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Mastering MetaStock

Version 10

Printed in the USA


All Rights Reserved
Copyright 1985-2007
Equis International
90 South 400 West
Suite 620
Salt Lake City, UT 84101
http://www.equis.com

Except as permitted by law, no part of this document may be reproduced or


transmitted by any process or means without the prior written consent of Equis.
Equis, by publishing this document, does not guarantee that any information
contained herein is and will remain accurate or that use of the information will
ensure correct and faultless operation of the relevant product or service. Equis
provides its products and services as tools to be used by investors who are
aware of the risk inherent in securities trading, not as recommendations to buy or
sell. Equis, its agents, affiliates, and employees shall not be held liable to or
through any user for any loss or damage whatsoever resulting from reliance on
the information contained within this document or through the use of Equis
products or services.

8.3.2007

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Contents
Introduction

Introduction

Welcome............................................................................................................................. 1
Who Should Read this Manual? ......................................................................................... 1
How to Use this Manual ..................................................................................................... 2
Getting Help ....................................................................................................................... 2

Chapter 1 - What is Technical Analysis?

Introduction ........................................................................................................................ 3
Why use Technical Analysis?......................................................................................3
Technical Analysis Basics .................................................................................................. 4
Charts...........................................................................................................................4
Support and Resistance................................................................................................5
Trends ..........................................................................................................................6
Indicators .....................................................................................................................6

Chapter 2 - Introducing MetaStock and MetaStock Performance Systems 9


Introduction ........................................................................................................................ 9
MetaStock Power Tools...................................................................................................... 9
The Explorer ................................................................................................................9
Enhanced System Tester............................................................................................10
Indicator Builder........................................................................................................10
Expert Advisor...........................................................................................................10
MetaStock Performance Systems ..................................................................................... 10
How the MetaStock Performance Systems were selected .........................................10
Which System Should I Use? ........................................................................................... 11
Comparing System Tests .................................................................................................. 11
One System Tested on Several Stocks.......................................................................11
Several Systems Tested on a Single Stock.................................................................17

Chapter 3 - Using the MetaStock Power Tools

23

Introduction ...................................................................................................................... 23
Finding the MetaStock Performance System tools ....................................................23
Choosing a Time Period ............................................................................................23
Opening a Chart................................................................................................................ 24
Custom Indicators............................................................................................................. 26
Plotting a Custom Indicator .......................................................................................26

Mastering MetaStock

Contents i

The Enhanced System Tester ........................................................................................... 28


Results from the Systems Tests .................................................................................31
Cleaning Up the Chart ...............................................................................................32
The Explorer ..............................................................................................................33
Selecting the Stocks ...................................................................................................33
Setting Exploration Options.......................................................................................33
Running an Exploration .............................................................................................34
Performance Exploration Results...............................................................................36
Trade Efficiency ........................................................................................................37
Signal Explorations Results .......................................................................................37
Adding an Additional Filter .......................................................................................38
The Expert Advisor .......................................................................................................... 41
Attaching an Expert ...................................................................................................41
Editing an Expert .......................................................................................................42
Viewing the Commentary ..........................................................................................44
Trading Basics.................................................................................................................. 45
Disclaimer ........................................................................................................................ 46

Chapter 4 - New Features in MetaStock 10

47

Introduction ...................................................................................................................... 47
New Data CD ................................................................................................................... 47
Major Changes ................................................................................................................. 48
To Line Studies..........................................................................................................48
To The Explorer.........................................................................................................48
To Indicators ..............................................................................................................48
To Functionality.........................................................................................................48
Minor Changes ................................................................................................................. 48

Chapter 5 - Forex Systems

49

FX Multiple Time Frame System..................................................................................... 49


Explanation of Symbols and Alerts.................................................................................. 51
FX Keltner Systems.......................................................................................................... 52
FX Keltner System 1..................................................................................................52
FX Keltner System 2..................................................................................................52
FX Pattern System............................................................................................................ 52

Chapter 6 - Rahul Mohindar Oscillator System

53

RMO Trade Model ........................................................................................................... 53


RMO Indicator...........................................................................................................53
Swing Trade Indicators ..............................................................................................54
Using the RMO ................................................................................................................ 55
Interpretation of the RMO Model..................................................................................... 56
The RMO ...................................................................................................................56
The SwingTrader indicator ........................................................................................56
Sentiment Detector ....................................................................................................56
Exit Swing Indicator ..................................................................................................57
ii Contents

Mastering MetaStock

Chapter 7 - Descriptions of the MetaStock Performance Systems

58

Introduction ...................................................................................................................... 58
Description.................................................................................................................58
Signals .......................................................................................................................58
Trade Characteristics .................................................................................................58
Further Reading .........................................................................................................58
The Systems...................................................................................................................... 59
Adaptive Moving Average ............................................................................................... 60
Description.................................................................................................................60
Signals .......................................................................................................................60
Trade Characteristics .................................................................................................60
Further Reading .........................................................................................................60
Bull Power Bear Power 1 ................................................................................................. 60
Description.................................................................................................................60
Signals .......................................................................................................................60
Trade Characteristics .................................................................................................61
Further Reading .........................................................................................................61
Bull Power Bear Power 2 ................................................................................................. 61
Description.................................................................................................................61
Signals .......................................................................................................................61
Trade Characteristics .................................................................................................61
Further Reading .........................................................................................................61
Bull Power Bear Power 3 ................................................................................................. 62
Description.................................................................................................................62
Signals .......................................................................................................................62
Trade Characteristics .................................................................................................62
Further Reading .........................................................................................................62
CCI (Commodity Channel Index) .................................................................................... 62
Description.................................................................................................................62
Signals .......................................................................................................................63
Trade Characteristics .................................................................................................63
Further Reading .........................................................................................................63
Chande Forecast Oscillator............................................................................................... 63
Description.................................................................................................................63
Signals .......................................................................................................................63
Trade Characteristics .................................................................................................63
Further Reading .........................................................................................................63
CMO Reversal .................................................................................................................. 64
Description.................................................................................................................64
Signals .......................................................................................................................64
Trade Characteristics .................................................................................................64
Further Reading .........................................................................................................64
Consolidation Breakout .................................................................................................... 65
Description.................................................................................................................65
Signals .......................................................................................................................65
Trade Characteristics .................................................................................................65
Further Reading .........................................................................................................65
Mastering MetaStock

Contents iii

Cooper 1234 Pattern......................................................................................................... 65


Description.................................................................................................................65
Signals........................................................................................................................66
Trade Characteristics .................................................................................................66
Further Reading .........................................................................................................66
Cycle Progression............................................................................................................. 66
Description.................................................................................................................66
Signals........................................................................................................................66
Trade Characteristics .................................................................................................66
Dynamic Momentum Index 1........................................................................................... 67
Description.................................................................................................................67
Signals........................................................................................................................67
Trade Characteristics .................................................................................................67
Further Reading .........................................................................................................67
Exponential Moving Average........................................................................................... 67
Description.................................................................................................................67
Signals........................................................................................................................68
Trade Characteristics .................................................................................................68
Fractal Trading Systems 1 and 2 ...................................................................................... 68
Description.................................................................................................................68
Signals........................................................................................................................68
Trade Characteristics .................................................................................................68
Further Reading .........................................................................................................68
Long Sell Short Sale 5 Day ........................................................................................... 69
Description.................................................................................................................69
Signals........................................................................................................................69
Trade Characteristics .................................................................................................69
Further Reading .........................................................................................................69
MACD Histograms 1 and 2.............................................................................................. 70
Description.................................................................................................................70
Signals........................................................................................................................70
Trade Characteristics .................................................................................................70
Further Reading .........................................................................................................70
Meisels Overbought/Oversold.......................................................................................... 71
Description.................................................................................................................71
Signals........................................................................................................................71
Trade Characteristics .................................................................................................71
MESA Sine Wave ............................................................................................................ 72
Description.................................................................................................................72
Signals........................................................................................................................72
Trade Characteristics .................................................................................................72
Further Reading .........................................................................................................72
Pattern Trading System 1 ................................................................................................. 72
Description.................................................................................................................72
Signals........................................................................................................................72
Trade Characteristics .................................................................................................72

iv Contents

Mastering MetaStock

Percentage Crossover 3% ................................................................................................. 73


Description.................................................................................................................73
Signals .......................................................................................................................73
Trade Characteristics .................................................................................................73
Projection Oscillator 1 ...................................................................................................... 73
Description.................................................................................................................73
Signals .......................................................................................................................73
Trade Characteristics .................................................................................................73
Further Reading .........................................................................................................73
StochRSI........................................................................................................................... 74
Description.................................................................................................................74
Signals .......................................................................................................................74
Trade Characteristics .................................................................................................74
Further Reading .........................................................................................................74
Swing Index...................................................................................................................... 75
Description.................................................................................................................75
Signals .......................................................................................................................75
Trade Characteristics .................................................................................................75
Further Reading .........................................................................................................75
Vertical Horizontal Filter.................................................................................................. 75
Description.................................................................................................................75
Signals .......................................................................................................................75
Trade Characteristics .................................................................................................75
Further Reading .........................................................................................................75
Volatility Breakout (Chaikin) ........................................................................................... 76
Description.................................................................................................................76
Signals .......................................................................................................................76
Trade Characteristics .................................................................................................76

Mastering MetaStock

Contents v

Introduction Introduction

Welcome
Do your emotions interfere with your trading? Would you like to add discipline
to your trading style? Would you like to automate your investment activities,
using a built-in set of pre-tested trading strategies? And would you like a
manual that explains all this in easy-to-understand terms? Thats what
MetaStock, the MetaStock Performance Systems, and this manual were
designed to do.
We will show you how to quickly and easily use the most powerful features of
MetaStock, the Power Tools. We will also introduce you to 26 of the 80
MetaStock Performance Systems (a collection of the best trading systems ever
developed for MetaStock).
The core of this manual is the step-by-step instruction on how to use the
MetaStock Performance Systems to find better investments. The manual shows
you, step-by-step, how each MetaStock Power Tool is used to help in choosing
systems and trades. Youll be up and running a trading system in no time.
We wont waste your time with anything but the essential instructions to
getting you trading. This manual isnt a complete MetaStock manual
(thats available from the MetaStock Help menu). Its not a guide to the basics
of MetaStock (see the QuickStart Tutorials in the MetaStock Help menu).
Its not a trading course. Nor is it an in-depth review of technical analysis.
This guide is a quick and easy way to feel the power of MetaStock.
Where appropriate, youll be guided to other reference material for more
information.

Who Should Read this Manual?


If you're comfortable performing basic tasks in MetaStock, this manual is for
you. Basic tasks include opening charts, creating security files, downloading
data, plotting indicators and running system tests and explorations. If you're not
familiar with any of those tasks, we highly recommend you read MetaStock's
Getting Started manual before reading this one.

Mastering MetaStock

Introduction 1

How to Use this Manual


Here is a quick breakdown of what can be found in each chapter of this manual.
Chapter One introduces you to Technical Analysis and explains the basic
techniques used in MetaStock to help you make better investment decisions.
Later in the manual, well be introducing you to more advanced techniques, and
having a basic understanding of Technical Analysis will help immensely.
Chapter Two explains whats unique about MetaStock and MetaStock
Performance Systems, and what they can do to improve your trading. This
chapter also outlines two approaches to using the MetaStock Performance
Systems so you can choose the system thats best for you.
Chapter Three is a step-by-step tutorial on using each of MetaStocks Power
Tools with the MetaStock Performance Systems. This is where you learn to
master the real power of MetaStock.
Chapter Four contains a description of the new features in MetaStock 10.
Chapter Five contains a description of the MetaStock Forex Systems.
Chapter Six contains a description of each MetaStock Performance System so
you can find one that fits your trading personality.

Marginal Notes
MetaStock Help
keyword

Throughout this manual, references to the MetaStock help file are included in
the left margin. The keyword to search is bolded (as in the example to the left).
To look up the keyword, select Help from the MetaStock Help menu, and
choose the Index tab. Then type your keyword in the input box at the top of the
dialog.

A new term will be


defined in the margin

The first time new terminology is introduced, a definition will be found in the
margin.

Getting Help
If you have a problem or a question, the first place to check is the MetaStock
help system. It contains everything in the printed manual. Most questions can
be answered in the help.
Context Sensitive
Help icon

MetaStock Help
Technical Support

2 Introduction

There is a help button on each dialog that guides you to the help for that dialog.
Or you can click on the Context Sensitive Help icon, and then click on any item
in MetaStock, to get help on that item.
If you've checked the help system and still cannot find the answer to your
problem or question, please contact the vendor from which you purchased
MetaStock for assistance. If you purchased MetaStock directly from Equis, you
may contact Equis Technical Support for assistance with MetaStock. Look up
Technical Support in the MetaStock help for information on contacting Equis
Technical Support.

Mastering MetaStock

Chapter 1 - What is Technical Analysis?

Introduction
To some people, technical analysis is some sort of mystical art, akin to reading
tea leaves. To others, its a valuable tool that increases their investing success
while decreasing their risk.
The term security refers
to stocks, bonds, mutual
funds, commodities,
currencies, futures,
indices, options, etc.

Simply stated, technical analysis is the study of past security prices and
volume, in an attempt to predict the future. Technical analysis only deals with
the price elements (open, high, low, and close) and the volume associated with
a security, and ignores other factors such as earnings, revenue growth, etc.
Technical analysis can be applied to just about any investment vehicle,
including stocks, futures, options, or mutual funds.
This chapter will describe what technical analysis is and why you should use it,
and introduce you to a few of the basic concepts of technical analysis.

Why use Technical Analysis?


Used properly, technical analysis can increase your investment return, while
reducing your risk. Would you buy a used car without knowing anything about
its past performance? Likewise, you shouldnt buy a stock without learning
about what the prices have done in the past.
Technical analysis protects you from the biggest enemy to your investment
success you. Using a mechanical trading system takes the emotion out of
trading. It makes you a more disciplined trader. It removes the chance that you
will panic at the worst possible moment.

Mastering MetaStock

What is Technical Analysis? 3

Technical Analysis Basics


This is a very basic introduction to technical analysis. For an excellent book on
Technical Analysis, consider Technical Analysis from A to Z, by the creator of
MetaStock, Steve Achelis.

Charts
The most basic concept in technical analysis is the chart. This is where
technical analysis takes place. A chart shows, in graphical form, the trading
history of a security. The most common technical analysis chart is a bar
chart. The bar shows the open, high, low, and closing prices for the period.
See the following illustration for an example. The volume is usually shown
below the price bars.
The open is the first trade
price of the period.

Open High

Close

Low

Volume Dates Prices

The high is the highest trade


price that occurred during
the period.
The low is the lowest trade
price that occurred during
the period.
The close is the last trade
price of the period.
The volume is the number of
shares traded during the
period.
The period is whatever time
frame constitutes one bar
(e.g., minute, hour, day,
week, or month).
The x-axis is the date scale
along the bottom of the
chart.
The y-axis is the price scale
along the side of the chart.

The bottom of the chart (also called the x-axis) shows the dates. The right of
the chart (also called the y-axis) shows the prices.
The bar chart is the most common type of chart, but other forms of charts are
also available in MetaStock. For example, you could plot the close as a line.
This is also a good chart if you just want to take a quick look at the overall
price over the long-term.

4 What is Technical Analysis?

Mastering MetaStock

Support and Resistance


Security prices represent a balance between buyers and sellers. When the price
falls to a point where there are many more buyers than sellers, prices stop
falling, and you get a support level. When prices move up to a point where it
brings out many sellers, prices stop rising; this is a resistance level.
The following illustration shows MedImmune and a support level at $44.

An overbought security has


risen to an unreasonable
level, and is due for a
correction. An oversold
security is the opposite.
A trading range is a sideways
chart pattern, often a resting
period before prices resume
their former trend.

Mastering MetaStock

As stocks move between support and resistance, their action is termed


cyclic. Indicators designed for such activity can be called cyclic
indicators, or overbought/oversold indicators, or reversal indicators.
Cyclic indicators perform best when stocks are in a trading range.
The most famous cyclic indicator is probably the Stochastic Oscillator.
See page 6 for more information about indicators.
When trading support and resistance levels, its advisable to wait for
confirmation of the level rather than trying to anticipate the price turn.
That is, wait for prices to fall to support and bounce off (the confirmation)
before placing a long trade, or vice-versa for short trades.

What is Technical Analysis? 5

Trends
An up-trend is increasingly
higher low prices.
A down-trend is
decreasingly lower high
prices.

The opposite of a stock caught between support and resistance is a stock in a


trend. An up-trend is defined as increasingly higher low prices. A downtrend is defined as decreasingly lower high prices. The old saying is
absolutely true The trend is your friend.
The following illustration shows Washington Mutual in a great up-trend as
prices break out of resistance.

Trend-following indicators can also be called lagging indicators because their


signals lag behind price changes. They work best when securities move in long
trends. The most common trend-following indicator is the moving average.

Indicators
A price pattern is a
recognizable formation in
prices due to trend and
trend reversal.

An indicator is simply a mathematical calculation applied to some or all of the


price fields and/or volume. Indicators can be plotted in the chart to show a
graphical representation of these calculations. Many of the MetaStock
Performance Systems use indicators in their calculations (the systems which
dont use indicators use price patterns).

Moving Average
A moving average is the
average price at which a
security has traded over a
given time period.

One of the most common indicators is the moving average. A moving average
shows the average price a security has traded over the specified time period.
For example, a 5-day moving average would sum up the closing prices for the
last five days, and divide by five, to get the average. This type of moving
average is called a simple moving average because it gives equal weight to
each time period. MetaStock includes six other moving average methods that
apportion the weight in different ways.

6 What is Technical Analysis?

Mastering MetaStock

MetaStock Help
Moving Average

A moving average represents the average price investors have been willing to
pay for a stock over the specified time period. It gives you the consensus of the
crowd.
The following illustration shows Microsoft and a 25-day moving average.
Notice that buying or selling when the price crossed the moving average
resulted in late, but profitable, entry points.

Moving averages are lagging indicators. Signals generated will occur after the
price has changed direction. On the other hand, moving averages always
eventually get you on the right side of the trend. Moving averages are best for
securities that show strong trends.

Stochastic Oscillator
The Stochastic Oscillator
calculates the price
relative to the recent highlow range.
MetaStock Help
Stochastic Oscillator

Mastering MetaStock

Another popular indicator is the Stochastic Oscillator. Stochastics, as it is


sometimes called, shows where the price is trading relative to the recent
high-low range. For example, a ten-period Stochastic would look at the highest
and lowest price over the last ten days, and see where the current price falls
within that range. A value of 100 would indicate the Stochastic was at the top
(or 100%) of the 10-day High-Low range, and a value of 0 would indicate its at
the bottom of the range.

What is Technical Analysis? 7

The following illustration shows Intel and the Stochastic Oscillator.

The Stochastic Oscillator is an overbought/oversold indicator. That is, it tries to


anticipate reversals in price. A common interpretation is to go long when the
Stochastic turns up out of oversold territory (i.e., it crosses above 20) and go
short when the Stochastic falls below overbought territory (i.e., it falls below
80). The Stochastic Oscillator works best on securities that show cyclic, or nontrending, behavior. Many other indicators are based upon stochastic principles.

Other Indicators
MetaStock includes over 120 other technical indicators, from
Accumulation/Distribution to Zig Zag. MetaStock also includes over 100 more
mathematical, statistical, date, and other functions that can be built into your
own technical indicators. You are encouraged to experiment with as many of
them as you have time for. Most investors find a couple of indicators that work
for them, and stick to those. Hopefully the MetaStock Performance Systems
will guide you to a couple of indicators that work for you.

8 What is Technical Analysis?

Mastering MetaStock

Chapter 2 - Introducing MetaStock and


MetaStock Performance
Systems

Introduction
Technical analysis is a powerful tool, but to get the full benefit from it, let the
computer do most of the work. MetaStock and the MetaStock Performance
Systems do all of the dirty work for you, allowing you to spend your time more
productively.
This section gives an overview of MetaStock and each Power Tool. This
section also introduces you to the MetaStock Performance Systems, and guides
you through selecting a system that is right for you.

MetaStock Power Tools


MetaStock contains all of the tools necessary to design, test, and implement an
advanced technical analysis trading system.
MetaStocks Power Tools include The Explorer for finding securities that
meet certain conditions, the Enhanced System Tester for testing trading
systems to see how profitable your ideas have been in the past, the Indicator
Builder for creating your own indicators, and the Expert Advisor for
displaying customized commentary, highlighted bars, symbols, and alerts.

The Explorer
MetaStock Help What is
The Explorer?

Mastering MetaStock

The Explorer is a powerful, multi-purpose analysis tool that can perform indepth explorations (also called scans) on thousands of securities at one
time. It can compare, rank, sort, and filter securities; list multiple indicator
values for multiple securities; show securities with current buy and sell
signals; and search for any technical criteria set by a trader. Results can be
saved to lists for easy future reference.

Introducing MetaStock and MetaStock Performance Systems 9

Enhanced System Tester


MetaStock Help What is
a System Test?

The Enhanced System Tester lets users create and back-test trading systems.
The user sets entry and exit conditions, commission amounts, and other
important details. Then the Enhanced System Tester tests the criteria on real
securities to see how much money would have been made or lost using that
system during a set period of time. The Enhanced System Tester can also
optimize each system to find the parameters that work best for an individual
security and compare multiple systems to show which is most profitable.
These tools allow traders to optimize their chances of making profits in the
marketswithout risking a cent of real money.

Indicator Builder
MetaStock Help What is
the Indicator Builder?

Built into MetaStock is a powerful indicator builder that allows users to


conveniently create their own custom indicators using MetaStocks 200+ prebuilt mathematical, statistical, and technical functions. MetaStocks indicators
also support variables, multiple plots, and user inputs.

Expert Advisor
MetaStock Help What
is the Expert Advisor?.

MetaStocks Expert Advisor works as both a basic teaching tool and a powerful
means of automating a trading system, no matter how advanced. Experts
include buy and sell signals, alerts, and written commentary. Users can also
create their own experts to automate systems of signals, alerts, and more.

MetaStock Performance Systems


The MetaStock Performance Systems are a set of 80 of the best-performing
systems ever devised for MetaStock. Twenty-six of these systems come free
with MetaStock, and the remaining 54 are available with the MetaStock
Performance Systems Plus plug-in.
Each MetaStock Performance System has an associated system test, signal
exploration, performance exploration, and expert advisor. Some of the
performance explorations associated with the 26 free systems are only available
by purchasing the plug-in. A description of each of the 26 free systems is found
in chapter four of this manual, including whether the performance exploration
is included with MetaStock or must be purchased with the MetaStock
Performance Systems Plus plug-in.

How the MetaStock Performance Systems were selected


A Stop is an order to sell
a long position, or cover
a short position, at a
predetermined amount,
usually to limit losses.

The MetaStock Performance Systems, developed by Trading Systems Analysis


Group, were chosen by testing many variations of hundreds of different
systems on daily data, adding up to about 10,000 different combinations.
The tests were done on daily stock data, using no trade delay, with entry and
exit on the close. No commission was figured in during the testing. Stops
werent used, as the systems have their own exit signals that close out a trade
fairly quickly. Low-priced and low volume stocks werent included in the
testing. A system was deemed desirable if its trade efficiency (described on
page 37) was positive for more than 50% of all stocks analyzed.

10 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

Which System Should I Use?


There are two ways to approach the MetaStock Performance Systems tools.
You can choose the stocks you want to trade, and then find the system that
works best with that stock.
Or, you can choose the systems you would like to use, and then find the best
stocks to trade. You can use the Enhanced System Tester to compare the
systems performance on all the stocks in your chosen database, or even online
stocks. The stocks can be ranked by, profit, percent of gain and other criteria,
and then you can choose what to trade.
The following sections will explain both approaches. You decide which works
best for you.

Comparing System Tests


Choose the stock or stocks that you want to trade, using whatever criteria you
find appropriate. You might choose a stock you have a lot of knowledge about.
If you are only going to be taking long positions, you should probably choose a
stock that you think has good long-term prospects.
We are going to compare different systems' performance with different stocks
using the Enhanced System Tester. For more information on using the
Enhanced System Tester, see the step-by-step guide to using the Enhanced
System Tester on page 28.

One System Tested on Several Stocks


Suppose youve chosen the system you want to use, and you simply want to
find a stock whose personality fits this system. Maybe after reading through the
descriptions in chapter four, youve decided that the system that best fits your
trading style is the Pattern Trading System 1. Its built on a bullish premise, and
it trades every one to two weeks, so you think youd like to give it a try. In the
following example, well show you how to choose a stock to trade using the
Pattern Trading System 1 system.

Mastering MetaStock

Introducing MetaStock and MetaStock Performance Systems 11

To Test One System on Several Stocks


1.

Open the Enhanced System Tester.

2.

Click the New Simulation button. The Select Systems screen appears.

3.

Scroll down and select PS Pattern Trading System 1.

12 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

Mastering MetaStock

4.

Click Next. The Select Securities screen appears.

5.

Click Add Securities. The Add Securities dialog appears.

6.

Double-click the folder titled Stocks - Common, then double-click the


folder titled S & P 100.

7.

Click the Tools button, and then click Select All.

8.

Make sure the periodicity is set to Daily (in the lower left corner) and
click Open.

Introducing MetaStock and MetaStock Performance Systems 13

9.

Once you return to the Select Securities screen, click Dates.


The Simulation Dates dialog opens.

10. Select Use price data from and enter 6/30/2000 in the from date and
7/1/2002 in the to date.
11. Click OK.
12. Click Next. The System Testing Options screen appears.

13. Make sure the options in your System Testing Options dialog match
those pictured above.
14. Click More to open the System Testing Options dialog and select the
Trade Execution tab. Make sure the Realistic Market Prices box is
checked.

14 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

15. Click Next. The Begin Trading Simulation screen appears.

16. Type PTS1 in the top field (where it says The System Tester will now
perform the simulation).
17. Click Start. A status window appears in the lower right corner of the
screen.

18. When the simulation is complete, click the View Results link.

Click Here

Mastering MetaStock

Introducing MetaStock and MetaStock Performance Systems 15

19. The Test View opens. Click the Net Profit column heading twice to
arrange the results with the best performers at the top of the list.

The top two performers (according to net profit) are General Dynamics
and Schlumburger. But net profit is just part of the picture. Let's look
more closely at how well these securities worked with the Pattern
Trading System 1.
20. In the results list (the bottom half of the screen), double-click General
Dynamics. The Summary Report appears.

21. Look at the Performance section (second section down on the left), and
notice the Buy & Hold Profit. It was only $5,236.25. But the Pattern
Trading System returned a $5636.25 profit, $400 more. That's a good
sign.

16 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

22. Now click the Equity tab to view the Equity Report.

23. The equity line rises steadily without any extreme jumps. This suggests
that the system is relatively stable and dependable.
24. Now click Back and repeat steps 18 - 20 for Schlumberger.
Youll find that in this test, Schlumbergers net profit beat its buy and
hold profit, but its equity line is less steady than General Dynamics.
So of the two securities that returned the highest net profit with the
Pattern Trading System 1, General Dynamics is probably the best
candidate going forward. If you decide to use this security with this test,
you should attach the Pattern Trading System expert to General
Dynamics chart and check it each day for buy and sell signals.

Several Systems Tested on a Single Stock


You can also run several systems against a single instrument.

To Test Several Systems on One Stock

Mastering MetaStock

1.

Launch the Enhanced System Tester so we can perform a back-test


(see page 10 for more information about the Enhanced System Tester).

2.

We want to try all 26 of the MetaStock Performance Systems on our


stock to see which ones do the best. To select all the systems, click on the
first PS system in the Systems list, then hold down the shift key and click
on the last PS system in the list.

3.

Click the New Simulation button to start the Perform Trading


Simulation wizard.

4.

In the wizard, click Next.

5.

Click Add Securities. The Add Securities dialog opens.

6.

Make sure the Online Vendor button is selected and double-click the
Stocks - Common folder to open it (if youre not already in it).

7.

Click the Options button and select View by Name.


Introducing MetaStock and MetaStock Performance Systems 17

8.

Type Amgen in the Symbol field.

9.

Make sure the periodicity is set to Daily (in the lower left corner) and
click Open. You are returned to the wizard.

10. Click the Dates button.


11. Select Use price data from ___ to ____ and enter 6/27/2001 for the
first date, and 6/28/2002 for the last date.
12. Click OK.
13. Click Next. In the wizard, the System Testing Options dialog appears.
14. Check the Points Only Test checkbox. Make sure the rest of the System
Testing Options dialog matches the picture below.

15. Click More to open the System Testing Options dialog, and click the
Trade Execution tab.
16. Uncheck the Realistic Market Prices box.
17. Set the Buy Price and the Sell Price to Close.
18. Click OK.
19. Click Next. The Begin Trading Simulation dialog appears. In the field at
the top (The System Tester will now perform ...) type
My Simulation. (Dont include the quotes.)
20. Click Start.
21. When the simulation is complete, click View Results.
22. The Test View appears, listing all the systems and showing how well
they did according to profit and other criteria.

18 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

23. Click the Net Profit column once to sort the systems in ascending order,
and twice to sort them in descending order (puts the best results at the
top).

In this example, net profit represents points since we are doing a pointsonly test. This report shows that the PS Cycle Progression system
performed best, returning 39.93 points (the column titled Net Profit) over
the one-year period. PS Bull Power Bear Power is a close second, with a
net profit of 31.79 points.
Looking at the total number of trades (the column titled Trades); the
PS Bull Power Bear Power system only had 15 trades.
The PS Cycle Progression had 48 trades, three times as many as the
PS Cycle Regression. All else being equal, wed prefer the system with
fewer trades. Fewer trades mean fewer commissions paid out to a broker.

Mastering MetaStock

Introducing MetaStock and MetaStock Performance Systems 19

24. Double-click PS Bull Power Bear Power to open the Result Details
View.

25. Click the Plot on Chart button so we can see the equity line plotted in a
chart (the equity line represents our systems profits).
26. Close the Enhanced System Tester to see the equity line plotted in the
accompanying chart.

The equity line shows a relatively steady up trend for the entire year.
Thats what we like to see. It would appear that the PS Bull Power Bear
Power is in tune with Amgen for these dates.
Now all we need to do is attach the PS Bull Power Bear Power expert
advisor and check the chart each day for signals. The expert alerts will
notify us if there have been any signals since the last time we opened our
chart, and the expert commentary will give us details on each signal
generated.

20 Introducing MetaStock and MetaStock Performance Systems

Mastering MetaStock

Now weve done everything we can to reduce our risks. Weve found a system
that back-tests well on a stock that we understand well. The system fits our
trading personality, and we understand the theory behind the indicator. Were
only going to put a small part of the money we can afford to lose into any one
trade. Weve removed the emotion factor as much as is possible. Were ready
to trade.
This concludes our discussion of choosing a system and stock to trade.
Remember these points:

Mastering MetaStock

Load enough data for a valid test.


Look for systems that beat buy-and-hold.
Look for steady, up-trending equity lines.
Limit your risks.

Introducing MetaStock and MetaStock Performance Systems 21

Chapter 3 - Using the MetaStock Power


Tools

Introduction
Now that you know how MetaStock and MetaStock Performance Systems can
improve your trading, well show you, step-by-step, how to use each of
MetaStocks advanced features, the Power Tools. These tools contain the real
power of MetaStock. Using MetaStock just to chart your prices and draw a
trendline is like buying a luxury car and only sitting in it in the driveway. If you
want powerful technical analysis to back up your trades, use the Power Tools!
For our examples, we will use the Long Sell Short Sale-5 day (LSS) system.

Finding the MetaStock Performance System tools


The MetaStock
Performance Systems
tools begin with PS.

The MetaStock Performance Systems tools are built into MetaStock. All of the
MetaStock Performance Systems tools begin with PS. For example, the
exploration to find stocks that show an Adaptive Moving Average System buy
or sell signal is named PS Adaptive Moving Average (Signal).
Not all of the MetaStock Performance Systems provide custom indicators.
Many systems use only the indicators that are already built into MetaStock for
their calculations. Some of the performance explorations associated with the
MetaStock Performance Systems are available separately by purchasing the
MetaStock Performance Systems Plus plug-in. Check the descriptions in
chapter four to find out whats included with each system.

Choosing a Time Period


How many time periods should you load? This is a more important issue than it
may appear. You want to load enough data to get a good look at the long-term
trend. Two to three years is usually a fair choice. If youre looking at long-term
investments, you may want to look even further into the past. Whatever time
periods you choose, you should be consistent across each of the tools. If you
load 500 periods in your chart, load 500 periods in your explorations, also. If
the time period is different in your explorations, the results may not agree with
your system test.

Mastering MetaStock

Using the MetaStock Power Tools 23

Opening a Chart
Before we can apply any of the tools, let's open a chart. If you know which
security you want to trade, go ahead and open that chart. Were going to use
Exxon Mobil in our example.
1.

Click on the File Open icon, or choose Open from the File menu.

2.

Choose Load Options from the Options menu in the Open dialog.

3.

Enter the number of periods you would like to be displayed in your


charts. Or (if you prefer), select Prompt for dates when chart is opened
if youd like to choose different time periods or dates for each chart.
Well choose this option for our example. Whatever option you choose
will be the default for all charts.

4.

Click OK.

5.

Select the folder containing the security you want to open. If youre using
online data with DataOnDemand, choose the data vendor shortcut
from the shortcut bar. If youre using local data, choose the Local Data
shortcut from the shortcut bar, then navigate to the appropriate folder.
Well choose the data vendor shortcut. Select the folder containing the
security you want to open.

6.

Type the symbol of the security you want to look at in the Symbol field,
and press the Enter key to open the chart. We know the name of our
security, so we choose View by Name in the Options menu, and then
enter Exxon Mobil in the Security Name field. Or if you see your
security in the list, you can double-click on it to open the chart.

MetaStock Help
Open Dialog
File Open icon

MetaStock Help
DataOnDemand
Online data is accessed
through the internet or
other online resource.
Local data is stored on
your hard drive.

24 Using the MetaStock Power Tools

Mastering MetaStock

7.

If you chose the Prompt for dates when chart is opened option in the
Load Options dialog, the following dialog appears.

8.

Enter the number of periods to load, or a specific date in the past. Well
enter a date 20 years in the past so we can look at the long-term trend.

9.

Click OK.

10. The following chart appears:

Now thats what they mean by the trend is your friend! Exxon has been
grinding higher for nearly 20 years. Thats a trend you want to be on the
right side of.
Weve determined that the long-term trend is positive, but we dont want
to use the tools on 20 years of data. The more data you have loaded, the
longer each calculation takes. Close this chart, and reopen with only 1000
periods (about four years) of data. Now were ready to use MetaStocks
advanced features, the Power Tools.

Mastering MetaStock

Using the MetaStock Power Tools 25

Custom Indicators
MetaStock Help
Plotting a Custom
Indicator

The Indicator Builder allows you to build custom indicators of your own
design, or enter indicators that you may find in a magazine or web site. Many
of the MetaStock Performance Systems use custom indicators in their
calculations. These indicators are included in MetaStock so you can see how
the associated indicators look on a chart. They are for reference only, and are
not necessary for your analysis.

Plotting a Custom Indicator


The MetaStock Performance System's custom indicators are plotted using the
Indicator QuickList on the Standard toolbar.
1.

Click the Indicator QuickList on the toolbar and scroll the list until the
indicator PS Long Sell Short Sale-5 day appears.
(This indicator appears in a second alphabetical listing at the bottom of
the QuickList.)

2.

Position your mouse pointer over the small icon to the left of the
indicator. Notice that the mouse pointer changes to a hand.

Cursor

26 Using the MetaStock Power Tools

Mastering MetaStock

3.

Click and hold the left mouse button and drag the indicator until you
have it positioned on any title bar within the chart. Notice that the mouse
cursor changes its appearance when it is over the title bar.

Cursor

4.

Mastering MetaStock

Drop the indicator by releasing the mouse button.


The following illustration shows the indicator in the chart.

Using the MetaStock Power Tools 27

The Enhanced System Tester


All 26 MetaStock Performance Systems include a system test free with
MetaStock. The Enhanced System Tester allows you to back-test a trading
system to determine its past profitability. Past performance does not guarantee
future results, but as you learned in chapter one, stocks tend to follow trends or
patterns that can help predict the future. The Enhanced System Tester can show
you how profitable a system was in the past, so you can decide how risky future
trades may be. If a system did not perform well in the past, you would not want
to risk your money on future trades.

Notes:
The Enhanced System Tester should not be used to generate current trading
signals. To find out if any signals have been generated by the current data,
attach the expert for your system (see page 41).
If you use a delay the results will not match the other tools.

To Use the Enhanced System Tester


1.

Choose Enhanced System Tester from the Tools menu, or click the
Enhanced System Tester icon.

2.

In the Systems list (the left panel), scroll down and select the PS Long
Sell Short Sale-5 day (LSS) system.

3.

Click the New Simulation button (at the bottom of the Enhanced
System Tester). The simulation wizard appears.

4.

The first dialog in the wizard is the Select Systems dialog.


Make sure PS Long Sell Short Sale 5 Day is highlighted.

Enhanced System
Tester icon

28 Using the MetaStock Power Tools

Mastering MetaStock

5.

Click Next. The Select Securities dialog appears.

6.

Click the Add Securities button. The Add Securities dialog appears;
here you can select any number of local or online securities.

7.

Type XOM in the Symbol field. (XOM is the symbol for Exxon Mobil.)
and click Open.

8.

Back in the Select Securities dialog, click the Dates button.


The Simulation Dates dialog appears.

9.

Select Use price data from the last ___ available periods and enter 500
in the blank. Click OK.

10. Click Next. The System Testing Options dialog appears.

Mastering MetaStock

Using the MetaStock Power Tools 29

11. When you run a system test, you can factor in your specific trading
conditions such as initial equity, commissions, and margins. To get an
accurate calculation of past profit, the System Testing Options should be
set to match, as closely as possible, the way that you would have traded
the system. To get a general idea of how well a system works with a
stock, you can run a basic test with no options. Then, if the system was
profitable, you can set your specific options to get a more accurate
calculation.
12. In the Trading section at the top of the dialog, select Points only test.
13. In the Portfolio section in the center of the dialog, select Long.
14. Click Next. The Begin Trading Simulation dialog appears.

15. Type LSS in the field under the words: The System Tester will now
perform the simulation.
16. Click Start. The Perform System Test wizard closes, and a small window
appears, showing you details about the simulation's progress. A blue bar
next to a dollar sign in the lower right corner of the MetaStock
workspace also indicates the tests progress.
17. When the test is complete, click View Results.

30 Using the MetaStock Power Tools

Mastering MetaStock

Results from the Systems Tests


After you've run the test, click the View Results button. Notice that the View
Results button disappears after thirty seconds or so if you don't click it. If it
disappears, return to the Enhanced System Tester and click the All Systems
folder at the top of the Systems List (the left section), then double-click LSS in
the Trading Simulations List (the lower right section). This opens the Summary
Report in the Result Details View screen.

Note: Your results may differ from these, but the basic concepts still apply.
The Summary Report shows (among other things) the profit, the percent gain,
the total number of trades, and the number of winning and losing trades. In our
example, the Profit was 30.1437 points, with 58 trades. Scroll down a little and
you'll see that 43 of the trades were profitable, and 15 were unprofitable. Our
total net profit of 30.1437 compares very favorably with the buy-and-hold
profit of 4.2850. Scrolling down in the Summary Report dialog, we see the
average winning trade was 1.1183 points, or $111.83 if you are trading 100
shares. There were 43 winning trades, lasting an average of six days each. The
losing trades were slightly bigger, an average of 1.1961 points, or $119.61 for
100 shares, but there were only 15 losing trades. They lasted, on average,
fifteen days.
There are 4 other tabs in the System Report dialog:

Mastering MetaStock

The Orders tab details every order that the system observed.
The Positions tab details every position opened during the test.
The Equity tab shows the day-by-day change in equity.
The System tab shows the rules for the system, along with the stops and the
testing options.

Using the MetaStock Power Tools 31

Arrows and Equity Line


While viewing the Summary Report, click the Plot on Chart button, and close
the Enhanced System Tester. The security's chart appears with an equity line
and buy and sell arrows are plotted on the chart. The most desirable equity line
is one that shows a good, steady upward trend. Less desirable would be an
upward but volatile line, and obviously worse would be a declining line. In our
example, weve got a great equity line (in the upper window). There were so
many trades that the Buy arrows are hard to see.

Cleaning Up the Chart


Before you continue, you should remove all unwanted buy and sell signals from
your chart.
1.

Choose Delete All from the Edit menu.

2.

Check Symbols in the Delete All dialog. All other options should remain
unchecked.

3.

Click OK.

32 Using the MetaStock Power Tools

Mastering MetaStock

The Explorer
MetaStock Help
The Explorer Dialog
Explorer icon
MetaStock Help
Online Cache
Local Securities

All 26 MetaStock Performance Systems include a signal exploration free


with MetaStock. Ten of the systems include a performance exploration free
with MetaStock. The performance explorations for the remaining 16 systems
are available in the MetaStock Performance Systems Plus plug-in.
A signal exploration looks for stocks that have generated buy or sell signals.
A performance exploration is similar to a system test. It displays the
performance of the given system versus a buy-and-hold strategy.
The Explorer works with online and local data, but runs faster on local data.

Selecting the Stocks


Which stocks should you include in your exploration? It depends on your
system. A short-term system that catches very small moves would work best on
the largest, most liquid stocks. The S&P 100 stocks are good examples of this
type of stock, so we will use the S&P 100 for our example. A longer-term
system designed to catch larger moves could be applied to a broader database
of stocks such as the S&P 500, or even the entire database of U.S. stocks,
available on the MetaStock Data CD. Try the performance exploration on
different stocks, and see which stock shows the best results. You can filter out
stocks that dont meet price, volume, or other criteria (see page 38).

Setting Exploration Options


MetaStock Help
Exploration Options

Explorer icon

Mastering MetaStock

When running an exploration, you should load at least 500 records to


generate reliable results. More records require more time to calculate,
however, so dont be surprised if a 20-year scan takes several hours.
Remember to be consistent with the number of time periods you load on your
charts or your results will not match the Enhanced System Tester.
1.

Choose The Explorer from the Tools menu, or click The Explorer icon.

2.

Click the Options button in The Explorer dialog.

3.

Enter the number of records to load.


Well enter 1000 records (about 4 years) for our example.

4.

Click OK.

Using the MetaStock Power Tools 33

Running an Exploration
Well run our performance exploration first. A performance exploration tells us
how the system has performed versus buy-and-hold on a group of stocks.
We can get an idea of how well our LSS system has done on other stocks,
besides Exxon Mobile.
1.

Select the PS Long Sell Short Sale-5 Day (Perf) exploration.

2.

Click the Explore button.


The Select Securities dialog appears.

34 Using the MetaStock Power Tools

Mastering MetaStock

Mastering MetaStock

3.

Click Add Securities.... The Add Securities dialog appears.

4.

Double-click the folder titled Stocks - Co..., and then double-click


the folder titled S & P 100.

5.

Click the Tools button and then click Select All.

6.

Click Open.

7.

Click OK to start the exploration.

8.

After the exploration is complete, click the Reports button in the


Exploration Completed dialog to get a complete report of the results.

Using the MetaStock Power Tools 35

Performance Exploration Results


MetaStock Help
Results Report

The Exploration Report dialog has three tabs across the top Results,
Rejects, and Exploration. The Rejects tab displays any securities that were
rejected by the exploration filter, and why. The Exploration tab shows the
options that were used in the exploration. The Results page displays the
following columns.
L Point the number of points gained per share on long trades over the time
period specified.
S Point the number of points gained per share on short trades over the time
period specified.
LS Point the total number of points gained per share on both long and short
trades over the time period specified.

The trade efficiency


measures the performance
of a system versus buy-andhold.

L Perf the performance, as measured by the trade efficiency, of the long trades.
S Perf the performance, as measured by the trade efficiency, of the short trades.
LS Perf the performance, as measured by the trade efficiency, of all trades.
Note: Points are not the same as percents. If a system gained, say, 5 points, that
would be a $5 gain for a stock, which might be a move from $10 to $15, or a
move from $100 to $105. If youre trading 100 shares, 5 points is a gain of
$500.
The results are sorted by security name by default. We want to see the best
performers at the top of our list. We want to sort by L Perf, since we are only
taking long positions, and we want to know how well the system did versus
buy-and-hold. To sort the list by the L Perf column, we click on the column
heading. Clicking once sorts in ascending order, so we click again to sort in
descending order.

To get an idea of how the system did on all of the stocks, scroll down the list
(with the scrollbar on the right) until the L Perf column shows a negative value.
In this example, it occurs about 3/4ths of the way down the list, which tells us
36 Using the MetaStock Power Tools

Mastering MetaStock

that the system was better than buy-and-hold on about 3/4ths of the securities in
the S&P 100. Thats an excellent result.
You can get more information on the exploration with the buttons on the right:

The Inspect button allows you to view the day-by-day results.


The Open Chart button will open the selected chart or charts.
The Sort button allows you to sort by up to three different columns.
The Print button will print out the results.
The Save List button will save the securities into a list. This list could then
be used as the source for a later exploration.

Trade Efficiency
The crux of the testing process is the trade efficiency. If a systems profit per
day in a trade exceeds the buy-and-hold profit per day, that system will have a
positive trade efficiency. For example, if a system was in a position for 250 of
1,000 possible days, and it gained 250 points, it gained a dollar per share per
day. If buy-and-hold gained 250 points in those same 1,000 days, it only earned
25 cents per share per day, so the trade efficiency would be .75 (1.00 minus
.25), even though both systems gained the same absolute amount. The key is
that the system managed the same profit in 25% of the time as buy-and-hold, so
your money was freed up 75% of the time for other trades. A positive trade
efficiency does not mean that a system was profitable; it means a system
outperformed buying and holding that security.

Signal Explorations Results


To run the signal exploration, follow the instructions in the Running an
Exploration section above, but choose the PS Long Sell Short Sale-5 Day
(Signal) exploration instead.
The Signal exploration will display a list of all securities that generated a buy
or sell signal on the current bar.
The following columns are displayed in a signal exploration report:
Longs will show a 1 if the Enter Long condition is met, otherwise 0.
Shorts - will show a 1 if the Enter Short condition is met, otherwise 0.
If you get too many results from a Signal exploration, add additional filters (see
the next section).

Mastering MetaStock

Using the MetaStock Power Tools 37

Running the LSS signal exploration gives us the following results:

There were 12 possible buys, and two possibilities for selling short. Lets add
another filter so we dont have so many stocks to look at.

Adding an Additional Filter


MetaStock Help
Filter Syntax

For systems that return a large number of results, additional filters can be used
such as a price or volume limit. For our example, we only want to trade the
biggest, most liquid stocks. So well add a filter that requires the average
volume over a 50-day period to be at least five million shares per day, and the
price to be greater than $5 per share.
1.

The PS Long Sell Short Sale-5 day (Signal) exploration should still be
selected. If not, select it, and then click the Edit button.

2.

Select the Filter tab. The current filter is ColA or ColB, which screens
out stocks that dont show a 1 in either column A or column B.

38 Using the MetaStock Power Tools

Mastering MetaStock

3.

Add the volume requirement.


In English-like terms, we would say ColA or ColB and High Volume.
The problem is that MetaStock doesnt know if you want the or
evaluated first, or the and. To clarify the rules, we will start by putting
parenthesis around ColA or ColB. The formula should now look like
this:
(colA OR colB)

4.

Now add the following to the filter:


AND mov(volume,50,simple) > 50000.

5.

This breaks down as:


and
= this condition must also be true
mov(

calculate a moving average

volume

of the volume

50

for the last 50 days

simple)

make it a simple moving average

50000

the volume must be greater than 5 million shares


(volume is reported in 100s by Reuters DataLink,
our data provider)

The formula should now look like this:


(colA OR colB) AND
Mov(VOLUME,50,SIMPLE) > 50000

6.

Mastering MetaStock

Add the filter that excludes any stocks that are less than $5.
This filter would simply be and Close > 5.

Using the MetaStock Power Tools 39

7.

The formula should now look like this:


(colA OR colB) AND
Mov(VOLUME,50,SIMPLE) > 50000 AND
CLOSE > 5

8.

Click OK to save your changes.

9.

Click Explore to re-run the exploration with the new filters.

10. This time, the results only show two buy signals General Electric and
Bristol Meyers Squibb. Lets look at these two charts.
11. Click on General Electric, then control-click on Bristol Meyers to select
them both.
12. Then click Open Chart to open both charts.
13. Launch the Enhanced System Tester and run the LSS system test on both
charts.
Now we can compare equity lines and system test results and make a
decision on what to trade.

40 Using the MetaStock Power Tools

Mastering MetaStock

The Expert Advisor


MetaStock Help Expert
Advisor Dialog
Expert Advisor icon

All 26 MetaStock Performance Systems include an expert free with MetaStock.


The Expert Advisor automates your trading system by applying your systems
rules to the latest data every time you open the chart. If a signal is generated, an
alert will appear, and an arrow will point out the signal on the chart. For more
detail on a signal, read the expert commentary.
Experts must be attached to your chart, and only one expert can be attached to a
chart at a time. When you first attach an expert, the system will be applied to all
the data in the chart. In the future, when you open the chart with the expert
attached, alerts will only be generated for the latest data. Signals will still appear
for all the data.
Features of the MetaStock Performance Systems experts include:
Symbols buy and sell signals are pointed out on the chart with arrows.
Highlights the price bars are colored green while in long positions, and
red while in short positions.
Alerts a dialog will pop up notifying you of any buy and sell signals.
Commentary a description of the buy and sell signals.

Attaching an Expert
1.

Choose Expert Advisor from the Tools menu, or click the Expert
Advisor icon on the toolbar to attach an expert to an open chart. If your
chart is not open, see page 24 for more information on opening charts.

2.

Select the PS Long Sell Short Sale-5 Day expert.

3.

Click the Attach button.

Expert Advisor icon

Mastering MetaStock

Using the MetaStock Power Tools 41

4.

Click the Close button. The expert is now attached to the chart.

Editing an Expert
MetaStock Help
Creating an Expert

What if you only want to take long positions, and dont want any signals
displayed for short positions? Editing the expert to display only long signals is
simple.
1.

Choose Expert Advisor from the Tools menu, or click the Expert
Advisor icon on the toolbar.

2.

Select the PS Long Sell Short Sale-5 Day expert.

Expert Advisor icon

3.

Click the Edit button.


The Expert Advisor dialog shows six tabs across the top Name, Trends,
Commentary, Highlights, Symbols, and Alerts. We will edit the
Highlights, Symbols, and Alerts tabs.

42 Using the MetaStock Power Tools

Mastering MetaStock

4.

Mastering MetaStock

Select the Highlights tab. Deselect the box next to Shorts.

5.

Select the Symbols tab. Deselect Enter Short and Exit Short.

6.

Select the Alerts tab. De-select Enter Short and Exit Short.

7.

Click OK to accept your changes.

8.

Click Close to dismiss the Expert Advisor dialog.


The following illustration shows the changes to the chart. Now that we
have removed the short positions, instead of a down-arrow terminating
the long trades (and initiating a short trade), we have an exit sign.

Using the MetaStock Power Tools 43

Viewing the Commentary


1.

Select Expert Commentary from the View menu.

2.

The commentary will appear as shown below. Any signals for today will
be explained, along with a brief description of the system.

44 Using the MetaStock Power Tools

Mastering MetaStock

Trading Basics
Trading is a risky business, but there are some steps you can take to increase
your odds of being successful. This is not a thorough discussion of trading, but
just a few tips to point you in the right direction.
If youve never traded before, paper-trade for a while. Go through all the
motions of trading, but instead of placing the actual order, just write your
trades on a piece of paper. Or use one of the virtual trading web sites
available on the internet. Be honest with your entry and exit points! You
may be surprised at how hard it is to keep up with a trading system.
Find a trading system that matches your trading style, your risk tolerance,
and the markets you want to trade. If you cant spend too much time
following the market, and are risk averse, take only long positions in a
system with a low number of trades. Use a tight stop, and maybe check the
fundamentals of a stock before you buy it. If you want to trade daily and
are a risk-taker, find a system that generates frequent signals. Your
positions may have more volatile swings, but you may get a better return.
Determine your stop levels (the most you are willing to lose) before placing
a trade. The worst feeling in the world is watching a stock move far past a
stop point you ignored in the heat of battle.
During the testing of the systems, it was found that only taking long
positions in stocks, and not taking short positions, generally increased
performance. This could be due to the natural inclination of stock prices to
rise. There are also other difficulties that go along with shorting stocks it
can be tough to borrow shares, you cant short a falling stock, you can be
forced to cover even if you dont want to, you have unlimited risk, and
limited gain, etc. These factors should be considered when deciding on
whether or not to take short positions.
Trade only money you can afford to lose. Trading is stressful enough
without the added stress of trading the rent money.
Only place a small percentage of your trading account into any one trade.
Dont let a bad trade zero out your account.
Take a logical, disciplined approach to trading (thats what the MetaStock
Performance Systems are for). Dont buy Nike stock just because you
spend so much money on your kids tennis shoes.
Learn as much as you can about trading.

Mastering MetaStock

Using the MetaStock Power Tools 45

Disclaimer
Securities trading is an imperfect science. The following factors should be
considered.

The future may not resemble the past


Theres no guarantee that a securitys future price action will resemble its past
price action.

Trading involves risk


You can lose some or all of your money. Theres no guarantee that future
results will match the Enhanced System Tester results.

Commissions and slippage


The performance explorations only calculate points gained by a system, and
make no allowance for commissions, slippage, taxes, or other factors. A
promising system should be confirmed by running a system test with the testing
options set to your individual situation.

Positive trade efficiency


A positive trade efficiency does not mean that a system was profitable; it just
means that it beat buy-and-hold.

No Endorsement by Authors
Most of these systems are based on indicators developed by well-known
technical analysis gurus, but they did NOT develop these systems. Many
systems are variations of systems advocated by these gurus. These systems are
in no way endorsed or accepted by such authors. If no author is mentioned, the
system is an original system by the Trading Systems Analysis Group.

Not an Offer
Nothing in this manual constitutes an offer or a solicitation to buy or sell any
securities mentioned, but rather it is a guideline to interpreting the specified
analysis methods. This information should only be used by investors who are
aware of the risk inherent in securities trading. Equis International and Trading
Systems Analysis Group accept no liability whatsoever for any loss arising
from any use of this product or its contents.

46 Using the MetaStock Power Tools

Mastering MetaStock

Chapter 4 - New Features in MetaStock 10

Introduction
Several useful new features have been added to MetaStock 10. This chapter
explains some of them briefly. These features are explained in detail in the
chapter titled New Features and Changes in MetaStock 10 in the MetaStock
User Guide, and in the online help.

New Data CD
MetaStock 10 includes an updated Data CD, containing up to five years of data
for Stocks Grouped by Sector, North American Stocks, S&P 500, NASDAQ 100,
Futures, Indices, and Indicators. Installation of the Data CD is optional
but strongly encouraged. This new Data CD, combined with MetaStocks
one-click Update MetaStock Data feature, makes the Enhanced System
Tester and The Explorer more powerful and easy to use than ever.
You can install this data on your local hard drive and use it for explorations and
system tests. (System Tests and Explorations run much faster using local data
instead of online data.) To install the data, insert the data CD into your CDROM drive. It should begin the installation automatically. If autoplay is
disabled on your computer, navigate to the CD-ROM drive, explore it, and
select setup.exe. Then just follow the on-screen instructions.
You can also quickly update your local data by using the Update MetaStock
Data feature.
To use the Update MetaStock Data feature:
1.

In Windows, click Start.

2.

Click All Programs (or Program Files).

3.

Click Equis International.

4.

Click Update MetaStock Data. The DownLoader opens and


automatically updates all the data files in your MetaStock Data folder.
The new features include:

Mastering MetaStock

New Features in MetaStock 10 47

Major Changes
To Line Studies
Added Extended Intraday Compression.
Fibonacci Projections Line Study
Added New Dynamic Trend Line Study

To The Explorer
Added additional Exploration Editor Tabs, allowing for more complex
formulas
Improved report sorting

To Indicators
Added Rahul Mohindar Oscillator (RMO) System

To Functionality
Extended Intraday compression to 1439 minutes
Added FX Layouts to MetaStock Pro for QuoteCenter

Minor Changes

Enhanced the System Tester


Improved usability for setting custom intervals
Added periodicity selection from the X-Axis Properties dialog
Added Extend Right option to Fibonacci Retracement line study
Added marker for the base securitys Last Trade Value
Dialog & Window Object Enhancements
Many windows can now be resized (and these size changes saved),
allowing you to see more data at a time.
The DownLoader now allows you to Remove All Subfolders
This feature makes it easier and faster to deselect all the securities in a
folder, including those in subfolders.

48 New Features in MetaStock 10

Mastering MetaStock

Chapter 5 - Forex Systems

A set of Forex Experts and Templates specifically developed for the Forex
market by Forex traders have been added to MetaStock.

FX Multiple Time Frame System


This system is composed of one Template and two Experts.

Template:
FX Multiple Time Frame.mwt This template when applied to a chart
using the templates periodicity will display five charts with the following
periodicities: Daily, 60-minute, 30-minute, 15-minute and 5-minute.

The Daily, 60-minute, 30-minute and 15-minute charts (14 above) display bar
charts with an 8-period Relative Strength Index (RSI) overlaid on the price plot.
They also have the *FX Multiple Time Frame Trend Expert attached.
The 5-minute chart (b, at the bottom of the image above) displays a bar chart
with an 8-period RSI and 50-, 12-, and 3-period Exponential Moving Averages
overlaid on the price plot. It also has the *FX Multiple Time Frame Trend
Expert attached.

To apply this template to an open chart


1.

Mastering MetaStock

Right-click on the current chart and choose Apply Template.


Forex Systems 49

2.

In the Apply Template dialog select the file named


FX Multiple Time Frame.mwt.

3.

Check Use templates periodicity.

4.

Click Open.

How to use this System


This System uses multiple time frame charts to determine trends with
a currency pair. This is an intraday system whose signals are generated on a
5-minute chart. It uses the Relative Strength Index (RSI) for the initial buy or
sell signal and the MACD and Moving Averages to confirm the signal.
After applying the template to a currency pair (EUR/USD for example), look
first at the upper leftmost chart (^). This is the Daily chart and it has the
*FX Multiple Time Frame Trend expert attached to it. The current trend is
presented in the lower right corner of the chart and displays a green up arrow
for an upward trend, or a red down arrow for a downward trend. If there is no
distinguishable trend, no arrows will display.
If the trend is up (a green up arrow) then only long trades should be
considered. If the trend is down (a red down arrow) then only short trades
should be considered.
The charts marked _, `, and c have (respectively) 60-minute, 30-minute and
15-minute periodicity values. All of them have the same expert (*FX Multiple
Time Frame Trend) attached and will also display a green up arrow or a red
down arrow to indicate the trend for each time interval.
The Daily chart (^) represents the overall trend of the currency pair with the
other three charts giving confirming or non-confirming signals. If the three
other charts display the same trend as the Daily chart then the trend is
considered very strong. If the Daily chart trend displays in only one (or no)
charts then the trend is considered weak.
The 5-minute chart (_) is the trade signal chart. This chart has an additional
expert (the *FX Multiple Time Frame Signals expert) attached to it. This
expert will add buy and sell symbols to the chart and generate Alerts.

50 Forex Systems

Mastering MetaStock

Explanation of Symbols and Alerts


The Symbols and Alerts available in the Forex system include:

Symbols:
Buy This symbol (O) is displayed on the chart if the RSI is below 30 and
then trends upwards for three time periods. Once the buy symbol is plotted long
trades should be considered.
Sell This symbol (P) is displayed on the chart if the RSI is above 70 and then
trends downwards for three time periods. Once the Sell symbol is plotted short
trades should be considered.

Alerts:
MACD Buy Confirmation This alert displays when the MACD has
confirmed the buy signal.
MACD Failed Buy Confirmation This alert displays when the MACD has
failed to confirm the buy signal.
MACD Sell Confirmation This alert displays when the MACD has
confirmed the sell signal.
MACD Failed Sell Confirmation This alert displays when the MACD has
failed to confirm the sell signal.
RSI Flat Top This alert displays when the RSI has flattened after an uptrend.
This usually confirms the upward trend
RSI Flat Bottom This alert displays when the RSI has flattened after a
downtrend. This usually confirms the downward trend
12 50 Cross Up This alert displays when the 12-period Exponential
Moving Average crosses above the 50-period Moving Average. This is
considered a bullish signal.
12 50 Cross Down This alert displays when the 12-period Exponential
Moving Average crosses below the 50-period Moving Average. This is
considered a bearish signal.

To use the Forex System


When using the system, the trader should follow these steps:
1. Look for the Daily current trend.
If the trend is up then only long trades should be considered;
if the trend is down then only short trades should be considered.
2.

Look for Buy or Sell signals on the 5-minute chart.

3.

If one displays and follows the trend direction of the Daily chart then:
a) Look at the trends of the other three charts to confirm the signal.
b) Wait for Alerts to confirm the trend (MACD Confirmation,
RSI Flats and 12-50 Cross).

IMPORTANT: Equis International is not a Registered Investment Advisory


service. The experts included with MetaStock are for educational purposes and
are to be used at your own risk. Equis International (or its partners) is not liable
for the investment decisions you make based on information obtained from the
Expert Advisor.

Mastering MetaStock

Forex Systems 51

FX Keltner Systems
There are two FX Keltner Systems; *FX Keltner System 1 and *FX Keltner
System 2. Both of these systems are composed of one Template and one
Expert.
The two Keltner Systems use Keltner Channels as their primary method of
triggering signals. Keltner Channels are included in MetaStock as a new
custom formula. Keltner Channels are explained in the book The New
Commodity Trading System and Methods by Perry Kaufman and were first
introduced in the book How To Make Money in Commodities, by Chester W.
Keltner.

FX Keltner System 1
This system looks for very specific patterns that occur infrequently. It is not
uncommon for this system to generate few signals. However, when signals do
occur they are usually followed by sharp moves.
FX Keltner 1.mwt This template displays a Price Oscillator plus ADX and
Keltner Channels with the Expert *FX Keltner System 1 attached.
*FX Keltner System 1 This Expert uses Keltner Channels, the Price
Oscillator, and the ADX to generate and display buy and sell signals and to
generate Alerts.

FX Keltner System 2
This system is similar to the FX Keltner System 1 except in place of the ADX it
uses the r-squared indicator. This system gives more frequent signals than FX
Keltner System 1.
FX Keltner 2.mwt This template displays the Price Oscillator, the r-squared
indicator, and Keltner Channels with the Expert *FX Keltner System 2
attached.
*FX Keltner System 2 This Expert uses Keltner Channels, a Price Oscillator,
and the r-squared indicator to generate and display buy and sell signals and to
generate Alerts.

FX Pattern System
The FX Pattern System is also composed of one Template and one Expert. This
system works best on charts with 5-minute periodicity. It uses Bollinger Bands,
Standard Error Bands, and the Stochastic Oscillator to generate signals.
FX Pattern System.mwt This template displays Bollinger Bands, Standard
Error Bands and the Stochastic Oscillator indicator with the Expert
*FX Pattern System attached.
*FX Pattern System This Expert uses Bollinger Bands, Standard Error
Bands, and the Stochastic Oscillator indicator to generate display buy and sell
signals and to generate alerts.

52 Forex Systems

Mastering MetaStock

Chapter 6 - Rahul Mohindar{xe "Rahul


Mohindar Oscillator"}
Oscillator System{xe "Rahul
Mohindar Oscillator\: See
also\\: RMO."}

The Rahul Mohindar Oscillator and its associated tools and indicators were
developed by Mr. Rahul Mohindar of VIRATECH (viratechindia.com). In
addition to being a trader and trainer, Mr. Mohindar is a panelist on both CNBC
and CNN India.
These set of tools and indicators and expert can be used across any timeframe
for Stocks, Commodities and Forex. It is designed to work with
Open/High/Low/Close (OHLC) bar charts only.

{xe "RMO Trade Model"}RMO Trade Model


The RMO Trade Model consists of 4 key modules:

The RMO
This module detects the primary trend of the instruments trading value.

{xe "RMO\: SwingTrader"}SwingTrader (Indicators & Expert)


This module detects each swing within a trend and automatically places
red (Sell) or blue (Buy) arrows on the price chart at these points.

{xe "RMO\: Sentiment Detector "}Sentiment Detector


This module colors the OHLC chart bars red (bearish) or blue (bullish)
indicating the prevailing sentiment

{xe "RMO\: Exit Swing Indicator"}Exit Swing Indicator


This module is used only when registering a profitable trade as a trailing stop
loss and works well as an exit signal.

RMO Indicator
The RMO was developed to smoothen out multiple market swings, indicating a
longer term major trend.
Mastering MetaStock

Rahul Mohindar Oscillator System 53

If the RMO is positive (above zero) you should look for blue Buy arrows with
blue bars.
If the RMO is negative (below zero) you should look for red Sell arrows with
red bars.

{xe "RMO\: Swing TRD Indicators"}Swing Trade Indicators


The three SwingTrd indicators are constantly measuring the strength of market
swings.
{xe "RMO\: Tracks minor (short-term) trends
SwingTrd
1"}SwingTrd
1
{xe "RMO\: Tracks medium-term trends
SwingTrd
2"}SwingTrd
2
{xe "RMO\: Tracks long-term trends (and is slower to change)
SwingTrd
3"}SwingTrd
3

SwingTrd 2 and SwingTrd 3 are plotted in the same window. When they
intersect (cross), it can result in a potential trend change as that is where
strength is building or dropping for the stock. This can be easily detected with
arrows on the price charts that are automatically plotted by the expert.
When the SwingTrd 2 indicator goes above or below 0, it should be treated as
the first indication of trend change or breakout; this can be easily viewed with
red and blue bars with the RMO expert that has been provided. A more
confirmed interpretation is to expect strength when the high of a blue breakout
bar is crossed and weakness when the low of a first red down breakout bar is
broken.

54 Rahul Mohindar Oscillator System

Mastering MetaStock

The Sell (Red) arrows are actionable


because they are confirmed by a red
bar where the low is crossed.

None of the Buy (Blue) arrows


are actionable because they
are not confirmed by a blue bar
where the High is crossed.

Notes:
You can trade on any one indicator; for example, you could just be using
the RMO or only using Bar Colors.
Whenever taking a Trade, place a STOP at the nearest support or at least a
few points below the level marked by the SwingTrd buy arrow.
The RMO Explorers can further help you detect instruments that have fresh
opportunities, whether with a new Blue/Red bar or a Swing Trade Buy/Sell
signal.

The Exit Swing Signal


Once you take a trade and get into profit or a trend sets in you will want
to use this indicator to mark where your trailing stop loss point should be set so
that you exit your trades closer to the peak.
Once you have entered into an instrument and are profitably into an established
trend, you can exit longs below the low when the EXIT Swing Indicator leaves
the over-bought region (where the ESI is below 75).

Using the RMO


Below are two possible setups for using the RMO as a trading indicator.
Although both of these are designed for indicating buys, they could easily be
reversed to indicate sells.

Mastering MetaStock

Rahul Mohindar Oscillator System 55

Trade with the Trend Setup


Swing Trade:

BUY Arrow (Blue)

Sentiment:

BLUE Bars

Positive (Above 0)
RMO:
This setup is a strong buy trade as the primary trend is up, an up swing is
setting in and also the sentiment is bullish.
As we are trading in the direction of Primary Trend (RMO), this setup is even
more accurate & reliable.

Aggressive BUY Breakout Setup


Swing Trade:

BUY Arrow (Blue)

Sentiment:

BLUE Bars

RMO:

Negative (Below 0)

With this setup you are essentially expecting that the market sentiment will turn
positive when you see the bars change to a blue color and the swing trade buy
arrow shows up. However, as the primary trend (RMO) is still negative, you
might want to consider trading in smaller amounts, a covered strategy, or just
buy call options.

Interpretation of the RMO Model


The four aspects of the RMO to be interpreted are discussed below.

The RMO
This is an oscillator which clearly identifies whether the major
(primary) market trend is positive or negative. If the RMO is positive
i.e. above the 0 Line this indicates a probable strength and increases the
indicators Buy preference. The converse (RMO below the 0 line) would
indicate probable weakness, and so put more weight on Sell trades.
Note: The shape size or curve of the RMO has no relevance; all that matters is
whether it is above or below the 0 line.

The SwingTrader indicator


This is a set of indicators for which every intersection/crossover signals a
possible trade opportunity. Each signal is marked with an expert arrow, so
you do not necessarily need to view the SwingTrd indicators directly.
Use:
The buy and sell arrows show up frequently, and you probably don't want to
trade on every single one of them. To increase the number of valuable trades,

56 Rahul Mohindar Oscillator System

Mastering MetaStock

consider making trades on the buy arrows only when the RMO is positive, and
on the sell arrows only when the RMO is negative.
For further safety, buy only above the High of the signal/arrow bar, and be sure
to set a stop loss point either at the previous bars low or when an
identified support level is broken. Likewise, sell only below the low of a sell
arrow bar, and set a stop loss above the previous bars high or the breaking of
an identified resistance level.

Sentiment Detector
This built-in expert colors your OHLC bars blue or red by evaluating
the medium-term trend for strength and weakness. There are two ways to use
these indications:

A slightly aggressive trader might just trade on the bar colors, not
integrating them with any other tools or indicators. As an example, such a
trader would buy above the high of a blue breakout bar, and sell below the
low of a red breakout bar.
A position or longer-term trader would exit long either by seeing a
combination of red bars and a red arrow, which is a hint that the trend
may be turning negative, or by getting stopped out.
HINT: You could integrate this with the RMO and SwingTrader Arrows as
follows:
TRADE when you get all three going the same direction (i.e. if the bars
are blue, the RMO is positive, and you get a Buy arrow, you would buy).

Exit Swing Indicator


This provides you with a profit-taking exit strategy*.
Here is an example:
If you are long on a stock and have got into an uptrend, each time the exit
swing indicator slips below the red (75) line, look at putting in a trailing stop or
exit below the low of the corresponding price bar. Likewise if you are short
and are into a downtrend, every time the indicator crosses above the blue (25)
level look at putting in a trailing stop or exit above the high of the
corresponding price bar.
CAUTION: This should not be used immediately after taking a trade.
Mr. Mohindar recommends using the Exit Swing Indicator only after you have
entered a trade and are profitably trending. He suggests partially exiting when
you achieve an intermediate financial goal/target, and then using this indicator
to trail your stops and/or exit at better levels.

* The Exit Swing indicator is lesser used and is recommended for fast profit
taking and to active traders.
Mastering MetaStock

Rahul Mohindar Oscillator System 57

Chapter 7 - Descriptions of the


MetaStock Performance
Systems
Introduction
To help you decide which MetaStock Performance System is best for you, this
section describes each of the systems. Each section includes a brief description
of the systems strategy, a description of the signal requirements, trade
characteristics to let you know how often the system trades, and a list of
material for further reading.
Note: Replication and distribution of any MetaStock Performance Systems
formulas is a violation of your license agreement. Do not use the Formula
Organizer to export and distribute these systems.

Description
This section contains a short description of the system. Notice that most
systems are a minor or major variation of the original system developed by the
author. For example, the PS CCI system uses a +/- 200 level, rather than the
traditional +/- 100 level developed by the author, Donald Lambert. These
variations are a result of back-testing many variations of the standard systems.

Signals
This section shows the conditions for entering and exiting short and long
positions. Not all systems take short positions. Most of the time, the enter
long and exit short signals are the same, as are the enter short and exit
long signals. In that case, the system would be in a trade 100% of the time if
you were trading both long and short positions. Some systems have different
exit criteria, and are only in the market part of the time.

Trade Characteristics
The MetaStock Performance Systems were tested on a variety of stocks,
including volatile and non-volatile, up-trending, down-trending, and sideways
moving. The trade frequency is a result of those tests. The frequency shown
assumes both long and short positions are taken, and trades are entered at the
close with no delay.

Further Reading
This section cites any further reading relevant to that system or that author.

58 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

The Systems
Adaptive Moving Average
Bull Power Bear Power 1
Bull Power Bear Power 2*
Bull Power Bear Power 3
CCI (Commodity Channel Index)
Chande Forecast Oscillator*
CMO Reversal
Consolidation Breakout
Cooper 1234 Pattern
Cycle Progression
Dynamic Momentum Index 1
Exponential Moving Average*
Fractal Trading System 1
Fractal Trading System 2
Long Sell Short Sale 5 Day*
MACD Histogram 1
MACD Histogram 2
Meisels Overbought/Oversold*
MESA Sine Wave*
Pattern Trading System 1*
Percentage Crossover 3%
Projection Oscillator 1*
StochRSI
Swing Index*
Vertical Horizontal Filter
Volatility Breakout (Chaikin) *

* The performance exploration for this system is included free with


MetaStock.
Mastering MetaStock

Descriptions of the MetaStock Performance Systems 59

Adaptive Moving Average


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.
A custom indicator is
available for this system

The Adaptive Moving Average (AMA) was developed by Perry Kaufman. The
AMA is designed to adjust its sensitivity depending on the markets trendiness.
A sideways market with a lot of noise requires a longer-term moving average
than a trending market. The AMA varies the number of time periods in the
moving average depending on the trendiness of the market.

Signals
Enter long/close short when the AMA changes direction from falling to
rising.
Close long/enter short when the AMA changes direction from rising to
falling.

Trade Characteristics
The AMA system produces a trade about once every four to six days, making it
appropriate for short-term traders. The system is always in a trade if you are
taking both long and short positions.

Further Reading
Trading Systems and Methods. (Wiley Trading Advantage Series) John Wiley
and Sons, Inc. 1998
Smarter Trading: Improving Performance in Changing Markets. McGraw-Hill.
1995

Bull Power Bear Power 1


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Bull Power Bear Power systems are based on the concept of Bull Power
and Bear Power developed and introduced by Alexander Elder. Bull Power is
calculated by subtracting a 13-period exponential moving average from the
high price. This is typically displayed as a histogram oscillating above and
below the zero line. A higher reading above the zero line gives strength to the
Bull Power. Bear Power is calculated by subtracting a 13-period exponential
moving average from the low price. This is also typically displayed as a
histogram oscillating above and below the zero line. A lower reading below the
zero line gives strength to the Bear Power.

Signals
As long as the Bull Power is stronger above the zero line than the Bear
Power strength is below the zero line (i.e., the Bull Power is greater than
the absolute value of the Bear Power), then a long position is maintained.
If Bear Power strength below the zero line is greater than the Bull Power
strength above the zero line, then a short position is maintained.

60 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Trade Characteristics
The Bull Power Bear Power 1 system produces a trade about once every week
or two. The system is always in a trade if you are taking both long and short
positions.

Further Reading
Trading for a Living: Psychology, Trading Tactics, Money Management.
(Wiley Finance Editions) John Wiley and Sons, Inc. 1993
Study Guide for Trading for a Living: Psychology, Trading Tactics,
Money Management. (Wiley Finance Editions) John Wiley and Sons, Inc.
1993

Bull Power Bear Power 2


Description
The performance
exploration for this
system is included free
with MetaStock

See Bull Power Bear Power 1 (page 60) for an explanation of Bull Power and
Bear Power.
The Bull Power Bear Power 2 system doesnt look at Bull Power/Bear Power
directly. Instead, it looks at the 5-period linear regression slope of Bull Power
and Bear Power to determine which one is gaining strength. Whichever one is
showing a gain in strength is the position that it takes.

Signals
Enter long/close short when the 5-period linear regression slope of Bull
Power is increasing while the same slope of Bear Power is decreasing.
Enter short/close long when the 5-period linear regression slope of Bull
Power is decreasing while the same slope of Bear Power is increasing.

Trade Characteristics
The Bull Power Bear Power 2 system produces a trade about once every two to
four days, making it appropriate for extremely short-term traders. The system is
always in a trade if you are taking both long and short positions.

Further Reading
See Bull Power Bear Power 1

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 61

Bull Power Bear Power 3


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

See Bull Power Bear Power 1 (page 60) for an explanation of Bull Power and
Bear Power.
The Bull Power Bear Power 3 system looks at whether Bull Power and
Bear Power are able to maintain strength, and takes a position when that
strength fails.

Signals
When the Bear Power comes down to a trough and then moves up again,
this system will wait for the next movement down. If the Bear Power fails
to come down to as low as the first trough does, this is viewed as the Bear
Power losing strength and a long (Bullish) position is taken. Both troughs
need to occur below zero for the entry to be valid.
When the Bull Power comes up to a peak and then moves down again, this
system will wait for the next movement up. If the Bull Power fails to come
up to as high as the first peak does, this is viewed as the Bull Power losing
strength and a short (Bearish) position is taken. Both peaks need to occur
above zero for the entry to be valid.

Trade Characteristics
The Bull Power Bear Power 3 system produces a trade about once every two to
four weeks. The system is always in a trade if you are taking both long and
short positions.

Further Reading
See Bull Power Bear Power 1

CCI (Commodity Channel Index)


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Commodity Channel Index (CCI) was developed by Donald Lambert.


Despite the name, this indicator is suitable for stocks as well as commodities.
Mr. Lambert suggests using the CCI as an overbought/oversold indicator with
+100 being overbought and -100 being oversold.
The system included with MetaStock is based upon a further analysis
determining that +/- 200 produces a more significant reversal signal and
therefore is more ideal.
While it is very good at capturing profits on the majority of trades, no loss
protection mechanism has been put into place. Stop-loss orders should be used
to prevent the few failing trades from removing all acquired profits.

62 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Signals
Enter long/close short when the 14-period CCI falls below 200.
Enter short/close long when the 14-period CCI rises above +200.

Trade Characteristics
The CCI system produces a trade about once every ten to twenty weeks.
The system is always in a trade if you are taking both long and short positions.

Further Reading
Futures magazine, October 1980

Chande Forecast Oscillator


Description
The performance
exploration for this
system is included free
with MetaStock

The Forecast Oscillator (FO) was designed by Tushar Chande and is calculated
by subtracting the closing price from the linear regression indicator, and then
displaying that as a percentage. Mr. Chande recommends using a crossover of a
3-period moving average of the FO as a signal that a trend in the direction of
oscillator movement may be imminent. The forecast oscillator must be positive
for a buy, or negative for a sell, to prevent late entry.

Signals
Enter long/close short when a 14-period Forecast Oscillator crosses above
its 3-period moving average and it is in positive territory.
Enter short/close long when a 14-period Forecast Oscillator crosses below
its 3-period moving average and it is in negative territory.

Trade Characteristics
The FO system produces a trade about once every one to three weeks.
The system is always in a trade if you are taking both long and short positions.

Further Reading
The New Technical Trader: Boost Your Profit by Plugging Into the Latest
Indicators (With Stanley Kroll). (Wiley Finance Editions) John Wiley and
Sons, Inc. 1994
Beyond Technical Analysis: How to Develop and Implement a Winning Trading
System. (Wiley Finance Editions) John Wiley and Sons, Inc. 1997

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 63

CMO Reversal
Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Chande Momentum Oscillator (CMO) was developed by Tushar Chande as


a stand-alone momentum indicator. The CMO Reversal system looks
specifically for the CMO to turn up from down-trending momentum to enter a
long position. As soon as the CMO reverses, the long position is exited and a
short position is entered. This places the trades in the direction of the
momentum of the security (except for the initial day of the reversal of the
CMO).

Signals
Enter long/close short when the current 13-period CMO is above the
previous CMO, and the previous CMO is below the bar before that (i.e.,
the CMO has formed a bottom and is reversing up).
Close long/enter short when the current 13-period CMO is below the
previous CMO, and the previous CMO is above the bar before that (i.e.,
the CMO has formed a top and is reversing downwards).

Trade Characteristics
The CMO system produces a trade about once every one to three days, making
it appropriate for extremely short-term traders. The system is always in a trade
if you are taking both long and short positions.

Further Reading
See Chande Forecast Oscillator.

64 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Consolidation Breakout
Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Consolidation Breakout system uses John Bollingers Bollinger Bands and
Welles Wilders Average True Range indicator. However, this system has no
association with the methods of either author. The system looks for a narrowing
Bollinger Band, indicating a decrease in volatility, and then looks for a
breakout of the Band to signal a buy or sell.

Signals
The Consolidation Breakout has a two-part signal.
a) First, the Bollinger Bands width must compress around the prices until the
distance between the upper and lower bands is less than 1.75 times the
1-period Average True Range.
Once you have a compressed band:
b) Enter long if the price breaks above the upper Bollinger Band.
c) Enter short if the price breaks below the lower Bollinger Band.
d) Exit long when the price crosses below a 20-period simple moving average.
e) Exit short when the price crosses above a 20-period simple moving average.

Trade Characteristics
The Consolidation Breakout system produces a trade about once every four to six
weeks. Trades generally last about two to four weeks. Since the exit signals differ
from the entry signals, the system is in the market about 30%-40% of the time.

Further Reading
Technical Analysis of Stocks & Commodities magazine, February 1992

Cooper 1234 Pattern


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Cooper 1234 Pattern system is based on Jeff Coopers 1-2-3-4s trading
system. It establishes that a trend exists and then waits for a pullback so that it can
take a position for a trend continuation. While the setup is the same as the 1-2-34s, this system differs in that the entry is immediate (since the trend has already
been identified). Also, the trailing stop has been designated (for long positions) by
the price crossing below the previous days low (assuming that the position
moved in favor of the trade). The reverse would be true for short positions.
While it can be very good at capturing profits on the majority of trades, no loss
protection mechanism has been put into place if the trade immediately moves
against you. Stop-loss orders should be used to prevent the few failing trades
from removing all acquired profits.

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 65

Signals
For a complete description of the signals, please refer to Mr. Coopers
books, listed under Further Reading.

Trade Characteristics
The Cooper 1234 system produces a trade about once every ten to twenty
weeks. Most trades last about one or two weeks. The system is in a trade less
than 10% of the time, so the most appropriate strategy would be to apply the
system to a basket of stocks.

Further Reading
Hit and Run Trading: The Short-Term Stock Traders Bible.
M. Gordon Publishing Group. 1996
Hit and Run Trading II: Capturing Explosive Short-Term Moves in Stocks.
M. Gordon Publishing Group. 1998
Hit and Run Lessons: Mastering the Trading Strategies. M. Gordon Publishing
Group. 1999
The 5-Day Momentum Method. M. Gordon Publishing Group. 1999

Cycle Progression
Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in

The Cycle Progression system is designed to anticipate short term swings in


price activity. The system identifies when there are more down days than up
days in the last 5 days and then enters a long position. It then exits and enters a
short position on the reverse condition.

A custom indicator is
available for this system.

This system is designed to capture very short-term cycles and should be used
with caution. While it is very good at capturing profits on the majority of
trades, no loss protection mechanism has been put into place. Stop-loss orders
should be used to prevent the few failing trades from removing all acquired
profits.

Signals
Enter long/close short when the number of down days exceeds the number
of up days during the last five days.
Enter short/close long when the number of up days exceeds the number of
down days during the last five days.

Trade Characteristics
The Cycle Progression system produces a trade about once every four to six
days, making it appropriate for short-term traders. The system is always in a
trade if you are taking both long and short positions.

66 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Dynamic Momentum Index 1


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Dynamic Momentum Index (DMI) is basically an RSI that automatically


adjusts its own time period length as needed. Tushar Chande and Stanley Kroll
developed the DMI.

Signals
Enter long when the DMI crosses below 30.
However, rather than a typical exit rising above 70 and crossing below, a
different approach is taken. If at any point in the trade the price crosses
below the 5-period simple moving average (acting as a trailing stop), then
the position is exited. The problem with this is that when the entry signal is
given, the price is typically already below the 5-period simple moving
average, so a protective measure is needed that exits the position before too
many losses can occur but also gives enough time to cross above the
moving average setting up a potential exit signal. This is accomplished by
doing a price check. If in the third day of the position it is at a loss, then the
position is exited. The reverse is true for short positions.

Trade Characteristics
The DMI system produces a trade about once every three to five weeks. Trades
generally last one to two weeks. The system is in the market
30%40% of the time.

Further Reading
The New Technical Trader: Boost Your Profit by Plugging Into the Latest
Indicators. (Wiley Finance Editions) John Wiley and Sons, Inc. 1994
Beyond Technical Analysis: How to Develop and Implement a Winning Trading
System. (Wiley Finance Editions) John Wiley and Sons, Inc. 1997
The Business One Irwin Guide to the Futures Markets. Irwin Professional
Publishing. 1992
The Professional Commodity Trader. Traders Press. 1995

Exponential Moving Average


Description
The performance
exploration for this
system is included free
with MetaStock

The Exponential Moving Average (EMA) system is an extremely fast follower


of direction. Rather than try and determine a single optimum-length moving
average crossover approach, it simply looks to see if a 2-period exponential
moving average is moving upward or downward. If the 2-period EMA is
greater than yesterdays 2-period EMA, then it enters long. If the 2-period
EMA is less than yesterdays 2-period EMA, then it enters a short position.
A good way to work with this type of fast moving system is to use protective
stops. For this particular system, using the previous days low as a stop point
(or previous days high if short) can help to prevent unnecessary losses.

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 67

Signals
Enter long/close short when the current 2-period EMA is greater than the
previous 2-period EMA.
Enter short/close long when the current 2-period EMA is less than the
previous 2-period EMA.

Trade Characteristics
The EMA system produces a trade about once every two to four days, making it
appropriate for extremely short-term traders. The system is always in a trade if
you are taking both long and short positions.

Fractal Trading Systems 1 and 2


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

While there are many definitions for a fractal in securities trading, the
definition used in these systems is a minor version of the type defined by
Bill Williams, Ph.D., and his chaos-based trading methods. According to
Bill Williams, an up fractal is defined as a middle bar with two lower highs
on each side of it. A down fractal would be the reverse of that, which would
be a middle bar with two higher lows on each side of it. These two systems are
based on a very small fraction of Bill Williams complete trading system.

Signals
The Fractal 1 system enters a long position when the price crosses above the
most recent up fractal. The position would be exited and a short position
entered when the price crosses below the most recent down fractal.
The Fractal 2 system is identical except that rather than reversing a position
upon the price crossing below the most recent down fractal, it exits upon
crossing the low of the second most recent fractal back. No short positions
are taken in the Fractal 2 system.

Trade Characteristics
The Fractal 1 system produces a trade about once every two to four weeks; the
Fractal 2 system produces a trade about once every six to ten weeks. The
Fractal 1 system is always in a trade if you are taking both long and short
positions. Since the Fractal 2 system doesnt take short positions, it is in a
position 50-70% of the time.

Further Reading
Trading Chaos: Applying Expert Techniques to Maximize Your Profits.
(Wiley Finance Editions) John Wiley and Sons, Inc. 1995
New Trading Dimensions: How to Profit from Chaos in Stocks, Bonds, and
Commodities. (Wiley Trading Advantage) John Wiley and Sons, Inc. 1998

68 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Long Sell Short Sale 5 Day


Description
The performance
exploration for this
system is included free
with MetaStock

A custom indicator is
available for this system.

The Long, Sell, Short Sale (LSS) indicator was developed by


George Angell. It was designed as a 3-period indicator for day-trading purposes
only, but here it is used as a 5-period indicator suitable for end-of-day (near
end-of-day) purposes. Here it is treated as an overbought/oversold indicator.
When the LSS indicator moves below .3, it is viewed as oversold. When it
moves above .7, it is viewed as overbought. In general, this indicator
(dependent upon what mode it is in at any given time) can be a leading/lagging
indicator in reference to a same-period stochastic and if desired could be
used with the same trading techniques.
IMPORTANT: This system requires valid Open prices.
While it can be very good at capturing profits on a large number of trades,
no loss protection mechanism has been put into place if the trade immediately
moves against you. Stop-loss orders should be used to prevent the failing trades
from removing all acquired profits.

Signals
Please refer to Mr. Angells books (listed below) for a description of the
indicator.

Trade Characteristics
The Long Sell Short Sale system produces a trade about once every one to three
weeks. The system is always in a trade if you are taking both long and short
positions.

Further Reading
Sure-Thing Options Trading: A Money-Making Guide to the New Listed Stock
and Commodity Options Markets. New American Library Trade. 1984
Winning in the Futures Markets: A Money-Making Guide to Trading, Hedging
and Speculating. Probus Publishing Co. 1990
How to Triple Your Money Every Year with Stock Index Futures. Windsor
Books. 1984
Real Time Proven Commodity Spreads: The 20 Most Consistently Profitable
Low-Risk Trades. 1985

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 69

MACD Histograms 1 and 2


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in

A custom indicator is
available for this system.

The MACD Histogram indicator was popularized by Alexander Elder.


This system uses the histogram in the way that has been popularized for use by
the regular MACD; it looks for divergences between the indicator and price.
The MACD Histogram is calculated by subtracting the 9-period exponential
moving average of the MACD from the MACD itself. A divergence in price is
then detected against this indicator and a trade is entered in the direction of
indicator movement with the belief that the price will shortly follow.
Even though it is displayed here as a complete system and is functional as such,
it is primarily designed as an entry method. A favorite stop-loss and exit
strategy should be considered when using this system.

Signals
MACD Histogram 1:
Enter long/close short when the MACD Histogram shows a positive
divergence from prices (i.e., the Histogram makes new highs while prices
fail to make new highs).
Enter short/close long when the MACD Histogram shows a negative
divergence from prices (i.e., the Histogram makes new lows while prices
fail to make new lows).
MACD Histogram 2:
Enter long/enter short same as signal for MACD Histogram 1.
Close long when the MACD Histogram turns down.
Close short when the MACD Histogram turns up.

Trade Characteristics
MACD Histogram 1 and 2 systems both produce trades about once every ten to
twenty weeks. The MACD Histogram 1 system is always in a trade if you are
trading both long and short positions. The MACD Histogram 2 system is in a
trade 20%-30% of the time.

Further Reading
Trading for a Living: Psychology, Trading Tactics, Money Management.
(Wiley Finance Editions) John Wiley and Sons, Inc. 1993
Study Guide for Trading for a Living: Psychology, Trading Tactics, Money
Management. (Wiley Finance Editions) John Wiley and Sons, Inc. 1993

70 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Meisels Overbought/Oversold
Description
The performance
exploration for this
system is included free
with MetaStock
A custom indicator is
available for this system.

Ron Meisels developed the Meisels Indicator as an overbought/oversold


indicator that moves between +10 and -10 and is based on whether the market
closed higher or lower than the previous trading day over the last 10 days. The
original entry concept is maintained here with a long entry occurring when the
indicator reaches 6 (oversold), and a short entry occurring when the indicator
reaches +6 (overbought). In this case, an exit has been added when the indicator
reaches a zero level from either direction. This produces a very good short-term
approach to trading.
The Meisels Overbought/Oversold system will work best on securities that are
cycling, rather than trending.
As with all overbought/oversold indicators and systems, even though it can be
very good at capturing profits on a large number of trades, no loss protection
mechanism has been put into place if the trade immediately moves against you.
Stop-loss orders should be used to prevent the few failing trades from removing
all acquired profits.

Signals
Enter long when the Meisels Indicator falls down to or crosses below -6
(this value would indicate that six of the last 10 trading periods showed a
decrease in price).
Close long when the Meisels Indicator rises to or above 0.
Enter short when the Meisels Indicator reaches up to or crosses above +6.
Close short when the Meisels Indicator falls to or below 0.

Trade Characteristics
The Meisels Overbought/Oversold system produces a trade about once every
ten to fifteen weeks. The trade usually lasts one to four weeks. The system is in
a trade 10%-20% of the time.

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 71

MESA Sine Wave


Description
The performance
exploration for this
system is included free
with MetaStock

The MESA Sine Wave indicator was developed by John Ehlers. The indicator
itself is designed to determine if a security is in a cyclic or trending mode.
However, the short time frame used in this system doesnt really allow it to
ever make that distinction. Instead, it tries to identify and take advantage of
very short-term cyclic activity. Since the period being used is so short, the
MESA Sine Wave is almost turned into a binary indicator with a very fast
sensitivity to a change in direction. Trading can easily occur daily with this
system.

Signals
Enter long/close short when the 2-period MESA Lead Sine indicator is less
than the 2-period MESA Sine Wave indicator.
Enter short/close long when the 2-period MESA Lead Sine indicator is
more than the 2-period MESA Sine Wave indicator.

Trade Characteristics
The MESA Sine Wave system produces a trade about once every one to three
days, making it appropriate for extremely short-term traders. The system is
always in a trade if you are taking both long and short positions.

Further Reading
Technical Analysis of Stocks & Commodities magazine, November 1996
MESA and Trading Market Cycles. John Wiley and Sons, Inc. 1992

Pattern Trading System 1


Description
The performance
exploration for this
system is included free
with MetaStock

A custom indicator is
available for this system.

The Pattern Trading System 1 is designed to be used with stocks and stock
indexes since it relies upon the inherent upward bias that stocks exhibit.
The system follows the philosophy that ANY up movement becomes an entry
signal, and any down movement following a valid up movement trend
(two days or more of up movement) becomes a valid exit signal. While being a
very fast system, it can also be an extremely profitable one. Since the upward
bias is already accounted for, the system doesnt take short positions.
While it can be very good at capturing profits on a large number of trades,
no loss protection mechanism has been put into place if the trade immediately
moves against you. Stop-loss orders should be used to prevent the few failing
trades from removing all acquired profits.

Signals
Enter long after two consecutive up bars.
Close long on the first down bar after at least two consecutive up bars.

Trade Characteristics
The Pattern Trading System 1 produces a trade about once every one to two
weeks. The trades typically last one to two weeks. Since the system takes no
short positions, the system is in a trade about 60%-70% of the time.
72 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Percentage Crossover 3%
Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Percentage Crossover system enters a trade after a security has moved up
3%, and exits a trade after the security has moved down 3%. It is thus a trendfollowing indicator. Using a percentage allows the indicator to be tailored to the
price of the individual security. The disadvantage is that if the price begins to
cycle consistently the system will have excessive trading whipsaws.

Signals
Enter long/close short when the security moves up 3%.
Enter short/close long when the security moves down 3%.

Trade Characteristics
The Percentage Crossover 3% system produces a trade about once every three
to six days (more often for volatile stocks, less often for stable stocks). The
system is always in a trade if you are taking both long and short positions.

Projection Oscillator 1
Description
The performance
exploration for this
system is included free
with MetaStock

The Projection Oscillator is basically a slope-adjusted Stochastic developed by


Mel Widner, Ph.D. Its an indicator that identifies its position relative to the
Projection Bands. For this system, rather than trade the oscillator in relation to a
20/80 position like a regular Stochastic Oscillator, a short-term smoothed
Projection Oscillator is traded in relation to an even shorter-term moving
average of itself.

Signals
Enter long/close short when an 8-period/3-slowing period Projection
Oscillator crosses above its own 3-period moving average.
Close long/enter short when an 8-period/3-slowing period Projection
Oscillator crosses below its own 3-period moving average.

Trade Characteristics
The Projection Oscillator 1 system produces a trade about once every two to
four days, making it appropriate for extremely short-term traders. The system is
always in a trade if you are taking both long and short positions.

Further Reading
Technical Analysis of Stocks and Commodities magazine, July 1995

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 73

StochRSI
Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in

A custom indicator is
available for this system.

Tushar Chande and Stanley Kroll developed the StochRSI indicator. One of the
problems with using the RSI as an overbought/oversold indicator is that, due to
the built-in smoothing, it may be a long time before an extreme is ever reached.
This forces it to miss out on many significant trading signals. Applying a
stochastic process to the RSI makes it so that an extreme will have to be
reached within a limited amount of time (preferably when a valid trading signal
is present). As with the Stochastic Oscillator, the system trades around the 20
and 80 extremes.
As with all overbought/oversold indicators and systems, even though it can be
very good at capturing profits on a large number of trades, no loss protection
mechanism has been put into place if the trade immediately moves against you.
Stop-loss orders should be used to prevent the few failing trades from removing
all acquired profits.

Signals
Enter long/close short when the StochRSI crosses below 20.
Enter short/close long when the StochRSI crosses above 80.

Trade Characteristics
The StochRSI system produces a trade about once every two to four weeks.
The system is always in a trade if you are taking both long and short positions.

Further Reading
The New Technical Trader: Boost Your Profit by Plugging Into the Latest
Indicators. (Wiley Finance Editions) John Wiley and Sons, Inc. 1994
Beyond Technical Analysis: How to Develop and Implement a Winning Trading
System. (Wiley Finance Editions) John Wiley and Sons, Inc. 1997
The Business One Irwin Guide to the Futures Markets. Irwin Professional
Publishing. 1992
The Professional Commodity Trader. Traders Press. 1995

74 Descriptions of the MetaStock Performance Systems

Mastering MetaStock

Swing Index
Description
The performance
exploration for this
system is included free
with MetaStock

The Swing Index was created by Welles Wilder to identify the true price of a
security by evaluating the current bars open/high/low/close prices as well as
the previous bars. It then plots that relationship as a value above or below a
zero line. Because its looking for a change in direction of price movement
(using a bar by bar approach) it trades with a very similar philosophy to Pattern
Trading System 1 but much more frequently. It also allows for short positions.

Signals
Enter long/close short when the 3-day Swing Index is above 0.
Close long/enter short when the 3-day Swing Index is below 0.

Trade Characteristics
The Swing Index system produces a trade about once every one to three days,
making it appropriate for extremely short-term traders. The system is always in
a trade if you are taking both long and short positions.

Further Reading
New Concepts in Technical Trading Systems. Trend Research. 1978
The Adam Theory of Markets or What Matters Is Profit. Trend Research. 1987

Vertical Horizontal Filter


Description
The performance
exploration for this
system is available in the
MetaStock Performance
Systems Plus plug-in.

The Vertical Horizontal Filter (VHF) was developed by Adam White. It is


similar to r-squared and Welles Wilders ADX indicator in that it identifies
trending/non trending activity except that it is nowhere near as sensitive as
r-squared (therefore reducing whipsaws) and much more responsive than the
ADX (increasing the chance of getting in at the beginning of a trend). Once a
trending status is identified by the VHF, it looks to see which direction the trend
is going by looking at a linear regression slope with the same periods as the VHF
and then enters a position accordingly. It then exits when the trend breaks down.

Signals
Enter long when the 21-period VHF crosses above 0.3 and the 21-period
linear regression slope is positive.
Close long when the VHF crosses below .7 or the slope is negative.
Enter short when the VHF crosses above .3 and the slope is negative.
Close short when the VHF crosses below .7 or the slope is positive.

Trade Characteristics
The VHF system produces a trade about once every one to three months.
Trades are usually closed out in about two to four weeks. The system is in a
trade about 50%-60% of the time.

Further Reading
Futures magazine, August 1991

Mastering MetaStock

Descriptions of the MetaStock Performance Systems 75

Volatility Breakout (Chaikin)


Description
The performance
exploration for this
system is included free
with MetaStock

The Volatility Breakout system uses the Volatility indicator created by


Marc Chaikin to determine extremely short periods of volatility expansion.
Typically, trades with this system are only held for one or two days.
The system looks to see if the volatility of a security is increasing and then
takes a trade in the direction of price movement. It exits the position either
when prices move in the opposite direction or when volatility decreases
(signaling a potential change in direction).

Signals
Enter long when a 10-period/10-period rate of change Chaikins Volatility
increases and the price moves up.
Close long when the volatility decreases and the price moves down.
Enter short when the volatility increases and the price moves down.
Close short when the volatility decreases and the price moves up.

Trade Characteristics
The Volatility Breakout system produces a trade about once every two to four
days, making it appropriate for extremely short-term traders. The system is in a
trade about half of the time.

76 Descriptions of the MetaStock Performance Systems

Mastering MetaStock