Table of Contents

Introduction ............................................................................................ 1
The Guiding Principles ........................................................................ 1
What Do You Get with PowerStrike?.................................................. 2
Installing and Running PowerStrike .................................................... 6
Putting PowerStrike to Work................................................................ 7
Terms You Need to Know Before Proceeding .................................... 7
Step 1: Collect and Maintain Locally Stored, Optionable Stock Data. 8
Step 2: Filter Optionable Stocks with the PowerStrike Exploration .... 9
Step 3: Sort the Exploration Report ................................................... 12
Step 4: Apply the PowerStrike Template........................................... 14
Step 5: Create Precise, Diverse Entry Rules with Stops ................... 15
Appendix ............................................................................................... 17
The Adaptick Brick Rainbow™......................................................... 17
Private Coaching ................................................................................ 18
Indicator Classification and Election System (ICE) .......................... 18
Option Strike Price levels .................................................................. 19
The PowerStrike Scoring System ...................................................... 20
 All Rights Reserved
Copyright © 2003

Printed in the USA

Adaptick, Inc.
1082 East 8175 South
Sandy, UT 84094

www.adaptick.com

MetaStock is a registered trademark of Equis International (a Reuters company). The

DownLoader is a trademark of Equis International (a Reuters company). PowerStrike,
ICE, Indicator Classificaton and Election System, and Brick Rainbow are trademarks of
Adaptick, Inc.

2
 Adaptick, Inc.
1082 E. 8175 S.
Sandy, UT 84094

Email: support@adaptick.com
www.adaptick.com

Install Password: ap3m9kh48

24 3
Color Codes and Scores for Pivot Highs and Lows

23
Considering A and B above (and all else being equal), which Pivot High
(A or B) is more bearish? If you answered B, then you understand part
of the logic behind PowerStrike. Increased volume in the direction of the
price move substantiates that move. In the example above, 500K shares
traded on Bar 3 (B) is more bearish than 100K bars traded on Bar 3 (A).

What do the Colors Mean?

If the volume on Bar 3 of a Pivot High or Pivot Low is 50% higher than
Bar 1’s volume, then the Pivot High pattern is scored 5 points and
colored RED.

If the volume on Bar 3 of a Pivot High or Pivot Low is 0- 49% higher

than Bar 1’s volume, then the pattern is scored 3 points and colored
GREEN.

If the volume on Bar 3 of a Pivot High or Pivot Low is lower than Bar
1’s volume, then the Pivot High Pivot or Pivot Low is scored 1 point and
colored BLUE.

When the Adaptick PowerStrike template is applied to a chart (Action:

right-click chart > Apply Template > Adaptick PowerStrike.mwt), the Pivot High and
Pivot Low bars that contribute to the UpStrike (resistance) and
DownStrike (support) scores are highlighted red, green, or blue as shown
below.

22 1
The following graphic shows a Pivot High. Note that bar 2 is the actual
Pivot High bar. Bar 3’s body top and Bar 1’s body top are both lower
than Bar 2’s body top. Bar 3 is a black (or filled) candlestick (i.e., it
closed higher than it opened). This constitutes a Pivot High.

Why does Volume Matter?

21

$100 and higher = $10.00 increments
100, 110, 120, etc…
The PowerStrike Scoring System
Using body tops and body bottoms as the standard; PowerStrike
determines where pivot highs and pivot low patterns occur (see the
following illustration). Pivot Highs and Pivot Lows that form near
Upstrike and DownStrike levels are cumulated. Each pivot high and
pivot low is scored as 1, 3, or 5 points depending on the amount of
trading volume immediately surrounding the pattern.
The following illustration shows a Pivot Low. Note that bar 2 is the
actual pivot low bar. Bar 3’s body bottom and Bar 1’s body bottom are
both higher than Bar 2’s body bottom. Bar 3 is a white (or empty)
candlestick (i.e., it closed higher than it opened). This constitutes a Pivot
Low.
20
Introduction
PowerStrike is a utility plug-in to help traders locate and quantify
support and resistance. It is designed for use on daily or weekly data
with MetaStock 7.21 or higher. This manual provides information on
using PowerStrike.
The Guiding Principles
Of all the technical analysis tools available to traders, perhaps none other
appeals to our since of logic and common sense like support and
resistance. Perhaps it is because of its resemblance to what many of us
have learned as basic economic “supply and demand”.
The methodology for determining PowerStrike’s support and
resistance is based on three phenomenons in the stock market:
1. Humans prefer “easily” divisible and memorable numbers (e.g.,
“20” is preferred over “19”). These values are typical of option
strike prices. Hence many traders' attention is drawn to these
numbers providing the potential for even more "concentrated"
buying and selling.
2. Stock prices are heavily influenced by trading near option strike
price levels. Hence, these levels greatly influence where
"important" buying and selling occur. And support and
resistance is based on the concentrated buying and selling of
influential traders. Option Strike Price levels attract more
attention by important market participants than other price levels
(all else being equal)..
3. Bullish and Bearish pressures at these Option Strike Price levels
resolve more quickly than pressures at other levels.
1
What Do You Get with PowerStrike?

1 Online Training Video (“PowerStrike Explained”) Access to an

online training presentation created with Flash to introduce you to
PowerStrike.

For more information on ICE, go to www.adaptick.com/ICE

Every “testable” MetaStock indicator—72 in all -- has been “classified”

into four easily managed categories (Velocity, Volatility, Verticality, and
Volume). 144, easy-to-run optimized and non-optimized simulations are
provided to let you “elect” an indicator’s ability to perform well on your
set of stocks.

ICE provides an objective, reliable means of comparing the performance

of popular technical indicators. Every effort has been given to provide
each indicator a “fair shake” so to speak. Every Trading Simulation in
ICE is deployed with the same Exit strategy based on an all-new trailing
stop loss mechanism called IntelliStop™. IntelliStops trail the lows (or
highs in the case of shorts) by a variable percentage based on volatility.

For more information on ICE, go to http://www.adaptick.com/ICE.

Option Strike Price levels

The following summarizes the price levels at which US options are set.
These price levels are especially important, since these are where
PowerStrike’s support and resistance levels are always drawn.

$5 to $25 = $2.50 increments

7.50, 10.00, 12.50…25.00

Action: Windows Start button > Programs > Adaptick > PowerStrike Explained Video
$25 to $100 = $5.00 increments

1 template (Adaptick PowerStrike.mwt). This template properly

25, 30, 35, 40…100
formats your chart with the PowerStrike components, including the
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 current Upstrike Resistance, DownStrike Support, PowerStrike Bands,
20-period Time Series Forecast (TSF) smoothing line, semi-log scaling,
and the key Pivot Points with their accompanying scores.
namely “velocity.” A better system could be constructed from
Stochastics, MFI, and Bollinger’s %b. These three indicators cover three
categories, namely, velocity, volume, and volatility. Such a trading
system would be more diverse, and would result in better signals.

Private Coaching
For those that have the time and desire, John Slauson, the developer of
PowerStrike, provides private one-on-one coaching (via the Internet and
phone combined) to help traders construct customized trading systems
built from these Brick Rainbow components. For more information,
email John at jslauson@adaptick.com.
Action: Right-click chart > Apply Template

Indicator Classification and Election System (ICE)

1 Expert Commentary (Adaptick PowerStrike). The expert
commentary provides the current score at the upstrike and downstrike
We have found that most people do not have the time to learn and support/resistance levels and also alerts the trader to potential Long and
effectively exploit the power of the MetaStock programming language— Short opportunities.
a prerequisite to using the Enhanced System Tester. ICE was developed
to provide the average trader with a “bridge” to trading system
development.

Adaptick created a special MetaStock plug-in to fill a need that was

discovered while coaching students on the processes of building their
own trading systems. The MetaStock plug-in, called Indicator
Classification and Election System (ICE for short), streamlines the
process of backtesting, optimizing, and selecting well-diversified
technical indicators using the Enhanced System Tester.

18 3
 Appendix
The Adaptick Brick Rainbow™
In our experience building trading systems, we have coined the name
“Brick Rainbow” as a visual cue for remembering the primary
components of a good stock trading system. The six colors of a rainbow
correspond with the primary components of a solid trading system as
illustrated below. The gray mortar that binds the bricks corresponds to
your own personal discipline

Action: Right-click chart > Expert Advisor > Commentary

1 Exploration (Adaptick PowerStrike). The exploration can search

thousands of stocks filtering those that are PowerStrike “buy enabled” or
“short enabled.”
The foundation brick and the most important component of a trading
system is a reliable Broad Market forecast of the stock market. About
70% of an individual stock’s price movement is strongly correlated to
movement in the broad market.

Support and Resistance is the second most important brick. PowerStrike

provides you with a good tool for measuring support and resistance for
individual stocks.

The remaining four smaller bricks are an individual stock’s volume,

volatility, verticality (i.e., trend), and velocity (i.e., momentum).
Collectively, we call these the “Four Vs”. A robust technical trading
system is built from one indicator from each of these categories. This
Action: Click Tools menu > The Explorer
promotes trading system diversity—an important principle.

1 Indicator (Adaptick Volume Acceleration Index, AVAI). The For example, an entry signal based on RSI, Stochastics, and MACD is
AVAI indicator provides traders with a measurement of volume not “diverse”. Even though three indicators with different names have
acceleration. Acceleration in volume is a confirmation of price been chosen, each indicator measures the same market phenomenon,
movement. With AVAI, the difference between a 3 and 10 period simple
4 17
 moving average of volume are calculated and subsequently normalized
using a unique algorithm involving Linear Regression and Standard
Error. Dynamic upper and lower reference lines frame the indicator’s
movement. The result is a plotted value that can be compared (relative to
the reference lines) from one security to another.

Action: Click Indicator Quicklist > Choose Adaptick Volume Acceleration Index

Action: Click Indicator Quicklist on main toolbar

MetaStock also includes a powerful backtesting tool called the Enhanced

System Tester to help you discover and test top performing indicators
and trading rules. It is well worth you time to learn to use this powerful
tool.

Action: From the Indicator Quicklist > drag and drop Adaptick Volume Acceleration Index
to the heading of the chart.

Helper Indicators. At the bottom of your indicator QuickList, you will

find many so-called “helper” indicators that start with “zAdaptick”.
Action: Click Tools > Enhanced System Tester
These custom indicators are installed in MetaStock. However, they are
not intended to be plotted independently. They provide calculation help

16 5

for the PowerStrike expert commentary and exploration. Therefore, you
should simply ignore them.
Installing and Running PowerStrike
PowerStrike is an add-on software program for use with MetaStock 7.21
(or higher). As such, PowerStrike shares the same system requirements
as MetaStock. See your MetaStock documentation for details.
To install the PowerStrike plug-in:
1. Ensure that MetaStock 7.21 or higher is successfully
installed.
2. Insert the PowerStrike CD-ROM in your drive. Or
if you downloaded PowerStrike, OPEN or double-
click the downloaded EXE file. The Installation
Wizard for PowerStrike will start.
3. Enter the Install Password when prompted:
Password: ap3m9kh48
You can verify that PowerStrike was successfully installed be running
MetaStock and confirming the existence of one or more the installed
components (i.e., exploration, expert, customer indicators).
6 15
Note that the Expert Commentary validates the values reported in the
Exploration report (in Step 3); namely, the DownStrike Support at
$12.50 is 36 points higher than the Upstrike Resistance at $15.00. In
addition, the most recent closing price is within the PowerStrike Bands,
and the 20-day TSF (Time Series Forecast plotted as a red line) is above
the DownStrike (12.50). All of this makes Archer Daniels officially
“buy enabled.”
Note that most of the 36 points attributed to Archer Daniel’s DownStrike
score occurred in the November/December 2002 timeframe. Note also
that during that timeframe, $12.50 acted as Resistance, not Support. But
remember, however, that classic technical analysis teaches that
penetrated Resistance becomes “Support”. With the most recent price
and TSF above $12.50, it has switched roles from resistance to support.
Step 5: Create Precise, Diverse Entry Rules with Stops
At this point, PowerStrike has helped you find stocks that are strongly
bolstered by support and/or resistance—being buy or short enabled. The
final step is to use 2 to 4 diverse and well-tested technical indicators or
conditions to precisely time the execution of a buy or short entry trade.
It is also wise to synchronize your individual stock trades with the
overall bullishness or bearishness of the overall stock market.
Indicator diversification (as we call it) is an important principle in
trading system development (see Appendix, Brick Rainbow). John
Slauson, the creator of PowerStrike, was introduced to this important
principle by John Bollinger (www.bollingerbands.com) in the Fall of
2000 when the two developed a MetaStock plug-in called BBS
(Bollinger Band System). Adaptick has been a strong advocate of this
principle ever since.
At Adaptick, we also coach and train our students to use “stops” as the
exclusive means of exiting trades. Your stops should be designed to first,
protect from unreasonable loss of capital and, second, to protect
unrealized profits. Adaptick’s IntelliStop™ indicator (provided to
privately coached students) are excellent for this. However, straight
percentage stops or Parabolic SAR stops are also popular.
MetaStock contains a library of over 120 technical indicators that when
combined with PowerStrike can be the foundation for a powerful trading
system.
SR Ratio. Sort on this column to prioritize the report by the
Support/Resistance Ratio. A high value in either case (buy or short
Putting PowerStrike to Work
enabled) indicates a stronger respective underlying support or overhead
resistance. Your success with PowerStrike will be dependent primarily on your
ability to incorporate it into a “trading system” and to execute that
trading system with strict discipline.
As you can see in the previous illustration, Archer Daniels was sorted on
the AVAI column. It has a relatively high AVAI of 42.97 and a high SR
ratio of 36.00. An SR ratio of 36.00 indicates that the DownStrike Terms You Need to Know Before Proceeding
support scores 36 times higher than the UpStrike resistance. The
proximity of the closing price is within the PowerStrike Bands and the Upstrike. The option strike price immediately ABOVE the current
DownStrike score being at least 33% or higher than the Upstrike score price.
are the primary reasons for the “buy enabled” status.
Downstrike. The option strike price immediately BELOW the current
This can be verified by opening the chart of Archer Daniels and applying price.
the Adaptick PowerStrike template and viewing the Expert Commentary
(see Step 4). PowerStrike Bands. The dashed bands that surround the Upstrike and
Downstrike price levels. These bands fluctuate with the amount of
volatility.
Step 4: Apply the PowerStrike Template

Buy Enabled: A condition comprised of a stock’s closing price being

within the PowerStrike Bands, the 20-period TSF being above the
DownStrike level, and the Downstrike score being at least 33% greater
than the Upstrike score. Note that a stock being “buy enabled” should
not be interpreted as being an executable “buy signal” alone. The
timing of a buy trade itself should come from a diverse set of 2 to 4
technical indicators or conditions (see the Appendix, Adaptick Brick
Rainbow).

Short Enabled: A condition comprised of a stock’s closing price being

within the PowerStrike Bands, the 20-period TSF being below the
UpStrike level, and the Upstrike score being at least 33% greater than the
Downstrike score. Note that a stock being “short enabled” should not
be interpreted as being an executable “buy signal” alone. The timing of
a short trade itself should come from a diverse set of 2 to 4 technical
indicators or condition (see the Appendix, Adaptick Brick Rainbow).

Action: Right-click chart > click Apply Template > Adaptick PowerStrike > View menu >
Expert Commentary

14 7
Another MetaStock plug-in called “ICE for MetaStock” (Indicator
Classification and Election System) is a great tool for finding diverse,
top-peforming indicators (see the Appendix for more information)

Step 1: Collect and Maintain Locally Stored, Optionable

Stock Data

PowerStrike is designed to search stocks (i.e., equities) on which options

exist. These are called “optionable” stocks. In the U.S., there are about
10,000 listed stocks. However, only 2,300 of these stocks have options.
Some data providers segregate the optionable stocks, thereby making it
easier to collect and manage. Reuters DataLink
(www.reutersdatalink.com), a popular data service among MetaStock Action: Run the Adaptick PowerStrike Exploration > display the resulting Report.
users, provides this feature.
A value of “1.0000” in the “Enable” column means that the stock is buy
enabled. A value of “-1.0000” means that the stock is short enabled.

You can sort this report on any column by simply clicking the left mouse
button on the column heading. By default, the report sorts
alphabetically.

The three columns in the PowerStrike Exploration report on which you

will most likely sort are:

Enable. Sort on this column if you want to segregate Buy and Short
enabled stocks. Most traders will want to “bias” there stock picks either
bullishly or bearishly depending on their forecast for the general, overall
Action: Run The DownLoader > click File > New > Security > Look-up stock market.

The software that MetaStock provides to collect and maintain local data
is called The DownLoader. Local data is stock price data stored on your
“local” hard disk. Locally stored data is not an “absolute” requirement to
run PowerStrike’s exploration. MetaStock is able to access daily data
directly from Reuters DataLink (for example) via a live Internet
connection. Equis calls this feature “data-on-demand.”
AVAI. Sort on this column if you want to prioritize the stocks based on
recent volume activity. The higher the AVAI (Adaptick Volume
Acceleration Index), the more intense the bullish or bearish potential is
(all else being equal). A high AVAI means that volume is accelerating
over the short-term--a positive influence for both long and short trades.

8 13
 While the data-on-demand feature of MetaStock is great for viewing
charts; it is very slow for filtering and screening with MetaStock’s
Explorer feature. For this reason, we strongly recommend that you use
than 100, means stocks have been found that meet the Buy Enabled or
The DownLoader to collect and store your data locally (i.e., on your hard
Short Enabled criteria.
disk). Then allow the PowerStrike exploration to search across this
locally stored data.

Action: Click Tools menu > The DownLoader

As of this writing (August 2003) using The DownLoader to maintain

Step 3: Sort the Exploration Report
locally stored data is a much more efficient solution for filtering and
Upon completion of the exploration, you are automatically presented screening with The Explorer. However, this feature of MetaStock is
with the option of viewing the reports. likely to improve, so keep a close eye on new developments.

Step 2: Filter Optionable Stocks with the PowerStrike

Exploration

This is where PowerStrike does the bulk of the serious work.

Action: Click the Reports button to display the Exploration results.
PowerStrike uses The Explorer feature in MetaStock to search through
your local optionable stocks (collected in Step 1) to find stocks that are
either “buy enabled” or “short enabled” per the PowerStrike rules.

In a nutshell, the PowerStrike exploration searches for stocks where the

closing price is near a high scoring Support level or a high scoring
Resistance level. The following illustrations visually show the types of
patterns the exploration searches for.

12 9
 Action: Click Tools > The Explorer
Action: Right-click Chart > Apply Template > Choose Adaptick PowerStrike.mwt

Action: Right-click Chart > Apply Template > Choose Adaptick PowerStrike.mwt
Action: Click Explore button > The Explorer

While the Adaptick PowerStrike exploration runs, the Exploration Status

window appears (see the following illustration). This window gives you
feedback on the status of the exploration. If you are exploring all
optionable U.S. stocks, then you should see about 2,200 in the “Total
Securities To Process” field.

The “Estimated Remaining Time” is also a good value to glance at.

Depending on the speed of your computer, this can range anywhere from
10 minutes to 60 minutes or longer. The “Percent Rejected” value gives
you a quick idea of how many stocks have been found. Anything less
10 11