Mastering Meta Stock Manual

Mastering MetaStock

Version 11

Printed in the USA All Rights Reserved

Copyright 1985-2009

Equis International 90 South 400 West

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aware of the risk inherent in securities trading, not as recommendations to buy or

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the information contained within this document or through the use of Equis

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6.2.2009

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Contents

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

Chapter 1 -Whats New in MetaStock 11 3Introduction ........................................................................................................................ 3New Indicators and Trading Systems ................................................................................. 3

Adaptive Indicators......................................................................................................3RMO Update ...................................................................................................................... 4Name Brand Systems.......................................................................................................... 4

Stochastic Pops Expert Advisor...................................................................................41st hour breakout - 5 min. bars Expert Advisor ...........................................................4Conners RSI Expert Advisor .......................................................................................4Darvas Box ..................................................................................................................5Turtle Trader (Hybrid) .................................................................................................5SPIDER Carpe Diem ...................................................................................................5

FOREX Systems................................................................................................................. 5New Indicators.................................................................................................................... 6

Coppock Curve ............................................................................................................6Darvas Box High .........................................................................................................6Darvas Box Low..........................................................................................................6Denvelopes ..................................................................................................................6Donchian Channels......................................................................................................7Elder Ray .....................................................................................................................7Fisher Transformation Indicator ..................................................................................8Gann Swing Bands ......................................................................................................8Inverse Fisher Transform of RSI .................................................................................8Natenberg's Volatility (Daily)......................................................................................9Polarized Fractal Efficiency.........................................................................................9Pring KST (Short-term) & .........................................................................................10Pring KST (Intermediate-term) &..............................................................................10Pring KST (Long-term) .............................................................................................10Stochastic RSI............................................................................................................10The Force Index.........................................................................................................10Turtle Trader Bands...................................................................................................11

Stops ................................................................................................................................. 11Chandelier stops.........................................................................................................11Intellistops .................................................................................................................13

Fundamental Analyzer...................................................................................................... 15Launching the Fundamental Analyzer .......................................................................15Using the Fundamental Analyzer...............................................................................15The Fundamental Tab ................................................................................................16The Revenue Tab.......................................................................................................17The Performance Tab ................................................................................................18The Estimates Tab .....................................................................................................19The Fundamental Scanner .........................................................................................20The Help Tab .............................................................................................................21

Symbol Utility/Data CD ................................................................................................... 21

Mastering MetaStock Contents i

Chapter 2 -What is Technical Analysis? 22Introduction ...................................................................................................................... 22

Why use Technical Analysis?....................................................................................22Technical Analysis Basics ................................................................................................ 23

Charts.........................................................................................................................23Support and Resistance..............................................................................................23Trends ........................................................................................................................25Indicators ...................................................................................................................25

Chapter 3 -Introducing MetaStock and MetaStock Performance Systems 28Introduction ...................................................................................................................... 28MetaStock Power Tools.................................................................................................... 28

The Explorer ..............................................................................................................28Enhanced System Tester............................................................................................28Indicator Builder........................................................................................................29Expert Advisor...........................................................................................................29

MetaStock Performance Systems ..................................................................................... 29How the MetaStock Performance Systems were selected .........................................29

Which System Should I Use? ........................................................................................... 29Comparing System Tests .................................................................................................. 29

One System Tested on Several Stocks.......................................................................30Several Systems Tested on a Single Stock.................................................................34

Chapter 4 -Using the MetaStock Power Tools 39Introduction ...................................................................................................................... 39

Finding the MetaStock Performance System tools ....................................................39Choosing a Time Period ............................................................................................39

Opening a Chart................................................................................................................ 39Custom Indicators............................................................................................................. 42

Plotting a Custom Indicator .......................................................................................42The Enhanced System Tester ........................................................................................... 44

Results from the Systems Tests .................................................................................46Cleaning Up the Chart ...............................................................................................47The Explorer ..............................................................................................................47Selecting the Stocks...................................................................................................47Setting Exploration Options.......................................................................................48Running an Exploration.............................................................................................48Performance Exploration Results ..............................................................................50Trade Efficiency ........................................................................................................51Signal Explorations Results .......................................................................................51Adding an Additional Filter .......................................................................................51

The Expert Advisor .......................................................................................................... 53Attaching an Expert ...................................................................................................53Editing an Expert .......................................................................................................54Viewing the Commentary..........................................................................................55

Trading Basics .................................................................................................................. 57Disclaimer......................................................................................................................... 58

Chapter 5 -Forex Systems 59FX Multiple Time Frame System..................................................................................... 59Explanation of Symbols and Alerts .................................................................................. 61FX Keltner Systems.......................................................................................................... 61

FX Keltner System 1 .................................................................................................62FX Keltner System 2 .................................................................................................62

FX Pattern System............................................................................................................ 62

Mastering MetaStock Contents ii

Chapter 6 -Rahul Mohindar Oscillator System 63RMO Trade Model ........................................................................................................... 63

RMO Indicator...........................................................................................................63Swing Trade Indicators..............................................................................................63

Using the RMO................................................................................................................. 64Interpretation of the RMO Model..................................................................................... 65

The RMO...................................................................................................................65The SwingTrader indicator ........................................................................................65Sentiment Detector ....................................................................................................65Exit Swing Indicator ..................................................................................................66

Chapter 7 -Descriptions of the MetaStock Performance Systems 67Introduction ...................................................................................................................... 67

Description.................................................................................................................67Signals .......................................................................................................................67Trade Characteristics .................................................................................................67Further Reading .........................................................................................................67

The Systems...................................................................................................................... 67Adaptive Moving Average ............................................................................................... 69


Bull Power Bear Power 1 ................................................................................................. 69Description.................................................................................................................69Signals .......................................................................................................................69Trade Characteristics .................................................................................................69Further Reading .........................................................................................................69



CCI (Commodity Channel Index) .................................................................................... 71Description.................................................................................................................71Signals .......................................................................................................................71Trade Characteristics .................................................................................................71Further Reading .........................................................................................................71

Chande Forecast Oscillator............................................................................................... 72Description.................................................................................................................72Signals .......................................................................................................................72Trade Characteristics .................................................................................................72Further Reading .........................................................................................................72

CMO Reversal .................................................................................................................. 73Description.................................................................................................................73Signals .......................................................................................................................73Trade Characteristics .................................................................................................73Further Reading .........................................................................................................73

Consolidation Breakout .................................................................................................... 74Description.................................................................................................................74Signals .......................................................................................................................74Trade Characteristics .................................................................................................74Further Reading .........................................................................................................74

Mastering MetaStock Contents iii

Cooper 1234 Pattern ......................................................................................................... 74Description.................................................................................................................74Signals .......................................................................................................................74Trade Characteristics .................................................................................................74Further Reading .........................................................................................................74

Cycle Progression............................................................................................................. 75Description.................................................................................................................75Signals .......................................................................................................................75Trade Characteristics .................................................................................................75

Dynamic Momentum Index 1........................................................................................... 75Description.................................................................................................................75Signals .......................................................................................................................75Trade Characteristics .................................................................................................75Further Reading .........................................................................................................75

Exponential Moving Average........................................................................................... 76Description.................................................................................................................76Signals .......................................................................................................................76Trade Characteristics .................................................................................................76

Fractal Trading Systems 1 and 2 ...................................................................................... 76Description.................................................................................................................76Signals .......................................................................................................................76Trade Characteristics .................................................................................................76Further Reading .........................................................................................................76

Long Sell Short Sale 5 Day ........................................................................................... 77Description.................................................................................................................77Signals .......................................................................................................................77Trade Characteristics .................................................................................................77Further Reading .........................................................................................................77

MACD Histograms 1 and 2 .............................................................................................. 77Description.................................................................................................................77Signals .......................................................................................................................78Trade Characteristics .................................................................................................78Further Reading .........................................................................................................78

Meisels Overbought/Oversold.......................................................................................... 78Description.................................................................................................................78Signals .......................................................................................................................78Trade Characteristics .................................................................................................78

MESA Sine Wave............................................................................................................. 79Description.................................................................................................................79Signals .......................................................................................................................79Trade Characteristics .................................................................................................79Further Reading .........................................................................................................79

Pattern Trading System 1 ................................................................................................. 79Description.................................................................................................................79Signals .......................................................................................................................79Trade Characteristics .................................................................................................79

Percentage Crossover 3% ................................................................................................. 79Description.................................................................................................................79Signals .......................................................................................................................79Trade Characteristics .................................................................................................80

Projection Oscillator 1 ...................................................................................................... 80Description.................................................................................................................80Signals .......................................................................................................................80Trade Characteristics .................................................................................................80Further Reading .........................................................................................................80

StochRSI........................................................................................................................... 80Description.................................................................................................................80Signals .......................................................................................................................80Trade Characteristics .................................................................................................80

Mastering MetaStock Contents iv

Further Reading .........................................................................................................80Swing Index...................................................................................................................... 82


Vertical Horizontal Filter.................................................................................................. 82Description.................................................................................................................82Signals .......................................................................................................................82Trade Characteristics .................................................................................................82Further Reading .........................................................................................................82

Volatility Breakout (Chaikin) ........................................................................................... 82Description.................................................................................................................82Signals .......................................................................................................................83Trade Characteristics .................................................................................................83

Mastering MetaStock Contents v

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 get 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 contains a description of the new features in MetaStock 11. Chapter Two 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 Three 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 Four. 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 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.

Margin Notes 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.

MetaStock Help k

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

A newdefine

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. There is a help button on each dialog that guides you to get 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.

Context Sensitive Help icon

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

MetaStock Help t

Technical SupporMaster term will be d in the margin eywordTechnical Support.

ing MetaStock Introduction 2

Chapter 1 - Whats New in MetaStock 11

Introduction MetaStock 11 brings with it some of the most exciting features yet and this chapter will briefly introduce them to you.

New Indicators and Trading Systems Adaptive Indicators MetaStock 11 contains 43 new adaptive indicators. Most technical analysis indicators require a look back period over which to calculate. This look back period is normally fixed and does not change, making it less responsive to prevailing market conditions. However, the adaptive indicators included with MetaStock 11 will adjust themselves dynamically using one of the methods below making them more responsive to prevailing market conditions.

Adaptive Indicators adjust themselves based on prevailing market conditions

There are three methods of adjustment: Volatility, Cycle, Or a combination of both Volatility and Cycle.

The volatility method uses a normalized Standard Error to calculate volatility. The higher the volatility the shorter the look back periods fed into the indicator calculation.

The cycle method of adjustment uses the average number of bars between peaks and troughs to arrive at the look back value. As the cycle length increases and decreases the number of look back periods adjusts to half the average length.

To plot an Adaptive Indicator find it in the Indicator Quick List under MS 11, drag it onto the chart like you would any indicator and then select the desired option when prompted.

For more on indicators see page 29

Mastering MetaStock Whats New in MetaStock 11 3

RMO Update The Exit Swing indicator can now be referenced using the Fml() function in the formula language and will return the proper value of the indicator instead of a flat value of 75. 6 Alerts have been added to the RMO expert:

Buy Above High Sell Below Low New Blue Bar New Red Bar Entering Bullish Zone Entering Bearish Zone

Name Brand Systems The commentaries provided here are not recommendations to buy or sell, but rather guidelines to interpreting the specified indicators. This information should only be used by investors who are aware of the risk inherent in securities trading. Equis accepts no liability whatsoever for any loss arising from any use of these experts or their contents.

Stochastic Pops Expert Advisor

Combining a weekly Stochastic Oscillator for trend with a daily Stochastics for signals, this system avoids many of the whipsaw trades common to systems using just a daily Stochastic. Above average volume and the Average Directional Movement are used as secondary confirmation signals.

1st hour breakout - 5 min. bars Expert Advisor

This system works on the premise that the first hour of trading sets the tone for the rest of the trading day. Any movement outside the first hours trading signals a breakout in that direction. The prices should move in the direction of the breakout an amount equal to the range of the first hour's trading. A stop loss is set in the opposite direction also equal to the first hour's trading range. No positions are held overnight. Exit at the end of the day if neither of the stops have been hit.

This System only works with MetaStock Professional

Conners RSI Expert Advisor

This system is based on the formulas and ideas presented by Larry Connors and Ashton Dorkins in the November 2007 issue of Technical Analysis of Stocks and Commodities magazine. A 2-period RSI at extreme highs or lows is used for the long and short entry signals. The exits are based on the IntelliStops added to MetaStock in version 11.


Darvas Box

The Darvas Box indicator is a trend following method that uses extreme high and low conditions to form dynamic support and resistance levels, which are captured in the form of a box. This method is only suitable for uptrend breakout trading (ie. long positions only). Buy positions are taken on a high price breakout of the top of the box. Sell positions are initiated on a close breakout of the low of the box. For more details on the construction and the interpretation of the Darvas Box trading method, see the June 2005 article by Daryl Guppy titled Something Darvas, Something New in Technical Analysis of Stocks and Commodities magazine.

Turtle Trader (Hybrid)

This system is based on the well-known and widely published trend following system called the Turtle System. Buy Signals are generated when the price moves above the highest high of the last 20 days. Short signals are generated when the price moves below the lowest low of the last 20 days. Positions are closed when prices rise above (fall below for shorts) the lowest low (highest high for shorts) of the last 10 days.

SPIDER Carpe Diem

This system is designed to forecast a single day's price movement for the S&P 500 Depository Receipts, also known as the SPIDER. This forecast is based on a four bar pattern that has shown some predicative ability. Buy signals are generated after a series of four candle bars: white, white, black, white. Short signals are generated after two black and two white bars. Candle bars that are too small (with a body size less than 33% in distance from the open to the close) are not considered. Stops should be carefully set at the recommended price shown within the expert commentary.

FOREX Systems

The four FOREX systems included in MetaStock 11.0 were created using the MetaStock add-on ICE for MetaStock. It is based on the concept of using multiple, non-collinear indicators to generate the signal called the 4-V approach, each indicator used in the system can be classified into one of four categories: Velocity, Verticality, Volatility and Volume. When a system is well-balanced between different types of indicators, it has a better chance of performing well into the future. Since FOREX pairs do not report trading volume, a volume based indicator cannot be deployed, therefore the systems created for MetaStock 11.0 are classified as 3-V, meaning they use Velocity, Verticality, and Volatility indicators. The 3 indicators used for the EUR/USD pair are: Williams %R, Qstick, and Denvelopes. The 3 indicators used for the GBP/USD pair are: Stochastic, VHF, and Relative Volatility Index. The 3 indicators used for the USD/CHF pair are: TRIX, Polarized Fractal


Efficiency, and Envelope Trading Bands. The 3 indicators used for the USD/JPY pair are: Relative Momentum Index, Parabolic SAR, and Denvelopes.

New Indicators

Coppock Curve

The Coppock Curve was developed by Edwin Sedgwick Coppock in 1962. It was featured in the November 94 issue of Technical Analysis of Stocks & Commodities, in the article "The Coppock Curve", written by Elliot Middleton.

Coppock reasoned that the market's emotional state could be determined by adding up the percentage changes over the recent past to get a sense of the market's momentum (and oscillators are generally momentum indicators). So if we compare prices relative to a year ago, which happens to be the most common interval, and we see that this month the market is up 15% over a year ago, last month it was up 12.5% over a year ago, and 10%, 7.5% and 5%, respectively, the months before that, then we may judge that the market is gaining momentum and, like a trader watching for the upward crossover of the moving average, we may jump into the market.

Darvas Box High

This indicator was created from the formulas published in the June 2005 issue of Technical Analysis of Stocks and Commodities magazine. It is used to calculate the top of Darvas boxes. It can be plotted in charts to visually display the boxes used to calculate buy and sell signals in the expert advisor MS11 - Darvas Box System.

Darvas Box Low

This indicator was created from the formulas published in the June 2005 issue of Technical Analysis of Stocks and Commodities magazine. It is used to calculate the bottom of Darvas boxes. It can be plotted in charts to visually display the boxes use to calculate buy and sell signals in the expert advisor MS11 - Darvas Box System.

Denvelopes

Created by Dennis McNicholl, these volatility based bands were presented by Mr. McNicholl in the October 1998 issue of Futures Magazine. Denvelopes are a volatility type indicator that are designed to tighten when prices are trending. Because of their increased sensitivity to trending markets, a move outside the Denvelope bands can be interpreted as a reversal rather than a continuation of the trend.


Donchian Channels

Donchian Channels are a simple verticality (i.e. trend following) type indicator developed by Richard Donchian. Developed in the early 1970s, the channels were a by-product of his research into mechanical trend following breakout systems. Donchian Channels are comprised of two bands. The top band is a plot of the highest high price over the last x number of periods; the bottom band is a plot of the lowest low price over the last x number of periods.

Elder Ray

The Elder Ray indicator was developed by its namesake, Dr. Alexander Elder. It was originally introduced in his popular book, Trading for a Living. A traditional, overbought/oversold indicator Elder Ray attempts to measure extreme optimism or pessimism in the underlying market. The Bull Power component of the indicator is the higher of the two plotted lines. Bear Power is the lower. It is recommended that a corresponding exponential moving average (EMA) be plotted along with the Bull and Bear Power in order to arrive at a solid interpretation. The rules for buying are:

Exponential Moving Averages take all price changes into account, but give more weight to recent changes.

Prices are trending up as indicated by the EMA. Bear Power is negative but rising. For optimal buying opportunities, apply two additional conditions: The most recent Bull Power peak is higher than the previous peak. Bear Power is moving higher with a bullish divergence with prices. A sell signal occurs when prices reach a new high but Bull Power reaches a lower peak relative to its previous rally. The rules for shorting are: Prices are trending down as indicated by the EMA. Bull Power is positive but falling. For optimal short selling opportunities apply two additional conditions: The most recent Bear Power trough is lower than the previous trough. Bull Power is moving lower with a bearish divergence with prices. A cover short signal occurs when prices reach a new low but Bear Power reaches a higher trough relative to its previous down move. The following chart of Yahoo shows some of these rules in action. Bull Power is represented by the thick plot; Bear Power by the thin plot. In addition to the three labeled conditions on the chart, note that a bullish divergence between Bear Power and price occurred during the month of November as well.


Fisher Transformation Indicator

This is a momentum type indicator based on information in an article by John Ehlers published in the November 2002 issue of Technical Analysis of Stocks and Commodities magazine. Ehlers recommends using 10-periods with a 10x amplified 1-period Rate-of-Change overlaid. Cyclic turning points are clearly signaled with crossovers between the two plots. Buy signals are generated when the Fisher Transformation plot cross above its amplified Rate-of-Change signal line. Short signals are generated on downside crossovers.

Gann Swing Bands

Gann Swing Bands were developed by Adaptick while attempting to visualize and mechanically interpret the late W.D. Ganns swing style of trading. Gann Swing Bands are designed to help trade and visualize W.D. Gannss basic swing trading method. As a pure trend following technique, Ganns method involves going long when prices form two consecutive higher highs and higher lows and going short with two consecutive lower lows and lower highs. Many modern-day swing traders have dropped Ganns original and more strict requirement for the higher lows and lower highs. The Gann Swing Band indicator allows the flexibility of choosing 2 or 3 bars to consider when measuring the highest highs and highest lows.

Inverse Fisher Transform of RSI

The Inverse Fisher Transform of RSI (IFTRSI) is based on information obtained from an article by John Ehlers published in the May 2004 issue of Technical Analysis of Stocks and Commodities magazine. The Inverse Fisher Transform is a useful calculation to apply to indicators so


that they return results that are normally distributed bell curve type results. Typical price and indicator results have fat tails on bell curve and are therefore not normally distributedstatistically speaking. Ehlers recommends trading long when the indicator crosses above -0.5 and and selling short when it crosses below +0.5. The default time periods he recommends is 5, although he suggests this can be optimized. The result is smoothed by a 9-bar weighted moving average.

Natenberg's Volatility (Daily)

Sheldon Natenbergs book entitled Option Volatility and Pricing Strategies is widely considered to be the bible on market volatility. The original formula was written for weekly price data. The defaults in MetaStock 11.0 were adjusted for daily data. High volatility means that prices are varying rapidly. Most volatility measures, including Natenbergs, have no directional bias. In other words, high volatility can result from large directional variations in price (i.e. up trending or down trending) or it can result from large, but trendless (i.e. sideways) movements.

Volatility is the tendency for prices to vary.

There are two generally accepted principles regarding volatility: Market tops are generally accompanied with high volatility; market bottoms are generally accompanied with low volatility. Low volatility trends are stronger and more sustainable than high volatility trends. Like other pure volatility indicators, i.e. Standard Deviation, Standard Error, ATR, and Chaikins Volatility, Natenberg Volatility is not designed to forecast future price movements by itself. Some type of directional forecast indicator must be used in tandem. A trend reversal signal such as a shorter moving average crossing a longer moving average can be used. For example, traders could deploy a 9-period linear regression crossing a 20-period linear regression as the trend change signal for the three above-mentioned pure volatility indicators. A stochastic-like algorithm is used to normalize the values to the recent past is also deployed so that high and low values are consistent across all timeframes and all securities.

Polarized Fractal Efficiency

Developed by Hans Hannula and first featured in the January 1994 issue of Stocks & Commodities magazine, the Polarized Fractal Efficiency (PFE) indicator attempts to measure the efficiency of price in moving in a trend. The range of the indicator is between +100 and -100. Readings above zero and in the higher historical ranges in particular indicate that prices are trending upward efficiently. Reads below zero and in the lower historical ranges indicate prices are trending downward efficiently. PFE values that congregate around zero indicate a relative balance between supply and demand and that prices may trend sideways. If prices were to move upward in a perfectly straight line, then this would indicate perfect efficiency and a PFE value of +100 would result. Hannula notes that the PFE measures what price has done in the past; it does not predict future price moves. The safest method is to trade in the direction of the


trend during periods of maximum efficiency, followed by using a trailing stop for exits. The stop should be placed at the most recent pivot low or high. A pivot low is a low price surrounded by higher lows. A pivot high is a high price surround by lower highs.

Pring KST (Short-term) &

Pring KST (Intermediate-term) &

Pring KST (Long-term)

The KST indicator was developed by Martin J. Pring. The name KST comes from Know Sure Thing. The KST is constructed by summing four smoothed rates of change. It comes in three varieties, a short-term, intermediate-term and long-term. The indicators are designed to help the trader identify important reversal points in the short, intermediate and long-term trends. Like all oscillators, the KST indicators can be interpreted using overbought/oversold techniques, divergence with price, and moving average crossovers. Even chart patterns on the KST (i.e. head and shoulder tops and bottoms) have been shown to trace the price movement.

Stochastic RSI

The Stochastic RSI, as the name implies, is an indicator of an indicator. The Stochastic Oscillator measures the relationship between a value and the values range over a specific time period. In the case of the Stochastic-RSI indicator, it is a measure of the RSI as compared to its range over a set time period. Values above 80 are traditionally viewed as overbought with a crossing below 80 signaling a selling opportunity. Conversely, values below 20 are viewed as oversold with a crossing above 20 signaling a buying opportunity. In addition, bullish and bearish divergence techniques can be successfully applied. If the indicator is above 80 and trending down while prices are trending up, a bearish (sell) divergence is signaled. If the indicator is below 20 and trending up while prices trend down, a bullish (buy) divergence is signaled.

The Force Index

As the name of the indicator implies, the Force Index measures the amount of force or the power of bulls in market rallies and the power of bears in market declines. Developed by Dr. Alexander Elder, this simple indicator multiplies the price change by the volume. The value of the Force Index lies in its ability to accurately detect significant change in the power of bulls and bears. It produces a single value that shows whether bulls or bears are in control. When the Force Index reaches new lows, then the bears are clearly in control. Conversely, when it reaches new highs, bulls are in control. To get the most out of the indicator Dr. Elder recommends that it must be combined with a moving average. To eliminate the abrupt jaggedness of the indicator, it recommends the Force Index oscillator be smoothed with a 2-day Exponential Moving Average. For longer term positions, use a 13-day Exponential Moving Average.


Turtle Trader Bands

In 1983, successful commodities trader Richard Dennis and his friend Bill Eckhardt debated whether great traders were born or made. To settle the matter, Richard took out an ad in the Wall Street Journal to recruit trading apprentices. The ad stated that apprentices would be trained and bankrolled. He described the process like this, We are going to grow traders just like they grow turtles in Singapore. The group of 13, known as the Turtles, went on to earn an average of 80% annual return over the next four years thereby proving to Richards satisfaction that great traders can indeed be made. All 13 Turtle apprentices were sworn to a 10 year secrecy pact not to divulge the trading rules. Beginning in 1993 the trading rules began finding their way to the general public. While the full system is comprised of rules for position sizing, volatility, trend, and consolidation, et al., the basic triggering rules are described below. Long positions Enter long when the price moves above the highest high of the last 20 days. Close long when the price moves below the lowest low of the last 10 days. Short positions Enter short when the price moves above the lowest low of the last 20 days. Close long when the price moves below the highest high of the last 10 days. Adaptick developed Turtle Bands while attempting to visualize and mechanically interpret the basic trend following techniques deployed by the Turtles. Plotted as bands, this simple, yet effective, trend following system allows the trader to easily visualize the primary mechanism at work in the Turtle Trading System. The Long bands plot the highest high over the last x periods and the lowest low over the last x/2 periods. The Short bands plot the lowest low over the last x periods and the highest high over the last x/2 periods. With Long Turtle Trader Bands, the upper band represents the highest high value (shifted forward one bar) over the specified number of periods. The lower band, whose value represents a stop loss in the original Turtle system, represents one-half of the upper band look back length. Ex. A value of 20 for the upper band creates a value of 10 for the lower band; a value of 30 for the upper band creates a value of 15, et cetera. Long positions are taken when the high crosses above the upper band. Short positions are taken when the low crosses below the lower band. The system deployed in the MetaStock Add-on, ICE, does not deploy the original Turtle stop mechanism instead IntelliStops were deployed to maintain consistency with the other ICE systems. IntelliStops are now included with MetaStock 11.

Stops

Chandelier stops

Chandelier Stops are custom indicators and can be used two ways: When used as part of a System Test, they help form the primary exit for

both Long and Short trades. The formulas can be referenced in the Sell Order and the Buy to Cover rules for systems.


When plotted directly on a chart they visually show where the stop level is located. Buy Stops are plotted for short position; Sell Stops for long positions.

Most methods of trailing sell stops are calculated from the extreme low; however, Chandelier Stops, as the name implies, hang the sell stop from the extreme high (in the case of long trades) reached over a predetermined length of time. The distance it hangs is based on the underlying volatility as measured by Average True Range (ATR). Of course with trailing buy stops (used with short sale positions), the reverse logic appliesthey are calculated from the extreme low reached over a predetermined period.

Chandelier stops hang from the highest highs for long trades and the lowest lows for short trades.

While Chandelier Stops can only move upward, in the case of long trades, its important to note that the distance between prices and the stop can shorten or extend based on the underlying volatility.

Dont use Chandelier stops alone! They dont give a buy or sell signal and are designed to be used with other trading systems.

In his book, Trade Your Way to Financial Freedom, Dr. Van K. Tharp found that Chandelier Stops could produce profits even with randomly selected entries on a diversified group of futures. Van Tharp used three ATR multiplier units and 10 periods. Its important to note Chandelier Stops are not to be used alone. They are designed to be applied as an exit condition to other trading systems. For example, perhaps you have isolated a double moving average crossover system that provides good entries but is weak on the exits. Chandelier Stops may be successfully applied to provide an exit for both long and short trades. Changing the Chandelier Stop Parameters for Testing You may find that the default values for the Chandelier stop are not ideal for your trading. When plotting, you can easily adjust the parameters to your liking. However, if you choose to create a system test with the Chandelier Stops, and need to use parameters different than the default, then youll need to make a copy of the appropriate Chandelier Stop custom indicator and then edit the formula. Making a copy of the indicator adds a (2) to the end. For example, lets suppose you want to change the default ATR units from 2 to


3. Remember, when a system test references a custom indicator, it always uses the default parameters. Select the MS11 Chandelier Stop (Sell Stop) custom indicator and choose Edit. Make the change as shown below. This will make it the default value until you edit the formula again.

System Tester Example Lets assume you have a long-only trading system comprised of two moving averages. You buy when the shorter 9-bar average crosses the longer 31-bar average. Instead of selling on another crossover you choose to deploy a Chandelier stop for the exit. The formulas in your enhanced system tester would appear as follows: Buy Order: cross(mov(c,9,s), mov(c,31,s)) Sell Order: cross(ref( Fml( "MS11 - Chandelier Stops (Sell Stop)"),-1) ,low) The Buy Order requires a 9-bar crossing above a 31-bar simple moving average. Note that the sell order requires a penetration of the current bars low below the previous bars Chandelier stop (i.e. hence the usage of the ref() function). Most trading systems on which you choose to deploy Chandelier Stops should check for this condition (i.e. the penetration of the low with the previous bars Chandelier stop value.

Intellistops

Intellistops are self-adjusting trailing stops that do away with the old static stop systems where stop loss or trailing stops are set at a fixed percentage from price. IntelliStops are adaptive and adjust dynamically based on the current price activity of the underlying security. Once applied to your chart, IntelliStops automatically adjust according to cycles, volatility, and other conditions.

Intellistops adjust themselves based on the current price of the security.

There are two versions of IntelliStopsa short-term and longer term. The short-term version is more responsive to short-term price moves. It tends to capture quick short-term profits more consistently. The longer term version adjusts more slowly with the prevailing trend. IntelliStops can work with any type of security that has open, high, low and close data. Many traders spend an inordinate amount of time on entry rules. But having a proper exit mechanism is just as, if not more, vital to successful trading as a good entry mechanism. Six market conditions cause an IntelliStop to tighten its prices trail (highs or lows): A decrease in general price volatility.


Indications of price stalling by a relative abundance of long upper (or lower for shorts) shadows over the recent past. The long-term version

of IntelliStops does not include the last two conditions.

Up and down volatility are segregated. Strong up volatility causes Buy IntelliStops to tighten; strong down volatility causes Short IntelliStops to tighten.

Price movement near a previous Pivot High (or Low for shorts). Large white candlesticks for long or large black candlesticks for short. Chandelier Stop component. A weighting of a Chandelier stop

component causes a general tightening as measured from recent highs, for longs, and recent lows, for shorts.

Decreases in general volatility, as noted in the previous paragraph, causes the stop to tighten. General volatility, as measured by standard deviation, is non-directional, so sharp upward price moves have the same effect as sharp downward price moves. Because up volatility is considered a positive event for long positions and down volatility is considered a positive event for short positions, IntelliStops counteract the loosening effect of general volatility if most of the volatility is positive for that type of Stop. IntelliStops for long positions will tighten to the upside if most of the volatility is coming in on the upside. This is likewise for the downside for short positions.

IntelliStops were created with the following principles in mind: let losses die quickly (play defense first), let profits live long, and strive for average profits that outpace average losses by a factor of

two.

The following chart shows the IntelliStop Buy indicator overlaid on the QQQQ. For realistic trading purposes, the current bars stop level is based on the previous bars IntelliStop value. This is illustrated in the following chart. The circled bar penetrated the active stop value, causing it to reset/recalculate on the low.

To plot the IntelliStop indicator on a chart of your securities, simply drag and drop the indicator named MS11 IntelliStop Buy(long term) or MS11 IntelliStop Short (short term) on the chart. System Tester Example Lets assume you have a long-only trading system comprised of two moving averages. You buy when the shorter 9-bar average crosses the longer 31-bar average. Instead of selling on another crossover, you choose to deploy an IntelliStop. The formulas in your enhanced system tester would appear as follows:


Buy Order: cross(mov(c,9,s), mov(c,31,s)) Sell Order: cross(ref( Fml( "# Equis - Stop IntelliStop Buy 3 (Stand-alone)"),-1) ,low) The Buy Order simply requires a 9-bar crossing above a 31-bar simple moving average. Note that the sell order requires a penetration of the current bars low below the previous bars Intellistop, hence the usage of the ref() function. Trading systems on which you choose to deploy Intellistops should in almost every case check for the penetration of the low with the previous bars Intellistop value.

Fundamental Analyzer The Fundamental Analyzer is only useable by users who have MetaStock Professional for Quote Center version 11.0 with a valid QuoteCenter data subscription.

You need MetaStock Pro for QuoteCenter to use the Fundamental Analyzer.

Launching the Fundamental Analyzer

The Fundamental Analyzer can be launched by clicking the below icon on the Custom Toolbar. The link for

the Fundamental Analyzer typically looks like this:

Using the Fundamental Analyzer

The Fundamental Analyzer is designed to give you in depth fundamental information that gives you insight into the financials of companies that you can then move it into MetaStock for testing using your technical indicators. To use the Fundamental Analyzer, type a symbol into the box and click Update Symbol. This will list the Company name and the most recent close. If you dont know the symbol click the magnifying glass and youll be able to scroll through a list of symbols alphabetized by either Symbol or Company Name. When switching between tabs the last symbol requested is remembered and carried forward. There are five tabs providing details on fundamental information. There is also a Help tab that gives the user information about the Fundamental tool.


The Fundamental Tab

The Fundamental Tab is divided into six sections that show:

Need Help? Clicking on the Fundamentals or Valuations section headers will link you directly to the help file section for the item clicked on

The Exchange, Industry, Sector, Market Cap, Avg. 21 Day Volume, 52 Week High and Low specifying the dates of the High and Low.

52 week high and low range with the previous days close graphed. Annual After Tax Income graphed for the Current through last 4 years. Fundamentals shows: Earnings per Share (EPS), Estimated EPS Previous Years EPS, Beta (S&P 500), PE Ratio, Annual Dividend, Dividend Yield, Shares Outstanding, Last 12 Month Revenue, % Change in Annual Revenue, Last 12 Month Net Income, % Change in Annual Net Income. Valuations shows: Book Value per Share, Price to Book Value, Price to Sales, % Short/Outstanding Shares, Quick Ratio, Current Ratio, Payout Ratio, Days to Cover Short Interest, Return on Equity, Return on Investment, Return on Assets, Long Term Debt to Equity.


The Revenue Tab

The Revenue tab is divided into two sections: Quarterly Net Income Compared to Revenue including:

Revenue, Net Income and Percent fields show information for current through past 8 quarters.

Annual Net Income Compared to Revenue: Revenue, Net Income and Percent fields show information for current through past 4 years.


The Performance Tab

The Performance Tab is divided into two sections: Earnings and Dividends for current year and past 4 years with:

Annual Earnings per Share and Annual Dividends. Performance containing:

Annual Growth Rate for 10 years, 5 year and 3 years in: Earnings per share and Revenue.Percent Change to S&P 500 over the past: 4, 13, 26 and 52 weeks.


The Estimates Tab

The Estimates tab is divided into two sections: Earning Per Share (EPS) Estimates containing:

EPS Quarterly Estimates with the current quarter and estimating out 4 quarters.EPS Annual Estimates going out 4 Years.

Total Revenue Estimates with: Total Revenue Quarterly Estimates containing the current quarter estimating out 4 quarters.Total Revenue Annual Estimates with current year estimates and going out 4 years.


The Fundamental Scanner

The Fundamental Scanner is where all your research on the previous tabs comes together. This tab is divided into four areas: Scan Type. This will allow you to scan across exchanges and return a

list grouped by the item scanned for. For example, a high Dividend Yield Scan will presort and provide you with the top 250 stocks that have the highest dividend yield. Once you get this list you can then sort by clicking on any of the displayed columns.

Custom Symbol List. To use this list, type in your symbols in any

format with either a comma, a space or by hitting enter. Or, copy/paste a custom list of symbols to scan from Excel, notepad or the MetaStock clipboard.

Please note: If you switch tabs after creating a custom symbol list that list will be lost.

SCAN Custom button: This will scan only the stocks listed in the Custom Symbol list. If you click SCAN ALL, the custom symbol list is ignored and the scan is performed on the entire stock list.

CLEAR LIST button clears the custom symbol list Scan Filters. Categories you can scan by include:

o Setting of Minimum Price, o Maximum Price, o 21 Day Average Volume, o Minimum EPS, o Minimum PE Ratio, o Minimum Dividend Yield, Need Help?

Clicking on headers will link you directly to the help file section for the item clicked on.

o Minimum Beta. o Reset will set everything back to the default settings.

Sorting List. The features of the Sorting list include:

o Ability to Sort by clicking on any of the columns. o Clicking on a symbol in results will take you to the

Fundamental page and use that symbol. You can cycle through the other tabs using this symbol.

o Number of results. You can choose from 100, 250, 500 or 1000.


o Export List. After selecting Excel or Word, push this button to get a Save file box allowing you to save the file.

o MetaStock symbol files should be saved, or moved, to the Downloader folder to access.

The Help Tab

The help page gives definitions and examples of items from the other tabs.

Symbol Utility/Data CD The Symbol Utility is the replacement for the current Reuters DataLink and QuoteCenter versions of the Data CD. The Symbol Utility works exactly like the Data CD, except it is delivered electronically, making it easier for you to keep your files up to date. To access the symbol utility, click the link found in the custom toolbar. Once youre on the MetaStock website carefully read the instructions. Now put a check mark in the I understand warning box. Now click the Download button. Youll want to note where you download the file. We recommend you save it to your desktop for easy reference. Once the file is downloaded, click the run button. Then navigate through the menus by clicking Run and then Unzip. The utility will unzip the following items to your MetaStock Data folder: Canadian Stocks Futures Indices & Indicators Nasdaq100 Optionable Stocks S&P500 Stocks by Exchange Stocks by Sector S&P US Stocks Alphabetical


Chapter 2 - 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. 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 any investment vehicle, including stocks, futures, options, or mutual funds.

The term security refers to stocks, bonds, mutual funds, commodities, currencies, futures, indices, options, etc.

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? 22

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. 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.

Open High Close Low Volume Dates Prices

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.

Mastering MetaStock

What is Technical Analysis? 23

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.

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 25 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.


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 down-trend is defined as decreasingly lower high prices. The old saying is absolutely true The trend is your friend.

The following illustration shows Washington Mutual in a great up-trend as prices break out of resistance.

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.

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 high-low range. MetaStock Help Stochastic Oscillator

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. 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 non-trending, 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.


Chapter 3 - 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?

The Explorer is a powerful, multi-purpose analysis tool that can perform in-depth 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.

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.

Mastering MetaStock Introducing MetaStock and MetaStock Performance Systems 28

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+ pre-built mathematical, statistical, and technical functions. MetaStocks indicators also support variables, multiple plots, and user inputs.

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 Help What is the Expert Advisor?.

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 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 51) was positive for more than 50% of all stocks analyzed.

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

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 44.


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.

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.


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. 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.

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

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

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