terms of the filter rule. If their last trade was a short losing trade and a new long or short breakout hit, they could take that breakout and get in. But this filter rule had a built-in problem. What if the Turtles skipped the entry breakout (since the last trade was a 'winner') and that skipped breakout was the beginning of a hugely profitable trend that roared up or down? Not good to be on the sidelines with a market taking off! If the Turtles skipped a System One four-week breakout and the market kept trending, they could and would get back in at the System Two eleven-week breakout. This fail-safe System Two breakout was how the Turtles kept from missing big trends that were filtered out. System Two was the Turtles' longer-term trading system. It used an eleven-week breakout (fifty-five days) for an entry signal and a four-week breakout (twenty days) in the opposite direction for an exit.

    So what is another good example of trend following specifics? The nitty gritty?

    In the quest for trading success, many traders are seduced into a fruitless search for a perfect entry or exit technique. While they hunt in vain, they miss some very simple strategies that enhance trading returns yet do not involve entry or exit. One strategy most traders overlook altogether is risk equalization. Risk equalization allows a speculator to make proportional adjustments to their account while staying within their tolerance for risk. Risk equalization means you adjust the number of contracts or shares to stay within predetermined risk guidelines. For instance, a trader wouldn't trade a Corn futures contract the same as he would trade an S&P 500 futures contract. The two contracts are dissimilar in size and move differently.

    Frequently however, traders get a 'lot size' mentality. They are comfortable trading one contract of many markets, but get skittish at the possibility of having 10 contracts on one instrument and 2 on another. Many traders become anxious if they have different contract sizes in different markets. If you suffer from this anxiety don't let it get you down. Professional and seasoned traders get caught in this trap.

    Consider a trading program that did not risk equalize their portfolio. During 2003 this program returned north of 40%. Money under management quickly blossomed from less than a million dollars to over $20 million in just (Figure 1 & Figure 2) a month period.

     

    All indications pointed to a very promising future. But a while back I noticed they were trading one CME Eurodollar contract and one CBOT Ten Year Note contract concurrently. A trader with just a few months of experience realizes, in terms of risk, one Eurodollar is not equal to a single Ten Year Note contract. In comparison with the Ten Year Note, Eurodollars typically have a smaller margin requirement and smaller daily fluctuation. The trade ended with Eurodollars up and Ten Year Notes down. Since risk was not equalized, the two positions netted a loss. If risk had been equalized then the trades would have netted to nearly break even.

    This program ended down more than 50% and their assets under management quickly dwindled back to a few million dollars. There is no doubt that inadequate risk management, specifically risk equalization, shortened the life of their program.

    The good news? There are several methods you can use to equalize risk on your own. For example, what if you're a futures trader? Futures traders have a distinct advantage due to margin. Exchanges and brokerage firms factor in market volatility to set margin requirements. Simply stated, markets with high margin have a larger daily monetary fluctuation than those with a low margin requirement. A market with a $500 margin requirement will move slower than a market with a $5,000 margin requirement. Recall the Eurodollar/Ten Year Note example. At the time CME Eurodollars have a margin requirement of $400 and CBOT Ten Year Notes' margin is around $1,200 You can quickly see it takes 3 contracts of Eurodollars to equal one contract of Ten Year Notes. Another method of risk control involves measuring the risk you want to take on each trade or fixed fractional trading. Fixed fractional trading simply means you trade the same percent of your account on each trade. For instance 5% risk per trade on a $25,000 account means you use a maximum of $1,250 per trade. (Figure 1) As the account increases in value so does the risk per trade. At $35,000 5% risk per trade equates to $1,750. (Figure 2) Risk for each market does not exceed 5% of the total account size in either example.

    Your personal situation may be different, but the math works the same. The risk in dollars fluctuates as the account increases or decreases in size;however risk is always contained to a fixed percent per trade. This method is versatile enough to accommodate stock traders too. Your monetary risk is the distance between entry price and the stop setting. For example:if you own a stock at $50.00 per share and use a stop of $46.00 then monetary risk is $4.00. If you wanted a maximum risk of $1,250 then divide $1,250 by $4.00 to get the number of shares, or 312 for this example. Implementing this type of risk control allows you to take advantage of your trading capital without becoming over extended on one trade. Both novices and veterans must fight the temptation to become married to one trade. This temptation can force you to take a larger position because you feel a trade will work out regardless of short-term fluctuations. Most times the trade never works out as expected and losses mount, the unenviable position of most investors who simply buy and hold. You may even be forced into retirement with extreme losses. Having a clearly structured money management scheme you adhere to allows you to promptly size up risk and control it. Manage risk or it will manage you. Don't be a trader who is afraid to take bigger positions in smaller markets. Subscribe yourself to the old trading axiom, trade all markets equally and equally trade all markets.

    What are some of the top reasons to trade as a trend follower? 

    Profit in Up and Down Markets:
    Trend following doesn't swear an allegiance to a bull or bear market. It follows trends to the end. No matter how ridiculous trends might appear early and no matter how insanely extended they might appear at the end, follow trends. Why? Because they always go further than anyone expects. Ignore momentum at your peril.

    No More Buy and Hold, Analysts or News:
    Trend following decision-making doesn't involve discretion, guesses, "gut" feels or hunches. It's not day trading or buy and hold (hope). It doesn't involve passive indexing, in and out trading or fundamental analysis. No more 24-hour news cycles, daily turbulence or sensational hype. No black boxes or magic formulas either. Hope is the most addictive drug. Let go of the Holy Grails.

    No Prediction: 
    Trends exist everywhere, always coming and always going. Whether fashion, business or whatever, we all want to find trends and ride them as far as they can go. Markets are no different:they trend up and down too. That said, no one can predict a market trend, you can only react to them. Trend following never anticipates the beginning or end of a trend. It only acts when the trend changes. However, there is no need to figure out "why" a market is trending - just follow it. You don't need to understand electricity to use it!

    The Big Money of Letting Profits Run: 
    Trend following aims to compound absolute returns. It doesn't shoot for "average." Do you really want to be exactly like your neighbor? The goal is to make the big returns, not generate passbook savings returns. Trend following also has the unique ability to lie in wait for "targets of opportunity." That means "outlier" events (read:unpredictable surprises like the 2008 market crash) can make you huge money.

    Risk Management is Top Priority:
    Trend following always has defined exit protocols to control "injury" to your account. Stop losses and proper leverage usage are standard practice. Trend following also has low to negative correlations with most other investment opportunities. It eliminates exposure to group think and toxic assets. Eliminating exposure is a winning move whereas hedging can actually increase your exposure. Trend following is the best protection for when bubbles pop and everyone starts running for cover.

    Takes Advantage of Mass Psychology: 
    Markets, which are always changing, are only our subjective expectations reflected objectively. Interestingly, people's reactions to change always remain the same (i.e., they bet wrong as a group). Trend following takes advantage of "panicky sheep" behavior to make money. How? Strict discipline minimizes behavioral biases. It solves our eagerness to realize gains and reluctance to crystallize losses. Let's face it:too many people believe what pleases them and social conformity means that even if the group is wrong, we go along. Most behaviors are simply driven by the impulsive moment of now. They aren't purposeful, thought-out choices. Trend following wins because of that.

    Scientific Approach to Trading: 
    Trend following doesn't require a belief, but rather it relies on unwavering principles proven over decades. It has a defined edge just like the MIT card counting team that beat Vegas casinos (read:mathematical game theory from the movie "A Beautiful Mind"). Be the casino and not the hapless player! How? Trend following uses hard rules rooted in numbers (think process not outcome). And remember, frequency of correctness does not matter, the magnitude of correctness matters! "Winning percentage" means zilch. How much time will trend following take? No staring at the screen drinking Red Bulls! Once you are setup, minutes a day is all you need when you approach trading like an engineer.

    Strong Historical Performance in Crisis Periods: 
    Trend following prepares for the worst at all times. It is adaptable to differing climates and environments performing best during periods of rising volatility and uncertainty. Guess what? The unknown will happen again! Are you ready? You have to be able to ride the bucking bronco while also riding the storm out. But that said, the day you have to do something, you are screwed. Trend following, like a lion waiting to strike wounded prey, is very patient.

    No Traditional Diversification: 
    Trend following is not restricted to any single market or instrument. A focus on "price action" allows trend following to be applied to an exceptionally large variety of markets. Price is the one thing all markets have in common. That means a system for treasury bonds will work on the Euro too. And if you switch it over to coffee, something totally different than treasury bonds, it still works. Trend following is robust! But don't expect the "tape" to lecture you. You have to trust your buy and sell signals and follow all rules.

    No Government Reliance: 
    Forget Social Security, bailouts, stimulus plans and roads to nowhere. Those won't help you to make money, but they might help you to lose money. When the Fed takes the "training wheels" off the economy will you be ready to mint cash or will you just sit there and take it again? If your portfolio is grounded in sound principles you can win, but the government has nothing to do with sound anything.

    Is all this really needed? Yes.

    There will be another fall 2008. Guaranteed. When? Who knows. But it will come. And there is only ONE strategy capable of making money when the unpredictable hits the fan. There is only one strategy that has strong historical performance during crisis periods:Trend following. That's it. 

    But being ready for it, being prepared for that risk, is hard for many reasons. Charles Faulkner (in my film 'Broke') has talked of the problems inherent in the "Socialization of Risk":

    "Everyone thinks..."
    "The street says..."
    "It's only/just..."
    "Don't worry ..."
    "It always does this..."

    Do you think like that? Well, when the next crash happens you will be toast. Dead and buried. Broke? No doubt. Why does trend following do well during rough times? Consider wisdom from trend trading pro Ken Tropin about those unpredictable "events" that sink mutual fund holders (edited down some):

    "The reason trend following performs so well when equity markets perform worst is both straightforward and almost tautological:some of the best trends occur in financial markets when equity markets perform poorly. Trend following has a high negative correlation to equity markets during periods of perceived crisis in those markets...because a global consensus emerges about macroeconomic conditions which cause various markets, particularly currencies, interest rates and equities to move in tandem. When this consensus is further confronted by an event, such as a major country default, the event will reinforce the crisis mentality already in place and drive those trends toward their final conclusion."

    Further:

    "Events do not happen in a vacuum. They are often defined as events because markets are already preconditioned to fear bad news. This is the reason trend following rarely gets caught on the wrong side of an event."

    Read Chapter 4 of my book Trend Following again. Event, after event, after event. All unexpected, all trend following winners.

    Look at this performance:

     

    That is an "old pro" trend following index (equal weight of trend following legend traders Dunn WMA, JWH F&M and Millburn) compared to buy and hold stock investing. That's a nutso comparison. In fact, it's no comparison.

    Don't forget, no matter what the market is doing (up, down or sideways), risk lies dormant, but always "alive". And when the chaos appears in full force again, and it's always coming again, will you be extremely profitable or just looking to the government for a handout?

    That's the way to start trading like a trend follower.

    About the Author:

    Michael W. Covel is the author of the bestselling books "Trend Following" and "The Complete TurtleTrader." He also directed the documentary film "Broke." He is an acknowledged expert in the field of trend following trading and training. His unique vision, along with his blue ocean executive decisions, allowed an initial hunch to grow into one of the most respected educational providers in the world. Covel's firm, Marylebone Holdings, Ltd. (d.b.a. TurtleTrader), is a privately-owned trend following trading consultancy and publishing company that has been training clients since 1996 across 73 countries. The firm is the market leader in fulfilling the lifelong education needs of self-directed trend following investors and traders.

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    Support Tip

    How do the different order types affect the price at which a trade is entered?

    Contributed by Equis Support

    For MetaStock versions 8-11

    There are four order types used in the Enhanced System Tester:

    Market Order: Market uses whatever price was set in the system tester options for the current simulation.

    The remaining three allow you to specify a price for a hypothetical trade. Each of the three, react to the prices differently.

    Limit: The order seeks the best price available above or below (depending on the Order Type) the given limit price.

    Stop: The order seeks the best market price available once a given limit price has been met or exceeded in a direction defined by the Order Type.

    Stop Limit: The order seeks the best price available above or below (depending on the Order Type) a given limit price once that limit has been met or exceeded in a direction also defined by the Order Type.

    To show those differences, three examples are detailed below. For all the examples, assume a price bar with a High of $27.20, a low of $26.04, a close of $26.82, and that the trade is a long trade.

    If the order price is set to $26.00:
    A limit order will not be executed
    A stop order will enter at $26.82
    A stop limit order will not be executed

    If the order price is set to $27.00:
    A limit order will enter at $27.00
    A stop order will enter at $27.00
    A stop limit order will enter at $27.00

    If the order price is set to $28.00:
    A limit order will enter at $26.82
    A stop order will not be executed
    A stop limit order will not be executed


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    MetaStock Features

    QuoteCenter Review

    Contributed by David Derricott

    Thomson Reuters is very well known worldwide as a news and data provider. QuoteCenter is the premier news and data feed program available to the individual trader as part of the MetaStock product line. QuoteCenter is more than just a data feed for MetaStock;it is a full program encompassing news and analytics of its own. Even if you are familiar with QuoteCenter, you may not be fully aware of its extensive capabilities and how valuable it is in today's market.

    In fact, it is so powerful and comprehensive, that there are customers using QuoteCenter as a standalone product. Take a closer look at QuoteCenter and you may be very surprised at the extraordinary resources available. It is, by far, one of the most powerful tools available to the individual trader.

    QuoteCenter provides professional level real-time data for worldwide markets, Stocks, Commodities, Options, and FOREX. 17 years of fundamental data is available for various countries, and an amazing 10 page daily markets analysis called "The Day Ahead" (This alone could cost you hundreds of dollars from any other company). News is delivered from Reuters, Dow Jones, Factiva and other sources to keep you abreast of the most current developments affecting the markets you follow.

    Access to vital information provides an incredible advantage to traders. But the news features of QuoteCenter are only the beginning. To name just a few other highlights:

    MarketWatch: A dynamic quote screen of over 700 data fields tracking information basics such as last sale, bid, ask, volume, percentage change for the day, etc. You can also monitor data such as fundamentals and indicator values in your watchlist. Additionally, MarketWatch allows you to import your own portfolios, database files, and add headings to keep track of securities by group or industry.

    Dynamic Times and Sales: A dynamically updating display allowing you to watch and track every trade for an instrument throughout the day.

    Athena Graphics: Basic charting with built in indicators and charting styles.

    OptionsWatch: Easy monitoring of option lists. Best of all the OptionWatch does not take away from the built in symbol limit of 500 simultaneous symbols.

    Data depth and breadth: We provide historical data on fundamentals, tick, intraday, daily data, and a robust news offering.

    These and many other features are included with each QuoteCenter subscription. Additionally, your QuoteCenter desktop is highly customizable.

    This program can be used by day, swing, position and end of day traders.

    QuoteCenter is a professional level resource. As an individual trader, you may want to take another look to see its full potential and how it may powerfully impact your trading decisions.

    If you have any questions regarding this software please call Dave Derricott at 1-800-587-8012 or 001-801-270-3112 or email at David.Derricott@thomsonreuters.com.

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    January - February 2010 MetaStock Monitor

    In this issue:

    Main Article

    $34 Soybeans...Fantasy or Possibility?

    Contributed by Jake Bernstein

    If you think that my headline is a clear indication that I have finally lost my marbles then perhaps you may change your mind when you consider this possibility in the context of history. Specifically I refer to the 1970’s experience in the soybean (and many other) markets. Given the confluence of cycles, COT commercials accumulation, central bank massive money printing and timing indicators, I believe that the stage is being set for a 1970’s style commodity price inflation “blow off”. Gold and silver have led the way. While it is likely that gold and silver have not yet made their highs, the odds are growing daily that many if not all of the other commodity markets will make similarly large gains over the next few years. I discussed the details of my expectation in a 2 hour Webinar which you should attend if you have not already done so. It was one of my most detailed Webinars and while I made some stunning forecasts for the next few years I believe that they are reasonable as well as based on facts and not fictions.

    Among my forecasts was the realistic possibility that soybean prices could reach the $34 level over the next few years. While producers may rejoice and perhaps even see that this is possible based on fundamentals, many traders will likely consider this forecast to be “off the wall” or just not possible. Before you dismiss my forecast as unrealistic, I urge you to consider the chart below. It shows the 1970’s bull market in soybean futures – a bull market that developed in underlying economic and cyclical conditions that were, if anything, less extreme than what exists today. Now, after reviewing the chart, consider the current chart for soybeans with a similar % increase projection. What do you see?

    Now that you have had a look at the soybean bull market of the 1970’s consider the “what if” scenario with regard to the current soybean market. Buy why do so? Here is the logic:

    • Soybean cycles are long term bullish
    • Fiat money printing all over the world has made virtually all paper backed currencies unpalatable forcing many professionals and savvy investors into tangible assets
    • Demand for grains and feeds continues to be strong
    • Based on the monetary and fiscal policies that have been rushed into place in order to prevent an economic collapse, the odds favor significant commodity price inflation for the next few years and
    • Precious metals accumulation continues to underscore a flight from paper currency into hard assets. This trend has started to spread to all tangible commodities

    If soybean prices repeat their 1970’s experience then the chart below shows what could happen over the next few years. Is it impossible? Before you say that this can’t happen consider all of the “this can’t happen” events of the last 25 years. Now take a look at the chart again. I realize that I’m going out on a limb with my forecast but many of my cyclical forecasts over the years have been correct.

    Now add to the mix the fact that Commercials as assessed by the Weekly Commitment of Traders Report using my analytical method (available in the Jake Bernstein MetaStock Plug In) shows strong accumulation of long positions virtually across the board in many of the grain markets. Time will tell If I am right but the confluence of fundamentals and technicals is noteworthy. In light of the recent grain report which resulted in a collapse of grain and soybean prices some of you may not take my forecast seriously. If, however, you see my logic this may be the decline that leads to the buying opportunity of great importance. Would I “catch the falling knife” by entering now? No! I’d wait for my intermediate term timing triggers to turn bullish (also available in the Jake Bernstein MetaStock Plug In).

     

    Back to top 


    Support Tip

    How can I scroll through a MetaStock chart one bar at a time?

    Contributed by Equis Support

    Metastock Pro & MetaStock EOD:6.52 – 11

    1. Open the desired chart in MetaStock.
    2. Hold down the "Shift" key on the keyboard.
    3. While you are holding down the "Shift" key, left click once on the right or left arrow of the scroll bar of the open MetaStock chart. This will only move one bar to the left or right.

     

     

     

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    MetaStock Features

    Performance Systems Plus

    Contributed by Ken Spelman

    MetaStock (7.2 or newer) comes with 26 performance trading systems. Now you can complete the package and add fifty-four new performance systems and seventy new explorations. The makers of Performance Systems Plus tested thousands of trading systems on thousands of securities to develop this select group of systems. Performance Systems Plus will have you trading with a higher level of confidence and expertise than you’ve ever had before. It includes state-of-the art performance tools for ten of these systems to create a trading strategy helping take the guesswork out of your trading and maximizing your profits.

    Performance Systems Plus is optimized for swing and position trading. It is not designed to be used with day-trading. This is one of our easiest add-ons to use and works well with commodities or stocks from any market worldwide.

    With Performance Systems Plus you can:

    • Run an all-new type of exploration that performs system tests over an entire database of securities to find those securities with the most profit potential.
    • Generate daily buy and sell signals and alerts.
    • Run a comparison test to find out which of the fifty-four trading systems works best for your chosen security.
    • Run a signal exploration on a chosen system to generate a list of stocks with buy and sell signals for that day.

    With Performance Systems Plus you get:

    10-Day Breakout Division System Pattern Trading System 6 2-Day-Range Switch DNS Trading System Percentage Crossover 3-Day-Range Switch Dynamic Momentum Index 2 Polarized Fractal Efficiency 4-Day-Range Switch Dynamic Momentum Index 3 Projection Oscillator 2 Annual Strength/Weakness 1 Elliott Oscillator System 1 Relative Momentum Index Annual Strength/Weakness 2 Elliott Oscillator System 2 Relative Volatility Index 1 Aroon Impulse Meter Relative Volatility Index 2 Aroon Reversal Intraday Momentum Index RSI Trailing Exit Bull Power Bear Power 4 Landis Reversal Short Term Range Rejection CCI Fibonacci Linear Regression Crossover Small Triangle Breakout CCI Moving Average Crossover Modified Momentum StarcBand System CMO Reinforcement Momentum Stochastic Oscillator System Congestion Breakout New Relative Volatility Index Turtle Breakout 1 Day Pattern System Oscillator Composite Turtle Breakout 2 Derivative Moving Average Pattern Trading System 2 Ultimate Oscillator Detrended EMA System Pattern Trading System 3 Volatility Breakout (Standard) Direction Movement/SAR 1 Pattern Trading System 4 Volatility Stop Direction Movement/SAR 2 Pattern Trading System 5 Volume Trading System

    Find out why Performance Systems Plus has been one of the top MetaStock add-ons of all time.

    For Questions or interest in Performance Systems Plus or any MetaStock product, please contact Ken Spelman directly at 1-800-587-8018 or ken.spelman@thomsonreuters.com

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    November - December 2009 MetaStock Monitor

    In this issue:

    Main Article

    Catch that Trend! Directional Strength and How to Find it.


    Contributed by Barbara Star, Ph.D.

    Traders usually favor moving averages to help them determine price trend. However two other popular indicators, the Moving Average Convergence/Divergence (MACD) and the Average Directional Index (ADX), can help traders detect not only trend direction, but trend strength as well.
    The MACD, created by Gerald Appel, is a momentum indicator that often identifies price direction as it rises and falls above or below its trigger line and its zero line.
    The ADX, part of the Directional Movement system developed by Wells Wilder, is designed to detect the strength of price movement. ADX values in the 20 to 30 range indicate mild to moderate trending behavior while values above 30 usually signify a strong trend. A rising ADX indicates that prices are trending, but does not reveal the direction of that trend.
    Plot the ADX 14 period indicator above the MACD on the same price chart as shown in Figure 1, and patterns emerge that show both trend strength and trend direction.



    Three Patterns
    Three distinct, and profitable, patterns frequently appear. These patterns do not detect tops and bottoms, but can help traders confirm a trend. They are especially useful for those traders who prefer shorter-term trades.
    Confirming Pattern: The confirming pattern occurs when both the ADX and the MACD rise and fall in unison with price. When the indicators rise together they identify up-trending price movement that presents bullish traders with an opportunity to enter the long side of the trade. The strongest and most ideal trading configuration takes place when the ADX begins to rise and the MACD rises above its trigger line and also above its zero line. The level from which the ADX rises does not matter. In the Confirming pattern, when prices change direction to the downside so do both the ADX and MACD to indicate a loss of momentum and/or a potential trend change.
    The Confirming pattern was evident on the daily Allegheny Technology price chart. Both indicators rose in April confirming the price move from the $30 to $40 level. Both indicators declined in May as prices dipped, but rose once more in June when price moved toward $45. The indicators declined in late June to reflect the falling to sideways price action.



    Diverging Pattern: The diverging pattern identifies down-trending price movement. Here, the indicators move in opposite directions. The ADX rises to indicate that it has found a trend, but the MACD declines which indicates that the direction of the developing trend is down. Its mirror-image formation makes it an easy pattern to spot visually.
    This is a good pattern to follow for traders who are bearish and want to short a stock. It also serves to warn those traders who might wish to enter a long position that they should wait for a more favorable time.

    The strongest pattern occurs when the ADX rises while the MACD falls below its trigger line and also below its zero line. Two distinct Diverging patterns appeared on the chart of Abbott Labs in Figure 3 as prices took a nosedive from February to March and again in April.



    Converging Pattern: This pattern has an upward bias that comes after a steep decline. The ADX rolls over and begins to decline, signifying that the strength of the trend has weakened. At the same time the MACD, which had been below its zero line, begins heading up to its zero line. Visually, the declining ADX and the rising MACD seem to be converging toward each other. Although this pattern sometimes marks the beginning of a new up trend, more often than not it is a countertrend rally that produces a partial retracement of the price decline.
    Figure 4 shows the Converging pattern on a daily chart of Honeywell International. Following the price decline in the February time period that took the stock below the $25 level, price began moving up in March where it was able to retrace much of its loss. The MACD responded to the increase in price by crossing above its trigger line and rising to (and in this case, through) its zero line as the ADX stopped rising and moved down to complete the Converging pattern.
    This is an enticing pattern, but often not as profitable as the others because its moves tend to be short-lived and, even though the MACD rises, prices may move sideways instead of upward.



    A Trading Example

    Traders could have profited from many of the patterns signaled by the ADX-MACD duo on the CH Robinson Worldwide price chart in Figure 5.
    Area A marked a decline with a Diverging pattern that was followed by a Converging pattern as price rose in area B. That Converging pattern gave way to a Confirming pattern (Area C) as price continued to rally another ten points. A new Confirming pattern appeared in Area D which reflected the decline that filled a prior price gap before reversing to the upside.
    Could you have benefited from any of the four areas identified by the ADX-MACD patterns?



    Summary

    The patterns displayed by the ADX and MACD combination appear on charts of commodities, indexes, and mutual funds as well as stocks. Not only do the patterns have profit potential, they signal changes in price which can help avoid trading pitfalls. This dynamic duo may be worth adding to your trading arsenal.

    About Barbara Star
    Barbara Star, Ph.D., (818) 224-4070, is a former vice-president of the Market Analysts of Southern California. She is a frequent contributor to the magazine, Technical Analysis of Stocks and Commodities. A former university professor, Dr. Star currently provides individual instruction and consultation to those interested in learning technical analysis. Her e-mail address is star4070@aol.com

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    Support Tip

    How to Automatically Load Your MetaStock Charts at Start-up

    Contributed by Equis Support

    Any trader can tell you that being able to quickly load your workspace makes decision making easier and faster. With the ever changing markets, seconds can mean the difference between making a profit and taking a loss. MetaStock's "Restore workspace on startup" allows users to automatically load a user defined workspace of charts and trading systems when opening MetaStock.

    How do I get MetaStock to automatically open my charts?

    1. Open MetaStock
    2. Select - Tools - Options
    3. Select the General tab - check the option "Restore workspace on startup".
    4. Click OK to apply the settings.
    5. Next open all the charts you would like to open automatically on startup, then select File - Exit to close the MetaStock program.
    6. When you re-open the program it will open those charts.

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    MetaStock Features

    JBL Risk Manager v7.0

    Contributed by Devin Ekberg

    As I interview successful traders from all over the world, I have the fortune of learning what works and what doesn't work. Overwhelmingly, successful traders share common principles in their individual strategies even though they trade and invest in different markets around the world. Simply stated, there are four requirements:

    • Entry Strategy - Education & Experience
    • Trade Sizing Strategy - Money Management - How many shares to buy.
    • Exit Strategy - Risk Management - Minimize Loss with a stops or exits.
    • Profit Taking Strategy - Protecting Profits on the way up, when do I SELL


    Unfortunately, the major focus of many technical traders is to create a system of entry and exit rules, and trying to develop discipline to follow them. However, they ignore the critical concept of money risk management, and endanger their long-term survival.

    There are many books available on proper risk and trade management, and learning these principles are important for removing emotion and calculating risks. The subject is sometimes a bit difficult to follow and ultimately difficult to put into practice.

    The new JBL Risk Manager v7 software from Metastock gives a simple "step-by-step" method of managing your trades. It gives you Automatic Trade/Position Sizing, Initial Stop and Trailing Stop exit price calculations, Multiple Portfolios, Short & Long trades, integrates with your Metastock database, Stock Split Adjustment, Performance:Win/Loss ratios, and Trade Expectancy.

    This add-on is very unique among the Metastock add-on and plug-in library. If you are currently trading and not utilizing a money management tool, I strongly encourage you to add this to your to-do list. It will make a huge difference.

    If you would like more information on the new JBL Risk Manager v7, please contact Devin Ekberg, +1 801 270 3167, or email devin.ekberg@thomsonreuters.com .

    Back to top

    September - October 2009 MetaStock Monitor

     

    In this issue:


    Main Article

    Creating an Effective System:Acceleration Bands and Williams' Percent R

    Contributed by Price Headley

    For option traders, correctly forecasting short-term price action is imperative to long-term success and, in my view, technical analysis is the best way to achieve this. Many would say the “Holy Grail” of technical analysis is to find true “leading” indicators … those that point to directional movements and trends as they are occurring or before they occur, not lagging indicators that show what has already occurred. I’ve tested and designed hundreds of technical indicators over the years, and I want to share with you one of my trading systems that uses two of my favorite and time-tested indictors. The two indicators? One is Acceleration Bands, which I created. The other is Williams’ Percent R, which I have modified and created specific rules to utilize that are different than is seen in normal trading systems.
    A major problem that many traders have is too many signals. In other words, their criteria needs to be tightened and refined. As many of you already know, I look for the Big Trends that rarely occur, this helps me leverage my capital while reducing the number of total trades. Now, don’t be fooled, there is no fool-proof system out there … so risk control is an important part of any technical system. In life, it's good to be an optimist, but excessive optimism in system development can easily lead to ignoring the risks and the weaknesses in your trading system. All systems have weaknesses. Make sure your systems have a risk control element to it.
    Today I want to share with you a system that uses only two indicators, Acceleration Bands and Williams’ Percent R – remember keep your system simple. First, it’s important to describe each system independently to see the strength and weaknesses of each.
    Acceleration Bands:Available in the MetaStock Big Trends ToolKit
    Description:Adaptive bands that contain 95% of price action usually used in 20 or 80 bar periods. Trading signals occur when price action is confirmed outside the bands. This indicator targets the top 5% of moves, keeping traders focused on the best trends.
    The 20 Bar Acceleration Band Expert Advisor (SPX chart below) shows buy and sell signals based on my system. Notice that in the 14 months shown, the S&P500 only exposed a signal 4 times, each was profitable. This depicts the 5% theory well – Acceleration Bands highlight only the extreme moves for option traders. The issue many traders face is really two-fold;many traders want more signals and the entry point can use some refinement. Like the Yin & Yang relationship, I’ve developed a system that combines Acceleration Bands with Williams’ Percent R to remove any weaknesses and refine trading signals. Let’s take a look at how it works.

    Williams’ Percent R – Traditional indicator available in MetaStock. The Big Trends Willams’ %R is available in the Big Trends Toolkit with two separate systems based on breakout and retest (lower risk entries) methods. We have smoothed out and modified Williams’ Percent R to make it a better and more usable trading vehicle.
    Descriptions:Larry Williams created the Percent Range oscillator to highlight overbought versus oversold levels in securities. Traditionally overbought connotates a long exit or sell short entry as oversold would insinuate the opposite, however, we in general consider overbought to be bullish and oversold to be bearish. The Big Trends Percent R system targets the top 20th percentile and bottom 20th percentile.
    In the chart below we have the Expert Advisor for Big Trends ToolKit (BTTK) Percent R Retest System applied to the S&P500. My first impression is that there may be too many signals with 11 trades in 14 months (compared to 4 with the Acceleration Bands). The Percent R Retest System targets lower risk entry points by signaling buy or sell-short signals after a corresponding breakout confirmation occurs. These pullbacks, or retests, are patterns that help identify fast moving trades that are immediately profitable. If they do not move in the expected direction immediately an exit signal is triggered for effective risk control.

    Notice that we also have 20 Bar Acceleration Bands applied to the price action -- my favorite system employs both Percent R and Acceleration Bands;reducing the number of trades while only trading the best pullbacks. I focus on Percent R retests within Acceleration Band signals. Let’s take a look at an example of this signal below.

     

    Notice above that we also have 20 Bar Acceleration Bands applied to the chart (but not a part of the trading signals) -- my system employs both Percent R and Acceleration Bands;reducing the number of trades while only trading the best pullbacks. I focus on Percent R retests within Acceleration Band signals. Let’s take a look at an example of this signal below.
    When developing a system I look for winners that are at least twice the size of losses and a minimum 50% winning average, however, I’ve found that 60% winning average is optimum and realistic. That’s why using Acceleration Bands and Willams’ Percent R has become one of my favorite two indicator systems. Acceleration Bands highlight extremely strong moves, while Percent R Retest Method highlights low risk entry points within those Accelerations. In addition, I found that this system works particularly well on individual stocks, which typically provide more Acceleration signals than market averages like the S&P500.

    For ease of learning I want to show you a quick example of a signal using both indicators within the same time frame as the charts above on the S&P500. In the chart below we have the Acceleration Band Expert Advisor (20 Bar) exposing a sell-short signal based on momentum. Notice that in the days after extreme selling signals an Acceleration short signal, we see a bounce, or retest, in price action. This typically occurs from value seekers, however, we know that once the trend has Accelerated thus far it’s probable to continue.
    The blue arrow shows us where Percent R initially confirms bearish activity (prior to Acceleration signal) , and we know that any Percent R spike above 20% is now a qualified retest. Furthermore, if the retest occurs after the Acceleration Band signal it’s a lower risk entry within a highly probable signal. Adding the Percent Retest filter to your Acceleration bands will help you be patient for those lower risk entries after momentum has confirmed;while Acceleration signals help you identify weaker trends where retest become reversal.



    As I’ve mentioned, in general keep a trading system simple – I have found that the unique combination of Acceleration Band breakouts and Williams Percent R re-tests (utilizing Big Trend Percent R methods) is a very effective trading tool & system. I encourage you to start testing this on your favorite stocks as it has helped me increase my winning percentage, while reducing those whipsaws that many traders experience from Acceleration Bands alone.

    Trade Well,
    Price Headley
    BigTrends.com
    1-800-244-8736

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    Support Tip

    How do I color my volume for up / down colors?

    Contributed by Equis Support

    Volume is one of the most powerful technical analysis tools traders use in predicting the way a security is about to move. The difference between a smaller return and a bigger return is sometimes only a matter of seconds. Coloring volume bars to identify up volume and down volume can be used as a tool to give traders the edge they need.

    To do this we must create a custom indicator in MetaStock.

    1. Open MetaStock.
    2. From the Tools menu on the main toolbar, select Indicator Builder.
    3. Click New on the right hand side to open the Indicator Editor to create the new indicator.
    4. Type in the desired name of the indicator in the name section.
    5. Check the option to “Display in quicklist”.
    6. Click in the larger “Formula” window and type or copy and paste this formula:
    When comparing volume data to yesterday’s volume data:
    If(V>=ref(V,-1),V,0);
    If(VOr when comparing volume data to yesterday’s close price:
    If(C>=ref(C,-1),V,0);
    If(C7. Click ok to close the Indicator Editor and create the indicator, then close the Indicator Builder dialog.
    8. Open any chart.
    9. Using the indicator quick list, plot your new volume indicator;this will plot two different lines.
    10. Scroll to the end of the chart and right click onto the line going up and select properties. Next select the Color/Style tab and select green for the color and set the style to histogram. Then select OK.
    11. Scroll to the end of the chart and right click onto the line going down and select properties. Next select the Color/Style tab and select red for the color and set the style to histogram. Then select OK.

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    MetaStock Features

    Big Trends Toolkit Review

    Contributed by David Derricott

    The Big Trends Toolkit has been an immensely popular add-on. The reason is simple;people have found that the system works. Big Trends Toolkit features Explorations, System Tests, and Expert Advisors. The systems included in the add-on are Price Headley’s time tested strategies and can be used in any market. When market changes happen, as they have in the last year, it is important to have strategies that have proven their merit over time, and this is why the toolkit has been so popular. The Toolkit can be used to identify low-risk entry and exit points, spot accelerations, and more. I would encourage users to use the System Tests included with the Big Trends Toolkit to identify the best system to match the stocks you are trading. Customers really appreciate the level of detail in which the commentaries define how to use the system in trading. Each commentary provides detailed explanations of the systems and detailed instructions on how to trade each entry with your risk tolerance in mind. You have the opportunity to try this add-on on a 30 day money back guarantee. For more information regarding the scanning feature found within MetaStock, please contact David Derricott directly at 800.587.8012 or via email at david.derricott@thomsonreuters.com.

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    July - August 2009 MetaStock Monitor

    In this issue:The Downtrend and Uptrend are Not Created Equal, Updating Your Symbol Utility - Symbol, and Database, The ETS Trading System Main ArticleSupport Tip

    Main Article

    The Downtrend and Uptrend are Not Created Equal

    Contributed by Martha Stokes, C.M.T.

    There are many myths perpetuated in the trading world. One such myth is that if you know how to trade the uptrend or the buy side of the market, then you can easily switch and trade the downtrend or sell side of the market. All too often, Retail Traders assume the two are mirror images of each other. Unfortunately, this often leads to problems for traders who want to sell short.

    The downtrend is significantly different in price action than the uptrending market. Here are some aspects of downtrending price action every trader needs to understand and recognize to improve their sell side trading:

    The Market Participants who trade the downtrending market are a different mix than those who trade the uptrending market and do so for very different reasons. Since the late 1990’s, the levels of Market Participants have expanded and we now have 8 groups of Market Participants each with their own agenda for investing or trading stocks. On the uptrend, the Institutional Investor dominates price action. During a downtrend, the Institutional Trader controls the action. Since each of these groups has entirely different buying and selling agendas, price action is impacted often in dramatic ways. Understanding this phenomenon helps the Retail Trader know what kinds of entry signals to look for, the patterns to watch for in institutional indicators, and what kinds of exit signals and strategies to use for both stock and option trading.

    Stocks require strong volume patterns to move up, so a continued increase in volume is necessary for the uptrend to sustain. On the downtrend, stocks can and do fall even on low volume patterns. This is especially true during the secondary and final phases of the downtrend. Retail Traders need to adjust their volume indicator settings to accommodate the variances between the uptrend and the downtrend. Volume bars should be used with a sub-indicator, either a moving average or rate of change and the settings need to be significantly tighter on the downside to achieve an accurate analysis of volume to the downside.

    To the downside, the angle of descent is far more vertical and occurs more frequently than the angle of ascent. The angle of descent can maintain a vertical drop longer than the angle of ascent. When a trader understands this phenomenon and is expecting it, then they are able to make adjustments to their exit strategies and indicator analysis to keep them in the trade for higher point gains. Since the angle of descent is steeper, the sell side tends to move faster with far more momentum, even on lower volume. This creates different Trendline Patterns to the downside. Traders should expect to see tighter consolidations with dramatic stairstep patterns that are longer than upside stairstep patterns. The runaway trendline pattern will also occur more often to the downside than to the upside.

    Traditional textbook theory on bear market trends identifies 3 phases of a bear market;however, today’s bear markets tend to have more than 3 phases. Bottoming patterns are more complex and gaps are more common. Retail Traders also need to watch out for more frequent bounces. During the first phase of a bear market or major correction, price action will be at its steepest. In recent years, the final move down of major corrections tends to fizzle out rather than the huge dramatic drops that occurred in prior decades.

    The initial downtrend phase is an important area for retail traders to recognize to enter just as the topping action completes. Often Retail Traders are not aware of the topping action and miss the highest point potential of the downtrend. Conversely, during the early stages of a market bottom, Retail Traders are often attempting to sell short while institutional investors are quietly accumulating.

    Here are a few tips to help you with your selling short trading:

    • Whenever any financial market, whether it is stocks, bonds, options, or forex go vertical and sentiment has gone over 90% to the upside, start watching for one of the 5 topping patterns and shift your mindset in preparation for selling short. Choose 1-3 sell short entry signals, adjust your indicators, and start setting up for selling short. Wait for the drop in volume on the final move up.
    • The Institutional Investors tend to exit the stock, index, or other instrument prior to the final move up. The small investor and late comers create that vertical extreme peak pattern on falling volume. If the stock, index, or other instrument doesn’t make a higher high and higher low on rising volume, then you have an initial topping pattern developing. Be aware that the late buyers coming in will “buy on the dip” with ‘market orders’ rather than controlled orders and this can cause a big bounce. Watch for this pattern.
    • Do not keep your stop loss too tight, allow for normal overlapping that forms in downtrend price action. Falling price action tends to overlap far more than upside price. If you keep a very tight stop, you will get whipsawed out of the sell short or option put prior to the major move down. Overlapping on downtrending stocks occurs because even as the Institutional Traders move in to control the downside action, late uninformed small lot buyers are rushing to buy with ‘at market’ orders. This creates a surge of pre-market orders allowing market makers to gap price up at market open, then as the large lot sellers move in, price drops quickly. The more popular the stock, the more overlapping of price action there will be when small lot late buyers meet Institutional Traders selling short.
    • When a stock drops below $15.00, it has less profit potential for selling short. Retail Traders need to be vigilant during the final phases of a downtrend to monitor the activity of the Institutional Investors who will move in quietly without disturbing price much. Once their counterparts, the Institutional Trader, finds out about the quiet accumulation, speculative bottoming action will occur. Often times Retail Traders have delayed selling short during a downtrend and jump in just as the stock is about to begin a bottom. If a stock has fallen 40%-50% or more, then it is usually not an ideal candidate for selling short.
    • Keep a 3/1 Profit Point to Risk ratio when selling short. The sell side offers a much higher profit potential per trade than the buy side, however, the risk is also greater as bounces can wipe out profits quickly. By choosing only optimal picks with a higher profit to risk ratio, you lower your overall risk and raise your profit potential.
    • Do not choose weaker picks with lower profit to risk ratios simply to have something to trade. If you can’t find ideal picks, then stop and accept the fact that the market is telling you something important. Often when you aren’t able to find picks with good profit to risk ratios the market is right on the cusp of a major upside shift.

    Summary:The sell side is different than the buy side of the market. It has a much faster moving price action in the early stages of the downtrend, but it also has overlapping patterns not seen as frequently when stocks are trending up. The matrix of Market Participants—who is buying, who is selling, who is buying to cover, and who is selling short differs on the sell side to the buy side and impacts price action. When a trader understands these often subtle differences and can see the patterns on the price chart, they are on their way to mastering the sell side and becoming an expert trader.



    About the Author:

    Martha Stokes, C.M.T. is the co-founder and CEO of TechniTrader®, an educational firm dedicated to helping small investors and retail traders. Since 1998, TechniTrader® has taught thousands of beginners to professional level traders how to be consistently successful in the stock and option markets.

    Martha’s fascination with the markets and business started at the age of nine. She made her first investment while still a teen. Her theory on Cycle Evolution is a landmark work on financial cycles. She has been involved in several startups and has sat on both sides of the Venture Capital negotiating table, worked on an IPO, managed a small fund, taught at community colleges, and has been a guest speaker at numerous seminars and investment groups including the Boeing Employees Investment Group. She has been a guest on the CFRA radio Ottawa Canada.

    Her long list of educational work includes:15 stock, investing, and option courses, 16 semester length Lab Classes, her Annual New Technology Reports, Sector and Industry, and Special Edition Reports, hundreds of articles, resource papers, and white papers. Martha writes 6 newsletters each week and still finds time to answer student questions.

    www.technitrader.com

    www.marthastokes.com

    www.technitraderblog.com 

    TechniTrader Twitter Page

    TechniTrader Facebook Page

     

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    Support Tip

    Updating Your Symbol Utility - Symbol Database

    Contributed by Equis Support

    The stock market is dynamic and symbols are constantly being changed, removed, or created. In order to keep up with the symbol changes, Equis updates the symbol file found within its symbol database. The Symbol Utility reflects those changes. It allows customers to automatically update the symbols in their “Local Data” view in the Open dialog on a monthly basis without having to manually change each symbol within each folder on their hard drive.

    How to update the Symbol Database built into MetaStock.

    1. Open MetaStock.
    2. Select Tools – “Update Symbol Database”.
    3. When you get the message “patch successful” select Close.
    4. Close and restart MetaStock.

    How to install the Symbol Utility for Reuters DataLink.

    1. Go to:https://www.metastock.com/customer/support/download/symbolutility.aspx
    2. Read the warnings and agree to the terms and select “Download RDL file”.
    3. When prompted select “Save”, this will open the “Save As” window. Using the drop down menu select the “Desktop” for the “Save In” then select “Save”.
    4. When the download is complete close out of the Symbol Utility web page.
    5. On your desktop you will have a new icon named “RDL_Symbol_Utility.exe” double click onto the file and select “Run”.
    6. The extractor window will appear showing the unzip folder path as C:\MetaStock Data, next select “Unzip” to begin the extraction process.

    Follow the steps below to download historical data from Reuters DataLink.

    1. Open the DownLoader.
    2. From the Tools menu in The DownLoader select “Download Prices”.
    3. This will open the Select Securities window. On the left hand side of the folder tree, expand the C drive and highlight the MetaStock Data folder and select “Add all Subfolders” and select OK. This will add the folders and symbols created by the Reuters DataLink Symbol Utility for a data download.
    4. Select “OK” on the Select Securities window and the Vendor Selection window opens. Make sure the Reuters DataLink tab is forward in front and select OK to begin a data download.

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    MetaStock Features

    The ETS Trading System

    Contributed by Greg Allred

    In today’s marketplace, there is a lot of confusion and bad trades being executed. The common systems and methods used in past years do not seem to work as well in today’s market conditions. ETS Trading System can create clarity in today’s uncertain market conditions and help shift the odds in your favor.

    ETS Trading System does an excellent job of providing very clear and easy to read buy and sell signals. The system will display protective stops, trailing stops, and profit targets. Many systems only work on an end-of-day or intraday basis but this system works well for both time frames. ETS Trading System has two experts:ETS Basic and ETS Complex. The complex expert includes profit targets and protective stops for long or short trades. This system works with stocks, options, indices, futures, and FOREX. ETS Basic gives you clear and precise buy and sell signals.

    The powerful tools ETS offers helps you eliminate the stress and emotion most people experience while trading. Whether you are a new or experienced trader, ETS can help avoid costly decisions and mistakes. The program comes ready to use out of the box and is easy to use. Help put your trading on the right side of the markets by adding these valuable tools to your collection.

    For questions or interest in ETS Trading System or any MetaStock program please contact Greg Allred directly at greg.allred@thomsonreuters.com or 1-800-587-8014.

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    May - June 2009 MetaStock Monitor

    A New Look At A Decades-Old Analysis Tool | How can I restore the back-up copy of my custom formulas? | Fire Plug-In

    Main ArticleSupport TipMetaStock Features

    Main Article

    A New Look At A Decades-Old Analysis Tool 

    Contributed by Don Fishback

    There's been a lot of talk lately about models, probability and statistics. The reason is manifold, but it all distills down to what's going on in the banking and financial sector. You see, nearly every major decision in national and global-scale finance - whether it was the ability of a group of borrowers to pay back loans, the amount of capital banks were required to keep, the amount of collateral required to provide credit default insurance, or the value of certain derivatives - is based on a probability model.

    A contemporaneous example is the so-called "bank stress test". Regulators disclosed the methodology for the stress test in late April. In that disclosure, they said, "Analysis of [commercial and industrial] loan loss projections was based on the distribution of exposures by industry and by internal rating provided by the firms. In many cases, these ratings were mapped to default probabilities by the firm;in other cases, this association was established by supervisory analysts. This information was confirmed and supplemented by external measures of risk, such as expected default frequencies from third party vendors. Supervisors evaluated firm loss estimates using a Monte Carlo simulation that projected a distribution of losses by examining potential dispersion around central probabilities of default."

    A Monte Carlo simulation works by randomly generating inputs going into a model (or formula or equation), and then evaluating all the results. The first step in the process of using a Monte Carlo simulation requires that you create the model. Obviously, that's important. The second part is equally important. It requires you to answer this question:How do you generate the random numbers? To do that, you need to select a "domain" or "distribution". There are many different types of distributions out there:uniform, binomial, triangle, etc. One of the most widely used, and the one that is used in the financial arena more than any other, goes by several different names:Gaussian, normal or bell-curve.

    In finance, we typically add a complication, and that is to express movements in terms of logarithms. Personally, I like to keep things simple, so I would hesitate to add anything making it more difficult. But the addition of the logarithm does have a purpose. The reason we express movement in terms of logarithms as opposed to percentages is because a 50% loss and a 50% gain are not necessarily the same thing. Think of a stock at 100. If it loses 50% and then gains 50%, the stock goes from 100 down to 50 up to 75. Instead, a 50% loss and a 100% gain are the equal-magnitude inverse of each other. If the stock goes down 50%, then up 100%, then the path is from 100 down to 50 and back to 100. You get the same result if the path reverses going up 100% first then down 50%. The stock starts at 100, then up to 200, then back down to 100. The net of all of this is that the natural logarithm of 0.50 (-0.69315) is the inverse of the natural logarithm of 2.00 (+0.69315).

    Now back to the bell curve that is used in financial Monte Carlo simulations and derivative pricing. One of the interesting properties of the bell curve is that it gives us the ability to calculate probabilities, as shown in the following graph:

    x-axis is expressed in terms of standard deviation. Graph produced using R by Jeremy Kemp

    As you can see, there are certain probabilities associated with different standard deviations. That's important, because standard deviation is associated with something else that we as traders are well aware of:volatility. You see, volatility is equal to the annualized standard deviation of the asset.

    That means, if we know an asset's volatility, we can use certain formulas to calculate probability.

    That's where the ODDS Probability Cone, developed over a decade ago, comes in. This indicator -- unique to MetaStock -- has those formulas built into it, allowing you to easily visualize probability.

    Below is a chart of the S&P 500 Index plotted with the CBOE Volatility Index (VIX). The VIX is a measurement of expected volatility of the S&P 500 Index over the next 30 days. That expectation is implied by the prices of S&P 500 Index options. Also shown in the chart is a yellow arrow pointing to a parabolic shape in the Line Studies toolbar. That's the ODDS Probability Cone.

    If you click on the parabola, your cursor becomes a cone-shaped indicator that you can move across the chart. Simply move the indicator to where you want to do the analysis, and you're ready to set the parameters, as shown in the next graphic.

    Once you've placed the cone where you want it, simply double click it and see the dialog box that allows you to set the dates, the probability and the volatility. In this particular instance, I set the date from May 7 to the June options expiration, June 19. I set the volatility to the specific value of the VIX that day. And I set the probability to 68.2% -- the level corresponding with +/- 1 standard deviation. Once I've set the parameters, MetaStock performs the calculations I created, and the ODDS Probability Cone (shown in yellow) is drawn. By scrolling across the indicator, you can get the Cone values at different points in time, as shown in the next graph.

    As you can see, when the cursor is placed on the Cone at 06/19/2009, the values are 1019.90 and 807.295. That means, based on an expected volatility of 33.44, there is a 68.2% chance that the index will be in between those two values on that date, which is when the June options expire. There is a 31.8% chance the index will be outside that range on June 19.

    Not only can we look at 68.2/31.8, the probabilities associated with +/- 1 standard deviation, we can look at other probabilities as well. For example, we can look at 50/50 (green), 80/20 (blue), or 90/10 (orange).

    To option traders, this provides vital information, as it allows us to visualize the expected probability of a certain-size market movement. By looking at this chart, we can see that the market is expecting a 90% chance the S&P 500 will be within 750 and 1100 at June options expiration.

    So when you look at all that's going on in the banking and the markets today, with the stress tests and the attempts at pricing derivatives, realize that one of the tools those folks are using is built into MetaStock so you too can determine probabilities quickly, easily and visually.

    -- Don Fishback

    A couple of caveats:First, this is a simplified explanation meant to highlight the major factors and the features of the indicator. A more comprehensive explanation requires a lot more math, and this simply isn't the forum for that discussion. Second, the formulas used to calculate the ODDS Probability Cones are based on the assumption that the stock market follows a logarithmic, normal distribution. No asset actually follows that distribution perfectly. But it is a useful representation when applied to an asset class such as a broad-based stock index. Just remember these words from statistician George Box, "All models are wrong, but some are useful."

    ODDS(r) is a registered trademark of Donald M. Fishback, Jr.

    About the Author - Don Fishback is the creator of ODDS® – Options and Derivatives Decision Support. ODDS is a method for analyzing options and other derivatives based on a unique method for balancing risk, reward and probability. The key to this approach is volatility, which is the way most people look at options, plus magnitude over time. Don’s oddsonline.com software provides traders with his unique Measure, Don’t Model™ analysis tools. Not only does ODDS Online calculate probabilities based on the most commonly used option pricing models, but it also incorporates actual measurements of stock price movement to evaluate option strategies. A 25 year veteran of the derivatives business, Don spent many years on the conference and lecture circuit. Now he prefers to spend his time at home with his family.

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    Support Tip

    How can I restore the back-up copy of my custom formulas?

    Contributed by Equis Support

    How can I restore the back-up copy of my custom formulas?

    1. Open MetaStock

    2. Click Tools | Indicator Builder

    3. Click Organizer

    4. Select "Import formula files", then click Next

    5. Specify the location you wish to import the files from

    6. Click Finish

    7. All of the formula files, experts, explorations, and system tests will be read from and added to the current installation location for MetaStock.

    If you already have formulas, experts, explorations, and system tests of the same name in MetaStock, you will be asked if you want to replace them. If you say yes, the import will finish, overwriting the formulas of the same name. If you say no, the import will be halted and no custom formulas will be restored.

     

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    MetaStock Features

    Fire Plug-In

    Contributed by Ken Spelman

    One of our best plug-ins for broad market analysis is also one of the least understood;Fire. Fire is a tool that allows you to calculate and plot breadth indicators on sectors and industry groups rather than the market as a whole. A breadth indicator is a specific type of indicator using advancing and declining issues to determine the amount of participation in the movement of the stock market.

    Fire allows you to perform External Relative Strength Analysis (also known as ERSA). ERSA is a concept that measures how a stock’s price has performed versus all other stocks in the selected group over a specific time frame. Fire allows you to customize your analysis by choosing the stocks you group together to calculate an array of breadth indicators over any time period. You can then plot your results in MetaStock for more analysis.

    Fire is the only program that will allow you to easily create your own custom index. With Fire’s custom indices tool, you’ll get quick calculations on the average open, high, low and close of all the securities in the folder you create.

    For more information on Fire, check out https://www.metastock.com/products/thirdparty/?3PC-ADD-FIRE or call Ken Spelman at 800.587.8018 or email him at ken.spelman@thomsonreuters.com.

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    March - April 2009 MetaStock Monitor

    Bollinger Band Basics | How can I find and delete local securities that are no longer trading? | The RMO ATM

    Main ArticleSupport Tip 

    Main Article

    Bollinger Band Basics

    Contributed by John Bollinger

    Bollinger Bands are available on MetaStock and most charting software. They have become popular primarily because they answer a question every investor needs to know:Are prices high or low?

    What are Bollinger Bands? They are curves drawn in and around the price structure on a chart providing a relative definition of high and low. To wit:Prices near the upper band are high, prices near the lower band are low.

    The base of the bands is a moving average that is descriptive of the intermediate-term trend. This average is known as the middle band and its default length is 20 periods. The width of the bands is determined by a measure of volatility called standard deviation. The data for the volatility calculation is the same data that was used for the moving average. The upper and lower bands are drawn at a default distance of two standard deviations from the average.

    These are the standard Bollinger Band formulas

    Upper band = Middle band + 2 standard deviations
    Middle band = 20-period moving average
    Lower band = Middle band - 2 standard deviations

    Here is an example of Bollinger Bands applied to a chart:

    To teach you how to use Bollinger Bands effectively would take a book, however the following rules serve as a good beginning point.

    15 Basic Rules for Using Bollinger Bands

    1. Bollinger Bands provide a relative definition of high and low.

    2. That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.

    3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.

    4. Volatility and trend already have been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended.

    5. The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid colinearity.

    6. Bollinger Bands can be used to clarify pure price patterns such as M-type tops and W-type bottoms, momentum shifts, etc.

    7. Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.

    8. Closes outside the Bollinger Bands can be continuation signals, not reversal signals--as is demonstrated by the use of Bollinger Bands in some very successful volatility-breakout systems.

    9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the bandwidth are just that, defaults. The actual parameters needed for any given market/task may be different.

    10. The average deployed should not be the best one for crossover signals. Rather, it should be descriptive of the intermediate-term trend.

    11. If the average is lengthened the number of standard deviations needs to be increased simultaneously;from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced;from 2 at 20 periods, to 1.9 at 10 periods.

    12. Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent.

    13. Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance and the distributions involved are rarely normal.

    14. Indicators can be normalized with %b, eliminating fixed thresholds in the process.

    15. Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.

    These rules outline the basic guidelines for using Bollinger Bands. For a more comprehensive understanding of the bands, I suggest that you read “Bollinger On Bollinger Bands”. The book starts with the basics, builds to the complex and teaches the technical analysis process including which indicators to use and how to read charts.

    The Bollinger Band Tool Kit for MetaStock provides easy to use implementations of all the trading systems and indicators from the book.


    John Bollinger, CFA, CMT is probably best known for his Bollinger Bands, which have been widely accepted and integrated into most of the analytical software currently in use. He is the president of Bollinger Capital Management, a money management firm, and publishes a monthly newsletter, The Capital Growth Letter. He has eight financial websites:www.BollingerBands.com, www.BollingerOnBollingerBands.com, www.EquityTrader.com, www.FundsTrader.com, www.GroupPower.com, www.MarketTechnician.com, www.PatternPower.com and now a forex site, www.BBForex.com.

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    Support Tip

    How can I find and delete local securities that are no longer trading?

    Contributed by Equis Support

    A good technical analysis trader regularly cleans up the symbol lists they use for trading. Creating an exploration to identify securities that are no longer trading takes just a moment and saves you time in the future. The following method identifies securities that are no longer trading and provides a way to easily remove them from your lists.


    Create a new exploration with the following formula:

    Col A name:month, Col A formula:Month()
    Col B name:day, Col B formula:DayOfMonth()
    Col C name:year, Col C formula:Year()
    Filter ( (Year() <2009) OR (Month() <2) )

    Run the exploration. The results will be the securities that are no longer trading. Select all of the results and delete them.

    Below is a step by step process of how to create this exploration:

    1. Open MetaStock

    2. Open the Tools menu

    3. Select The Explorer

    4. Click New

    5. Name the new exploration (we suggest "no longer trading")

    6. In Column A, type in the following:
    - name:month

    - formula:Month()

    7. In Column B, type in the following:
    - name:day

    - formula:DayOfMonth()

    8. In Column C, type in the following:
    - name:year

    - formula:Year()

    9. In the filter column, type in the following
    - ( (Year() <2009) OR (Month() <2) )

    - Note:you'll want to change the '2009' and '2' to the current year and month before you run this exploration.

    10. Click OK

    11. Click Explore

    12. Add your data folders to the Select Securities dialog

    13. Click OK

    14. Click Reports when complete and select the Results tab

    15. Select the first security, hold down the Shift key and click on the last security

    16. Right click on the selected securities

    17. Select delete securities

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    MetaStock Features

    The RMO ATM

    Contributed by Devin Ekberg

    With the recent highly turbulent financial markets, it is extremely important to consider volatility and volume as part of a trader’s technical analysis. Volatility is defined as the relative rate at which the price of a security moves up or down, and is calculated using a statistical method of standard deviation. Volatility can be a trader’s best friend or worst enemy depending on how his/her analysis accounts for it.

    Most traders expect to make money quickly and easily;knowing when markets are dormant, active, or hyperactive can mean the difference between a fast moving profit and a slow churning loss. The RMO ATM add-on for MetaStock contains many templates and strategies for measuring volatility, including a set of indicators called “Zone Detector” and “Zone Fill” (See Figure 1 below).

    The Zone Detector (dark green line) ranges from 0-1 indicating a period of sufficient activity (1) or insufficient activity (0). A value of one indicates enough activity is present to move the price action in either direction quickly and efficiently. When the value is zero, a trader is more likely to experience a sideways or choppy movement in price action.

    The Zone Fill (light green histogram) is a secondary measure suggesting the activity is not only favorable for a trade, but also considered “hyperactive” and a trader can feel more comfortable with a larger position or more aggressive profit target.

    These two indicators can be used along with the other strategies in the RMO ATM add-on as a filter for executing only the trades with the highest probability for success. Imagine a mechanism keeping one’s money out of the capital-draining choppy markets, and only in efficiently trending markets.

    The RMO ATM was created by Rahul Mohindar, who is best known for his RMO Trade Model template in MetaStock 10. I have many clients who have given superb feedback in these strategies even in the most unpredictable financial markets of our lifetimes. If you have any questions about this product or others, you may contact me anytime for more detailed information. Until then, I hope your trading is successful.


    For more information on the RMO ATM, please contact Devin Ekberg at 801.270.3167 or via email at:devin.ekberg@thomsonreuters.com.

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    January - February 2009 MetaStock Monitor

    January - February 2009 Newsletter

    Main ArticleSupport Tip

    Main Article

    Combining Relative Strength and Other Technical Indicators

    Contributed by Michael Carr

    Technical analysts have spent decades creating formulas designed to give them a trading edge. Many are based upon the principle that changes in momentum will occur before changes in price trend, in other words technicians are saying that Relative Strength (RS) in a stock’s past performance is a good indicator of future price appreciation. Examples of technical indicators include stochastics, the moving average convergence-divergence indicator (MACD), and the Relative Strength Index (RSI).

    RSI was introduced to the world by Welles Wilder in 1978. It is among the most popular momentum oscillators used by technicians, and is a very useful component in many trading strategies. The RSI compares the strength of a stock's recent upside movement to the magnitude of its recent losses and provides that information as a single value that ranges from 0 to 100. However, it is not a measure of comparative RS because it does not take into account the performance of other stocks or the market itself. The theory behind the RSI is that it will identify those times when a stock has moved too far, too fast and is due to exhibit mean reverting behavior causing a reversal of the current trend. It is intended to spot tops and bottoms rather than find stocks that are starting to move higher for an extended period of time, as RS seeks to do.

    MACD measures the difference between a short-term and long-term moving average of closing prices. The longer moving average is subtracted from the shorter moving average. The theory behind this indicator is that this calculation of a stock’s momentum will show when prices are changing directions. A positive value of MACD indicates that the short-term MA is trading above the long-term MA. A negative MACD indicates the opposite. If MACD is positive and rising, then the gap between the two MAs is widening, which means the rate of change of the short-term MA is higher than the rate of change for the long-term MA. This should lead to higher prices for the stock. If MACD is negative and declining further, then downward momentum is accelerating, and lower prices are to be expected.

    The MACD indicator has been adapted as a measure of RS by Christopher Hendrix, CMT.ii Hendrix substitutes a RS calculation for price into the traditional MACD formula and creates a Momentum of Comparative Strength (MoCS) formula:

    MoCS = (12-period EMA of (Stock/S&P 500)) – (26-period EMA (Stock/S&P 500))

    where EMA represents an exponential moving average

    Stock represents the closing price of the stock being evaluated

    S&P 500 represents the close of the S&P 500 Index

    An exponential moving average (EMA) is used by some market technicians to reduce the time lag introduced with simple moving averages. When using a moving average to smooth the data and help identify the trend, some delay is introduced into the price series. EMA's reduce the lag by overweighting the importance of more recent prices, with the amount of overweighting determined by the specified period of the EMA. Shorter period EMAs overweight the most recent price more than longer period EMAs. In the MoCS formula, the most recent close accounts for 15 percent of the value of the 12-period EMA, and the 26-period EMA derives about 7.5 percent of its value from the most current price. Because it puts more weight on recent prices, an EMA will react quicker to recent price changes than a simple moving average which equally weights all data points.

    Trading signals are generated when a 9-period EMA of the MoCS crosses above or below the current value of the MoCS. An example is shown in Figure 1. Buys are signified when the solid line is above the dotted line, sell signals are the reverse. The advantage of MoCS is that it compares the movement of a stock to the overall market but allows the investor to apply a RS strategy to a single security, rather than requiring that an investment universe be rank ordered and sorted into percentiles. The chart shows there are clear buy and sell signals based only upon the behavior of this stock compared to the market.

    Figure 1:Modifying the formula of the well-known MACD technical indicator to measure RS allows an investor to see clear buy and sell signals for an individual security. The Momentum of Comparative Strength (MoCS) indicator is shown in the bottom panel of this figure. In this case, a buy signal occurs when the solid line crosses above the dashed line, and a sell occurs when the solid line falls below the dashed line.

    As can be seen in Figure 1, MoCS offers timely signals. Its sell signals are usually closer to the top than the signals given by other indicators. Traditional oscillators give a large number of false signals. Using weekly settings for MoCS provides very few signals, and even fewer losing trades.

    This technique can be applied to any technical indicator by adapting the formula to use a RS ratio instead of the stock’s closing price. It is a highly adaptable strategy which can employ RSI, or stochastics, for example, instead of using MACD. Alternatively, investors can change the time periods for MACD to generate a greater or lesser number of signals.



    Wilder, J. Welles, New Concepts in Technical Trading Systems, Trend Research, 1978.

    ii ‘It’s Like Spreading Peanut Butter & Jelly,’ Christopher P. Hendrix, CMT, SFO Magazine, November 2006.

    Michael Carr has been trading for more than twenty years and is a Chartered Market Technician (CMT). Carr began researching relative strength trading more than a decade ago and after retiring from the U.S. Air Force as a Lieutenant Colonel, he became a full-time relative strength investor. He is the editor of the Market Technicians Association (MTA) monthly newsletter, Technically Speaking, and associate editor of the MTA's scholarly publication, Journal of Technical Analysis. Carr also serves on the board of directors of the MTA Educational Foundation. His work has been published in SFO, Futures, TRADERS , and Working Money. He is also the author of Smarter Investing in Any Economy:The Definitive Guide to Relative Strength Investing (www.w-apublishing.com), from which this article is extracted.

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    Support Tip

    How can I backup my formulas? (Indicators, Experts, Explorations & System Tests)

    Contributed by Equis Support

    All of your formulas can be quickly backed up by the following procedure:

    1. Open MetaStock
    2. Click Tools | Indicator Builder
    3. Click Organizer
    4. Click Export
    5. For each of the formula based tools, select the items to be backed up.
    6. Specify the location you wish to export the files to. You can password protect them here, but we advise you not to unless you are distributing them to other people you do not want to have access to the formula code.
    7. Click OK

    This will back up the selected formula files in the destination location you specify. Although safe guards are put into place to in MetaStock to mitigate loss of data, backing up your work provides you with additional peace of mind;therefore we recommend that you regularly back up your work.

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    MetaStock Features

    MetaStock Scanning

    Contributed by David Derricott

    One of the most commonly used features in MetaStock is the ability to scan. This is a very powerful and useful part of the program. It’s a great way to find securities you want to trade, will help you decide when to trade, and if you should stay out of the market. A very simple and easy scan you can create using MetaStock is scanning for buy and sell signals when a moving average crosses above or below the price bar over the last 20 days.

    Another great part of the scanner is the ability to make the scans as simple or as complex as you would like. MetaStock has about 40-50 pre-programmed scans included in the software. You can use historical data to back test these scans to see how they perform over any given period of time. Once you have determined which scans work best for you, you can apply these to your trading portfolio. MetaStock provides data for 30 years on daily charts and one year on intraday charts. The scanning capabilities within MetaStock work well for both end of day traders and real time traders. It doesn’t matter if you trade stocks, options, futures, or forex the program will work great with all markets.

    If you would like assistance with setting these scans you can contact our support team. We offer world class support and all our representatives are very knowledgeable and will spend as much time as needed to assist you with your questions and problems. In the past year MetaStock support representatives have answered 85% of their calls in two minutes or less. You can contact the support department via phone, email, or online using our support chat feature.

    For more information regarding the scanning feature found within MetaStock, please contact David Derricott directly at 800.587.8012 or via email at david.derricott@thomsonreuters.com.

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    November - December 2008 MetaStock Monitor

    RSI with EMA Strategy

    Contributed by Robert W. Colby, CMT


    In my 39 years of actual technical research experience, I have tested many of the analytical tools available. (Okay, so in my early years, I was testing different kinds of graph paper, rulers, and pencils). More than 22 years ago, I reviewed more than a dozen technical analysis software programs for PC Magazine, Special Issue, April 15, 1986, Volume 5, Number 7. MetaStock was new then, practically a startup, but it stood out above the rest, and so I selected it as “Editors’ Choice”. 17 years later, I selected MetaStock software again for exclusive use researching for my 820-page book, The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill Publishing, 2003. I selected MetaStock for its wide-range of powerful capabilities, its flexibility, its ease of use, and its affordability.

     

    While doing research for my book, I ran hundreds of optimizations, back tests, and forward tests. Since then, I since have run thousands more. It is my impression that these very powerful tools are widely misunderstood and underutilized by the great majority of investors and traders. In 2005, I gave an interview to TradingMarkets.com where I demonstrated an optimized version of a robust and very popular technical indicator, RSI 3 (buy below 30, sell above 70), combined with a long-term EMA filter of 330 days, for a simple mechanical trading system that offers moderately good performance with no subjective judgment. RSI alone is a relatively weak performer, but the addition of an EMA to filter the trades is the key to greater consistency of results. Which EMA? Optimize over past actual history to find out. The full MetaStock code is shown below. The chart shows the forward tested, real-time simulated performance of this same system applied to the S&P 500 continuous futures contract since January 3, 2007. Since the Buy Long signal on January 3, 2007, this RSI/EMA system is up 8.60%, significantly outperforming Buy & Hold (which is down 12.00%) by 2060 basis points. Of 24 signals, 66.67% were profitable, with 16 winners and 8 losers. See chart for the Cumulative Equity graphed against the raw closing price data.

     

    The purpose of this demonstration is not to recommend any specific trading system. RSI, though very popular, is not the best indicator, and it certainly is possible to develop much better trading systems than the one shown in this example. My purpose is to show that by using powerful analytical software, such as MetaStock, combining common known indicators, optimizing parameters, back testing, and forward testing, it is possible to develop a trading system that can outperform going forward. More power to you!

     

    RSI/EMA System Code

     

    Enter long:
    (RSI(C,opt1)<50-opt2
    AND
    C>Ref(Mov(C,opt3,E),-1))
    AND Year()>2006
    Close long:
    (RSI(C,opt1)>50+opt2
    OR
    C<Ref(Mov(C,opt3,E),-1))
    AND Year()>2006
    Enter short:
    (RSI(C,opt1)>50+opt2
    AND
    C<Ref(Mov(C,opt3,E),-1))
    AND Year()>2006
    Close short:
    (RSI(C,opt1)<50-opt2
    OR
    C>Ref(Mov(C,opt3,E),-1))
    AND Year()>2006

    OPT1
    Range:From 3 to 3 by 1
    Current value:3
    OPT2
    Range:From 20 to 20 by 1
    Current value:20
    OPT3
    Range:From 330 to 330 by 1
    Current value:330

    Initial equity - 1424.8
    Positions - Long and short
    Entry trade price - Close
    Entry trade delay - 0
    Exit trade price - Close
    Exit trade delay - 0
    Entry commission - 0%
    Exit commission - 0%
    Interest rate - 0%
    Margin req. - 100%


    How can I run an Exploration to find Relative Strength Comparative values?

    To construct a Comparative Relative Strength Exploration in MetaStock, please use the following steps below for your version of MetaStock:

     

    MetaStock 8 – 10.1 

    With the newer versions of MetaStock this can now be done with the Security Data Function.

    1. To construct a Comparative Relative Strength Exploration in MetaStock for Windows version 8.01 perform the following steps (This example will reference online data from Reuters DataLink, specifically the S&P 500):
    2. Open the Tools menu
    3. Select the Explorer
    4. Click New
    5. Name it Relative Strength Comparative
    6. Select the Column A tab:
    7. Enter the following formula:C/Security(“ONLINE:.SPX”,C)
    8. Click OK
    9. Run the Exploration
    10. The results are displayed in the exploration report. They can be ranked by selecting the column header.

     

    MetaStock 6.52 – 7.X


    In versions of MetaStock for Windows prior to 8.01, this had to be done using the “P” variable and required you to open the chart of the index to be compared against.

    1. To construct a Comparative Relative Strength Exploration in MetaStock for Windows, prior to version 8.01, perform the following steps:
    2. Open the chart for the desired index.
    3. Click to select the price plot (This will place small boxes on the prices to designate that the price has been selected)
    4. Create a custom exploration for the Relative Strength Comparative
    5. Open the Tools menu
    6. Select the Explorer
    7. Click New
    8. Name it Relative Strength Comparative
    9. Select the Column A tab
    10. Enter the following formula;C/P (Note:The P variable references the selected indicator in the active chart which would be the close)
    11. Click OK
    12. Run the Exploration
    13. The results are displayed in the exploration report. They can be ranked by selecting the column header.

    The Rahul Mohindar Oscillator

     

    What sets MetaStock apart? Well, succinctly stated from the unbiased perspective of the MetaStock sales team;“a lot”. MetaStock feature after MetaStock feature has become the industry standard. Data, charting, back testing, speed and power of analysis, the Explorer, the Expert Advisor, user defined analytics, 150 indicators and line studies, performance systems, unsurpassed support that is free for life… the list goes on and on. One of the most popular, if not revolutionary, features has been the legendary Rahul Mohindar Oscillator (RMO).

     

    The RMO was developed by the famed trader and CNN and CNBC India analyst Rahul Mohindar. It took Asia by storm and now, as released by MetaStock, has become a worldwide phenomenon.

     

    The RMO uses five indicators to detect the correct overall trends in financial markets. It uses multiple criteria to identify a trading opportunity – and provides rules for getting out of a trade;working across any timeframe for a wide variety of securities including stocks, commodities and FOREX.

     

    No system is “one size fits all” or can claim the merits of a crystal ball but the RMO has been successful for legions of users giving them high levels of confidence in their trades by getting them in with the primary trend while keeping a close eye on the swing in the market and market sentiment.

     

    As one customer told me, “The RMO system is truly a winner…the RMO Buy/Sell signals have been fantastic.”

     

    What sets MetaStock apart? The RMO has been a very powerful tool for many, many users and is exclusive to MetaStock. If you are looking for a little more of a trading edge;check out the RMO in MetaStock 10.

     

    Call (800) 587-8014 if you have questions about how MetaStock will improve your trading odds using the RMO or any of our 26 trading systems and unparalleled tools.

     

    Contributed by Greg Allred