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    STOCK TRADING SYSTEM

    Developing A Trading System
    If you’ve ever tried it, you know that developing a trading
    system is no easy task. But you may find that following a series
    of steps could help you reduce the learning curve. Here’s an
    example.
    here are three key features when it comes to
    developing a trading system: entry and exit
    signals, a plan for the type of stop, and a money
    management strategy. The first involves
    generating the signals, which can be purely
    encode visual signals. In this article I will take two of the
    better-known technical indicators and go through the steps
    involved in developing a trading system.
    The two indicators I will be using are Bollinger Bands
    and stochastic relative strength index (StochRSI). StochRSI,
    which combines the features of stochastics and RSI, was
    detailed in Tushar S. Chande and Stanley Kroll’s book,
    The New Technical Trader. I selected this combination
    because it is a useful way to determine when prices will
    stop tagging a Bollinger Band and are likely to move all
    the way from one band to the next. Of course, those prices
    may not move all the way, so you will need to use stops for
    protection. You will also want to use a simple money
    visual, a result of technical indicators, or a combination of
    both. Most mechanical trading systems use indicators to
    T
    by Dennis D. Peterson
    SYSTEM DESIGN
    BRIAN AJHAR
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    management strategy of allocating only a portion of your
    capital to any one position.
    GROUND RULES: THE BIGGER PICTURE
    First, let’s take a look at RSI and StochRSI. Stochastics, you
    will recall, is simply a way of measuring, for a given period
    of time, where today’s close is relative to the lowest low, and
    where within the range of the highest high and lowest low the
    price falls over the same time period. The formula for
    stochastics for a 14-day period is:
    Note the use of range — high minus low
    — in the denominator of the calculation.
    Many trading techniques and strategies
    are built around range in some form, and
    if you use several indicators, you want
    independent sources, so that the indicators
    independently confirm one another.
    Independent confirmation is one part
    of Dow theory you should consider
    embracing. For example, Larry Williams’
    %R is the reverse of stochastics,
    substituting the difference of highest high
    over a given period minus today’s close
    for the numerator. So if you want to use
    this indicator together with stochastics,
    you are not using independent indicators.
    Instead, you should consider using an
    indicator that does not involve a range,
    such as volume, or one that is statistical in
    nature, such as Bollinger Bands.
    The next step is to identify the type of
    stock that will work best. If you are
    going to use an indicator that relies on price volatility such as
    StochRSI, then you should examine your charts to see the
    nature of the current volatility. For example, I have used AOL
    Time Warner (AOL) in Figure 1. What differentiates the four
    areas (A, B, C, and D) is the combination of price and volume
    volatility. Area A has low price and high volume volatility.
    Area B has both high price and volume volatility. Area C has
    high price volatility, and low volume volatility for the stock.
    Finally, area D has moderate volume and price volatility.
    A useful rule to remember is that a price is “in gear” — that
    is, in sync — if price goes up on high volume or down on
    lowered volume. Prices that reflect such moves are prices that
    the market is comfortable with. If you were long in area A or
    short in area D, you would have done well. A trading system
    designed for areas A and D — “in-gear” moves — is likely to
    have a terrible time in areas B and C. As you will discover
    shortly, AOL represents the good, the bad, the ugly, and the
    really ugly when it comes to using a trading system that only
    takes long positions.
    PAY ATTENTION TO THE MARKET:
    USE MONEY MANAGEMENT
    Since there is no crystal ball when it comes to the markets, it’s
    important to protect yourself by using stops and money
    management methods. You spread your risk with money
    management; for example, you might decide to only invest
    10% of your total capital in any one position.
    Remember that not all stocks trade in the same fashion.
    One group of stocks might do better than another, making it
    necessary to build watchlists of stocks to compare your
    system’s performance. You also need to realize that just as
    individual stocks behave differently within a single market,
    each market also behaves differently from the others.
    The commodities markets are generally a more closed
    system: The price of pork bellies is less dependent on earnings
    figures stated by accounting firms than, say, a company
    traded on a stock exchange would be. Even among stock
    exchanges, trading systems generate different results. A
    system that takes long positions on extreme gapdowns, for
    example, might produce a few trades a year for stocks traded
    on the New York Stock Exchange (NYSE), while producing
    many more trading the Nasdaq.
    Within a given exchange, the behavior of an individual
    stock — or possibly almost the entire exchange if it contains
    similar stocks — can change because of shifts in expectations.
    Remember that the market participants’ expectations are a
    major factor in shaping the market’s behavior, and when you
    start analyzing them, the apparent randomness of the markets
    starts to disappear.
    In addition, keep in mind that it is difficult to predict what
    the market will do. Sideways price movements accompanied
    by low volume will be random in nature and can be detrimental
    to your trading capital, as you will see in a later example. You
    Today's close – Lowest low of the last 14 days
    Highest high of the last 14 days – Lowest low of the last 14 days
    A B C D
    FIGURE 1: DAILY AOL PRICE AND VOLUME. Price volatility is less before June 1998. For indicators that use price
    volatility such as StochRSI, you want to use fewer periods in the calculation to generate trading signals than you would
    prior to June 1998.
    METASTOCK (EQUIS INTERNATIONAL)/eSIGNAL
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    should always trade stocks that have
    trading volumes above 500,000 shares
    per day, or even better, those that trade
    above one million shares daily, on
    average. Thus, this trading system is for
    swing traders, not scalpers (who trade
    noise).
    RSI VS. STOCHRSI
    If you compare RSI and StochRSI
    measurements over a few months, you
    will notice a difference: One of them
    will hit the extreme faster and tend to
    stay near the extreme better than the
    other. The formula for StochRSI for a
    14-day period is:
    If you build this indicator, of course,
    you can make the RSI use a 14-day
    period or you can, for example, make the RSI based on a nineday
    period and retain the 14 days for the stochastics portion.
    As you can see from Figure 2, StochRSI does a better job of
    hitting its extreme and staying there than RSI does. StochRSI
    allows you to draw a line that acts as a threshold line better
    than RSI (black lines drawn within green boxes). While both
    RSI and StochRSI range between zero and one — although
    cosmetic adjustments are made to RSI so it appears to range
    between zero and 100 — StochRSI hits its extreme faster
    because you are only looking at the RSI
    over a recent lookback period. Still,
    there are times, as in April, when
    StochRSI gives you a mixed message.
    This is where Bollinger Bands can help.
    If you overlay price with Bollinger
    Bands, as in Figure 3, you begin to get
    an idea of the setup for a long position:
    Act when prices are tagging the lower
    band (point A) with a move up (point
    B), while StochRSI shows a significant
    gain in value (point C).
    However, this setup has potential
    problems for long trades; look at the red
    box in the chart. In April and May 2000,
    you have examples of prices tagging the
    lower band and then closing above. In
    one instance (event D), StochRSI would
    potentially give a confirming signal that
    you should go long, but then prices go
    back down to the lower band. This is an
    example of the problem I referred to
    earlier, that low volume is often
    FIGURE 3: DAILY AOL AND VOLUME AND STOCHRSI (UPPER CHART): FEBRUARY/JUNE 2000. A 20-day, two
    standard deviation Bollinger Band is overlaid on the price chart. On the left hand side is a setup that promises to enter
    a long position. It starts with prices tagging the lower band, event A. Prices close above the lower band, event B, and at
    the same time StochRSI has moved up to a value of 0.4, event C. What is distressing is the action in the red box, especially
    in view of event D, a spike in StochRSI and a close above the lower band followed by a retreat of prices. But if you look
    at volume below, the problem mentioned earlier is obviously apparent: low volume giving you a random price movement.
    A
    B
    C
    D
    FIGURE 2: DAILY AOL PRICE AND VOLUME 2000 WITH RSI (TOP CHART) AND STOCHRSI (SECOND FROM TOP
    CHART). StochRSI not only responds quickly to price changes, but also hits its extreme and stays there better than
    RSI (see green boxes); 14-day periods are used for both RSI and StochRSI.
    Within this green box StochRSI hits its extreme
    faster than RSI and stays up better, i.e. above black line
    RSI moves slowly and is indecisive
    about staying above the black line
    RSI – Lowest RSI over the last 14 days
    HighestRSI over the last 14 days –
    Lowest RSI over the last 14 days
    accompanied by randomness. Note that volume in late April
    and May is significantly lower than in the preceding time
    frame. I will try to incorporate some rules into the trading
    system to account for this, but in such a situation it is often
    best to exit and find another stock.
    I will now execute a trading system, without stops and
    money management, to see what it can do. The trading
    system is going to have the following trading rules for a long
    position:
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    Entry:
    1 Look for prices tagging the
    lower Bollinger Band
    2 Look for a closing price of an
    up day, that is (close>open),
    that is above the lower band
    after having prices follow (1)
    3 Volume of this up day should
    be greater than the volume of
    the previous up day
    4 StochRSI should be above a
    threshold to ensure some momentum
    is associated with the
    push up
    5 The (close-open)/(highlow)>
    0.2, to avoid days that
    have short candlestick bodies.
    Exit:
    1 StochRSI should be less than
    a threshold to assure loss of
    momentum
    2 Look for prices to reach the
    upper band
    3 Closing price should be near
    the top Bollinger Band.
    You are looking for the stock to continue up if it has been
    tagging a lower Bollinger Band and then made a convincing
    move up, so that it conforms to entry rules 2 through 5 above.
    I used weighted closes in calculating the Bollinger Bands:
    (2*close+high+low)/4.
    From Figure 4 you can see that investing $1,000 in 1997
    and using this trading system without stops resulted in $58,000
    (second chart from top), which beat buy/
    hold by more than $47,000. However,
    there are serious drawdowns in each of
    the areas B, C, and D. The only factor
    that varied in this trading system was the
    number of periods for StochRSI and
    Bollinger Bands. When using the initial
    version of this system I optimized the
    StochRSI thresholds as well. The equity
    looked better in terms of drawdowns
    and ended up with $300,000+, which
    led me to believe that there might be
    something to this approach.
    Optimizing on everything — from
    periods to thresholds — results in
    spectacular equity performance (Figure
    5), and although it is curve-fitting, it
    shows the potential you are trying to
    achieve. It also shows the trading system
    is biased to take advantage of strong
    uptrends: During uptrends, prices that
    tag the bottom Bollinger Band will
    move to the upper band, resulting in a trading system that
    can do much better than buy and hold. But letting thresholds
    optimize curve-fits the performance too much, so I set the
    thresholds visually.
    To get rid of the serious drawdowns, I used maximumloss
    stops of 5%, which improved the equity performance
    (Figure 4: top chart). Still, area B just eats away at your
    equity, although it does appear I took care of the lowvolume
    problem in area C.
    FIGURE 4: DAILY AOL AND VOLUME WITH EQUITY PERFORMANCE. Starting with $1,000, a trading system that
    goes long using Bollinger Bands and StochRSI is seen to have four trading behaviors, as indicated by areas A, B, C,
    and D. Note the equity scales are X10. The second chart from the top is the equity performance without stops. In area
    A, the system makes little money despite rising prices, breaks even in B, has a better performance in C, and then
    performs poorly during D. Even area C is not especially appealing because you are faced with serious drawdowns,
    unless you use stops (as seen in top chart). The top chart, using maximum stop-losses of 5%, provides better
    performance.
    FIGURE 5: DAILY AOL AND VOLUME WITH EQUITY PERFORMANCE FOR AREA A. A $1,000 equity investment
    reaches $45,000+, while buy and hold reaches $20,000+. While this kind of equity performance (top chart) is
    spectacular, it comes from letting all the variables in the trading system be optimized — curve-fitting. What this shows,
    however, is the potential of the system if the periods and thresholds are chosen correctly, along with the right (strong
    uptrend) price movement. It also reflects the bias of the trading system, which takes advantage of the fact that in a strong
    uptrend, prices that tag the lower Bollinger Band do so only briefly.
    A B C D
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    adjust1:= rdv1-rdp1+11;
    adjust1:=if(adjust1<8,8,adjust1);
    adjust1:=if(adjust1>12,12,adjust1);
    adjust2:=rdv1-rdp2+14;
    adjust2:=if(adjust1<12,12,adjust2);
    adjust2:=if(adjust1>20,20,adjust2);
    ENTRY CONDITIONS
    periods:=adjust1;
    BBpds:=adjust2;
    Both thresholds (howclosetoBBbot and longthresholdentry)
    need to be a factor of either adjust1 or adjust2, but here they
    will be set to constants, and I will substitute in the code of
    what I want to use.
    howclosetoBBbot:=0.9;
    longthresholdentry:=0.3;
    wprice:=(2*C+H+L)/4;
    deviations:=.0625*BBpds+0.75;
    StochRSI:=(RSI(periods)-LLV(RSI(periods),periods))/
    (HHV(RSI(periods),periods)-LLV(RSI(periods),periods));
    Syntax BBandBot(Data Array, Periods, Method, Deviations
    )
    Function Calculates the bottom Bollinger Band of data array
    using method calculation method and shifted downward
    deviation standard deviations. Valid methods
    are simple, exponential, weighted, time series,
    triangular, and variable (these can be abbreviated
    as S, E, W, T, TRI, and Var).
    Example BBandBot(close, 10, S, 2 )
    Syntax BBandTop(Data Array, Periods, Method, Deviations
    )
    Function Calculates the top Bollinger Band of data array
    using method calculation method and shifted upward
    deviation standard deviations. Valid methods
    are simple, exponential, weighted, time series,
    triangular, and variable (these can be abbreviated
    as S, E, W, T, TRI, and Var).
    Example BBandTop( close, 10, S, 2 )
    botpercentage:=Abs((wprice-
    BBandBot(wprice,BBpds,S,deviations))/
    (BBandTop(wprice,BBpds,S,deviations)-
    BBandBot(wprice,BBpds,S,deviations)));
    {entry conditions}
    entry1:=botpercentage-howclosetoBBbot<0.3;
    The constant 1.05 in the following statement may also need
    adjustment, but will require further testing.
    entry2:=C*1.05>BBandBot(wprice,BBpds,S,deviations) and
    StochRSI>longthresholdentry;
    volbb:=If(C>Ref(C,-1),V,0);
    METASTOCK AND WEALTH-LAB SCRIPT
    Here is the MetaStock script I captured for the StochRSI
    trading system, with explanations from MetaStock’s Help
    function (the “syntax,” “function,” and “example” text). I
    have also annotated the various sections of code with my
    comments in italics.
    Following that is the Wealth-Lab script. My thanks to
    Wealth-Lab developer Dion Kurczek for writing the Wealth-
    Lab chartscript.
    METASTOCK CODE
    Fix the periods for finding the standard deviations
    (standarddev) and the number of periods used in RSI:
    standarddev:= 60;
    periods:= 14;
    LLV is the lowest low value: see below.
    Here is the explanation from MetaStocks’s Help function:
    Syntax LLV( Data Array, Periods )
    Function Calculates the lowest value in the Data Array over
    the preceding Periods (Periods includes the current
    day).
    Example The formula “LLV( Close, 14 )” returns the lowest
    closing price over the preceding 14 periods.
    HHV does a like thing for highest high value:
    StochRSI:=(RSI(periods)-LLV(RSI(periods),periods))/
    (HHV(RSI(periods),periods)-LLV(RSI(periods),periods));
    Syntax round( Data Array )
    Function Rounds Data Array to the nearest integer.
    Example The formula “round( +10.5 )” returns +11. The
    formula “round( -10.4 )” returns -10.
    Syntax stdev( Data Array, Periods )
    Function Calculates the predefined Standard Deviation indicator.
    Example stdev( Close, 21 )
    Use the rounding functions to get an integer to be used for
    periods:
    rdp1:=Round(Stdev(stochrsi,standarddev)/.053);
    rdp2:=Round(Stdev(stochrsi,standarddev)/.035);
    rdv1:=Round(Stdev(Mov(V,periods,S)/
    1000000,standarddev));
    I need two adjustments. If the initial calculation is less than
    8, then set adjust1 to 8, and if it’s greater than 12, set
    adjust1 to 12. This is because I want RSI to range between
    eight and 12 periods. Similarly for adjust2, if the initial
    calculation is less than 12, then set it to 12, and if greater
    than 20, set it equal to 20. This way the Bollinger Band
    periods will range between 12 and 20.
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    I can’t get MetaStock to do the right thing with this next
    statement. Volbb is the volume for an up day (today’s
    close>yesterday’s close). What I want for an entry condition
    is: if today is an up day and the volume for today is
    greater than the last up day, set entry3 to be true.
    entry3:=Volbb>Ref(volbb,-1);
    entry4:=(C-O)/(H-L)>.2;
    If all four entry conditions are true, then enter:
    entry1 and entry2 and entry3 and entry4
    EXIT CONDITIONS
    standarddev:= 60;
    periods:= 14;
    StochRSI:=(RSI(periods)-LLV(RSI(periods),periods))/
    (HHV(RSI(periods),periods)-LLV(RSI(periods),periods));
    rdp1:=Round(Stdev(stochrsi,standarddev)/.053);
    rdp2:=Round(Stdev(stochrsi,standarddev)/.035);
    StochRSIvol:=(V-LLV(V,periods))/(HHV(V,periods)-
    LLV(V,periods));
    rdv1:=Round(Stdev(Mov(V,periods,S)/
    1000000,standarddev));
    adjust1:=rdv1-rdp2+14;
    adjust1:=if(adjust1<8,8,adjust1);
    adjust1:=if(adjust1>12,12,adjust1);
    adjust2:=rdv1-rdp2+14;
    adjust2:=if(adjust1<12,12,adjust2);
    adjust2:=if(adjust1>20,20,adjust2);
    periods:=adjust1;
    BBpds:=adjust2;
    Same comment as above — both of these thresholds need to
    be adjusted slightly, but until I see how the trades go, I won’t
    know. For now, I’ll just set them equal to two constants.
    longthresholdexit:=0.7;
    howclosetoBBtop:=0.8;
    wprice:=(2*C+H+L)/4;
    deviations:=.0625*BBpds+0.75;
    StochRSI:=(RSI(periods)-LLV(RSI(periods),periods))/
    (HHV(RSI(periods),periods)-
    LLV(RSI(periods),periods));
    toppercentage:=Abs((wprice-
    BBandTop(wprice,BBpds,S,deviations))/
    (BBandTop(wprice,BBpds,S,deviations)-
    BBandBot(wprice,BBpds,S,deviations)));
    {exit conditions}
    exit1:=stochrsi<longthresholdexit;
    exit2:=toppercentage<howclosetoBBtop;
    exit3:=C>0.95*BBandTop(wprice,BBpds,S,deviations);
    exit4:=C<BBandBot(wprice,BBpds,S,deviations);
    (exit1 and exit2 and exit3) or exit4
    WEALTH-LAB CHARTSCRIPT
    This is the actual Wealth-Lab code that resulted:
    var Bar, StandardDev, Periods, ExitBar123, EntryBar1234:
    integer;
    var StochRSISer, VolSer, MyBBandLower, MyBBandUpper,
    WPrice: integer;
    var rdp1, rdp2, rdv1, adjust1, adjust2, BBpds: integer;
    var deviations, x, xPrice, bbBottom, bbTop: float;
    var HowCloseToBBot, HowCloseToBBTop: float;
    var LongThresholdEntry, BotPercentage,
    LongThresholdExit, TopPercentage: float;
    var Entry1, Entry2, Entry3, Entry4: boolean;
    var Exit1, Exit2, Exit3, Exit4, Exit5, Exit6, Exit7: boolean;
    var y, Vol, LastUpVol: float;
    procedure PlotEntryRule( b: boolean; s: string );
    begin
    if b then
    begin
    y := y * 0.995;
    AnnotateChart( s, 0, Bar, y, #Gray, 7 );
    end;
    end;
    procedure PlotExitRule( b: boolean; s: string );
    begin
    if b then
    begin
    y := y * 1.005;
    AnnotateChart( s, 0, Bar, y, #Gray, 7 );
    end;
    end;
    StandardDev := 60;
    Periods := 14;
    { Set up base StochRSI Series }
    StochRSISer := StochRSISeries( #Close, Periods );
    { Set up average Volume Series }
    VolSer := SMASeries( #Volume, Periods );
    VolSer := DivideSeriesValue( VolSer, 1000000 );
    { Create Price Series to Hold Custom BBands }
    MyBBandLower := CreateSeries;
    MyBBandUpper := CreateSeries;
    { Create and Populate Weighted Price Series }
    WPrice := CreateSeries;
    for Bar := 0 to BarCount - 1 do
    begin
    x := ( 2 * PriceClose( Bar ) + PriceHigh( Bar ) + PriceLow( Bar
    ) ) / 4;
    SetSeriesValue( Bar, WPrice, x );
    end;
    { Main Loop ... executes once for each bar on chart }
    ExitBar123 := 0;
    EntryBar1234 := 0;
    for Bar := StandardDev to BarCount - 1 do
    begin
    rdp1 := Round( StdDev( Bar, StochRSISer, StandardDev ) /
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    0.053 );
    rdp2 := Round( StdDev( Bar, StochRSISer, StandardDev ) /
    0.035 );
    rdv1 := Round( StdDev( Bar, VolSer, StandardDev ) );
    adjust1 := rdv1 - rdp1 + 11;
    if adjust1 < 8 then
    adjust1 := 8;
    if adjust1 > 12 then
    adjust1 := 12;
    adjust2 := rdv1 - rdp2 + 14;
    if adjust2 < 12 then
    adjust2 := 12;
    if adjust2 > 20 then
    adjust2 := 20;
    Periods := adjust1;
    BBpds := adjust2;
    deviations := 0.0625 * BBpds + 0.75;
    bbBottom := BBandLower( Bar, WPrice, BBPds, deviations );
    bbTop := BBandUpper( Bar, WPrice, BBPds, deviations );
    SetSeriesValue( Bar, MyBBandLower, bbBottom );
    SetSeriesValue( Bar, MyBBandUpper, bbTop );
    HowCloseToBBot := 0.9;
    LongThresholdEntry := 30;
    xPrice := GetSeriesValue( Bar, WPrice );
    botpercentage := Abs( ( xPrice - bbBottom ) / ( bbTop -
    bbBottom ));
    Entry1 := botpercentage - HowCloseToBBot < 0.3;
    Entry2 := ( PriceClose( Bar ) * 1.05 > BBandLower( Bar,
    WPrice, BBpds, deviations ) ) and
    ( StochRSI( Bar, #Close, Periods ) > LongThresholdEntry );
    Entry3 := false;
    if PriceClose( Bar ) > PriceClose( Bar - 1 ) then
    begin
    Vol := Volume( Bar );
    if Vol > LastUpVol then
    Entry3 := true;
    LastUpVol := Vol;
    end;
    Entry4 := ( PriceClose( Bar ) - PriceOpen( Bar ) ) /
    ( PriceHigh( Bar ) - PriceLow( Bar ) ) > 0.2;
    { Position Entry Rules }
    if not LastPositionActive then
    begin
    if Entry1 and Entry2 and Entry3 and Entry4 then
    BuyAtMarket( Bar + 1, ‘’ );
    { See which Entry Conditions were met }
    y := PriceLow( Bar );
    PlotEntryRule( Entry1, ‘1’ );
    PlotEntryRule( Entry2, ‘2’ );
    PlotEntryRule( Entry3, ‘3’ );
    PlotEntryRule( Entry4, ‘4’ );
    end
    else
    { Position Exit Rules }
    begin
    HowCloseToBBTop := 0.7;
    LongThresholdExit := 70;
    xPrice := GetSeriesValue( Bar, WPrice );
    toppercentage := Abs( ( xPrice - bbTop ) / ( bbTop -
    bbBottom ));
    Exit1 := StochRSI( Bar, #Close, Periods ) < LongThresholdExit;
    Exit2 := TopPercentage < HowCloseToBBTop;
    Print( FloatToStr( TopPercentage ) + #9 + FloatToStr(
    HowCloseToBBTop ) );
    Exit3 := PriceClose( Bar ) > 0.95 * BBandUpper( Bar, #Close,
    BBpds, deviations );
    if Exit1 and Exit2 and Exit3 then
    ExitBar123 := Bar;
    Exit4 := PriceClose( Bar ) < BBandLower( Bar, #Close,
    BBpds, deviations );
    Exit5 := ( Bar - ExitBar123 < 4 );
    Exit6 := PriceClose( Bar - 1 ) - PriceOpen( Bar - 1 ) < 0;
    if Entry1 and Entry2 and Entry3 and Entry4 then
    EntryBar1234 := Bar;
    Exit7 := ( Bar - EntryBar1234 ) < 2;
    if ( Exit5 and Exit4 ) then
    SellAtMarket( Bar + 1, LastPosition, ‘4&5’ )
    else if ( Exit6 and Exit7 ) then
    SellAtMarket( Bar + 1, LastPosition, ‘6&7’ );
    { See which Exit Conditions were met }
    y := PriceHigh( Bar );
    PlotExitRule( Exit1, ‘1’ );
    PlotExitRule( Exit2, ‘2’ );
    PlotExitRule( Exit3, ‘3’ );
    PlotExitRule( Exit4, ‘4’ );
    PlotExitRule( Exit5, ‘5’ );
    PlotExitRule( Exit6, ‘6’ );
    PlotExitRule( Exit7, ‘7’ );
    end;
    end;
    { Plot Weighted Price }
    PlotSeries( WPrice, 0, #Red, #Thin );
    { Plot Custom BBands }
    PlotSeries( MyBBandUpper, 0, 337, #Thick );
    PlotSeries( MyBBandLower, 0, 337, #Thick );
    —D.D.P.
    One of the problems I ran into was a limitation in MetaStock
    for determining the volume of the previous up day. Further,
    I wanted to see what asset allocation with various watchlists
    would do. To find out, I turned to Wealth-Lab Developer.
    Wealth-Lab Developer has some chartscripting features
    not available in MetaStock. For example, the number of
    periods used in StochRSI and the Bollinger Bands can be
    calculated, rather than using a fixed number. Rather than
    optimizing on the periods, I could now calculate them as a
    function of price and volume volatility. After several runs
    optimizing on periods, I found that in area A longer periods
    were favorable, whereas in areas B, C, and D shorter periods
    worked better. By optimizing, I was able to get an idea on how
    I wanted to bias the choice of periods.
    Another improvement I could make was to have the
    volume for the up day (the day before I enter) be greater than
    the volume for the previous up day. Since the previous up day
    might be several bars back, encoding this kind of rule without
    a loop is difficult, and I actually hit MetaStock’s code limit
    when I tried using several nested if statements.
    Having used AOL Time Warner (AOL) to lay out the
    general approach, I used General Electric (GE) for refinements,
    because GE has been all over the volatility map as well, and
    I wanted to avoid tailoring too much to AOL. The results can
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    be seen in Figure 6. Entries are generally
    chosen exactly the way I would want
    them to be, but some exits caused losses
    that seemed unnecessary.
    It appeared that many of my losing
    trades actually had gains before I took
    the loss at exit — obviously, my exit
    coding was still deficient. For example,
    one trade entered in mid-May and exited
    in mid-June had a gain before ending
    with a loss. So how many of this
    system’s trades have a profit before
    seeing a loss?
    One of the features of Wealth-Lab
    Developer is that it allows you to look
    at maximum adverse excursion† (MAE)
    and maximum favorable excursion†
    (MFE). What I find from Figure 7 is
    that 26 losing trades made a profit of
    3% and 13 losing trades made a profit
    of 5% before finishing as losing trades.
    What all this suggests is that rather
    than fixing the exit rules, a shortcut
    might simply be to use a trailing stop to
    lock in profits. From Figure 6, I can
    visually determine that I should encode
    a rule that states if the midline of the
    Bollinger Band is crossed after tagging
    the upper band and losing enough
    momentum, it is time to exit.
    I then traded the Dow 30 stocks
    using $5,000 per trade out of an initial
    capital of $100,000 (Figure 8). The
    results surprised me: 758 losing trades
    made approximately 10% profit before
    becoming losing trades. This suggests
    that trailing stops used in conjunction
    with Dow 30 stocks could shift 758
    trades into the winning box, which
    would boost the winning average well
    above 60%.
    Sounds good, doesn’t it? Here’s the
    catch. Some of my biggest winners
    were more than 10%. Now I am faced
    with two different questions: Is it better
    to take the smaller profits and run, or
    continue to work on the logic for exit?
    Obviously, it is just a matter of time
    and skill to achieve a successful exit
    strategy, but of course the enormous
    advantage is that if you can encode
    what your eye can see, then you have the option of running
    several watchlists and seeing how they perform. These
    concerns are typical when developing a trading system, and
    what we have here is the start of one, not a final product.
    FIGURE 6: GENERAL ELECTRIC (GE) DAILY PRICE AND VOLUME. The Wealth-Lab chart shows long positions
    entered at blue up arrows and exits at red down arrows. The profit for each trade is shown as a green number and the
    loss as a red number. The strengths and weaknesses of the trading system can be seen when an entry is made in mid-
    March 2001 and the exit two months later in the beginning of May 2001 for a $1,028.96 profit, but then followed with a
    trade entered in mid-May 2001 and an exit in mid-June 2001, for a $186.71 loss. Clearly the logic that needs to be
    encoded is that once reaching the top of the band, the exit should occur when price passes below the simple moving
    average for the Bollinger Band. While easy to visualize, it is difficult to code that kind of rule.
    WEALTH-LAB
    GE Daily
    Sell 100 @ 47.52
    Sell 120 @ 49.32
    Buy 100 @ 49.32
    120 @ 40.75
    -186.71
    1,028.96
    FIGURE 7: MAXIMUM ADVERSE EXCURSION (MAE) AND MAXIMUM FAVORABLE EXCURSION (MFE) FOR
    GENERAL ELECTRIC. MAE/MFE shows that 26 losing trades actually had a 3% gain before resulting in a loss.
    Conversely, 18 winning trades took a 2% and 4% loss before resulting in a profit. This suggests that locking in profits
    with a trailing stop might be one way to avoid further encoding.
    SUMMARY
    With few exceptions, StochRSI is a better indicator than RSI.
    Since it is a momentum indicator, it would be natural to use
    it to buy when price is moving up. Bollinger Bands provide
    Stocks & Commodities V. 20:8 (46-56): Developing A Trading System by Dennis D. Peterson
    Copyright (c) Technical Analysis Inc.
    †See Traders’ Glossary for definition S&C
    FIGURE 8: MAE/MFE FOR DOW 30. A bit of a surprise is that 758 of the losing trades made close to 10% profit before
    turning into losing trades. The money management scheme uses, at most, 10% of your current capital in any one trade.
    a way to see if price has been changing
    to the low side (lower-band walkers) or
    changing to the upside (upper-band
    walkers). It is possible to build a solid
    trading system with these two indicators.
    But every trading system has a bias,
    which could apply to the entire market
    and not just a few stocks or commodities.
    Software that can test your ideas is
    available, and as you do your evaluation,
    you might see the potential of the
    system. If you start with something that
    is fundamentally flawed, money management
    and stops can help, but it will
    be difficult to make a profit. In the
    trading system found in the sidebar
    “Wealth-Lab and MetaStock script,”
    the Wealth-Lab script allows you to
    further adjust the periods for RSI and
    the Bollinger Bands. Another improvement
    would be to make the thresholds
    self-adapting.
    Dennis Peterson is a Staff Writer for STOCKS & COMMODITIES.
    SUGGESTED READING
    Chande, Tushar, and Stanley Kroll [1994]. The New Technical
    Trader, John Wiley & Sons.

  2. #2
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    Re: STOCK TRADING SYSTEM

    Quote Originally Posted by ambrose_lexy07
    Dennis Peterson is a Staff Writer for STOCKS & COMMODITIES.
    SUGGESTED READING
    Chande, Tushar, and Stanley Kroll [1994]. The New Technical
    Trader, John Wiley & Sons.
    Excuse me Sir, did you mean this ebook ?


    [url="hxxp://www.filefactory.com/file/8bd564/"]hxxp://www.filefactory.com/file/8bd564/[/url]

    Sorry if im wrong :peace:

    Btw my favorite stock ebook is:


    [url="hxxp://depositfiles.com/en/files/2150881"]hxxp://depositfiles.com/en/files/2150881[/url]


    [url="hxxp://w13.easy-share.com/1699646256.html"]hxxp://w13.easy-share.com/1699646256.html[/url]
    atau
    [url="hxxp://depositfiles.com/files/3679545"]hxxp://depositfiles.com/files/3679545[/url]


    [url="hxxp://depositfiles.com/files/2044201"]hxxp://depositfiles.com/files/2044201[/url]

    I Thought this ebook is must be read for all Stock Trader:


    [url="hxxp://w15.easy-share.com/1698827231.html"]hxxp://w15.easy-share.com/1698827231.html[/url]


    [url="hxxp://w15.easy-share.com/1698828151.html"]hxxp://w15.easy-share.com/1698828151.html[/url]


    [url="hxxp://www.badongo.com/file/7592501"]hxxp://www.badongo.com/file/7592501[/url]


    [url="hxxp://rapidshare.com/files/104722881/New_Trading_Dimensions_-_How_To_Profit_From_Chaos_In_Stocks__Bonds__And_Co mmodities_-_Bill_Williams..html"]hxxp://rapidshare.com/files/104722881/N ... iams..html[/url]

    & For Phsycologic Trading i recomended:



    [url="hxxp://rapidshare.com/files/6984044/Stock_books_034.rar"]hxxp://rapidshare.com/files/6984044/Stock_books_034.rar[/url]
    Password: static

    Good Day Sirs;


    :arrow:

  3. #3
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    Re: STOCK TRADING SYSTEM

    Quote Originally Posted by dvd_val
    nah loh jagoannya keluar

    :oops: Bisa aja nich Bro :mrgreen: btw cuma pingin share2 dikit apa yg pernah Saya pelajari ke teman2 Stock Traders.

    Saya seneng yg aneh2 spt Bill Meridien kan dia itungnya pake Astrology mirip2 Akino yg pake I-Tsing.


    Thanks Bro;


    MANTAPS;


    :arrow:

  4. #4
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    Re: STOCK TRADING SYSTEM by OLIVER VELEZ

    Kalo di Forex Market Coaching yg pasti kita kenal Mark McRhae, kalo di Stock Oliver Velez, saya punya ebook (yg merupakan resume dari buku beliau):



    [url="hxxp://www.badongo.com/file/9066038"]hxxp://www.badongo.com/file/9066038[/url]

    Semoga bermanfaat


    :arrow:

  5. #5
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    Re: STOCK TRADING SYSTEM

    Kalo di Forex Market Coaching yg pasti kita kenal Mark McRhae, kalo di Stock Oliver Velez, saya punya ebook (yg merupakan resume dari buku beliau):
    Eh iyah tuh. Mark McRhae. Om Amathevs pernah ketemu ebooknya ga? Mohon dishare donk.

    Regards,

  6. #6
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    Re: STOCK TRADING SYSTEM

    Quote Originally Posted by mokogse
    assiikk... banyak ebook, kalo donlot2 di torrent bingung milihnya, kalo yang ada disini insya allah tokcer hehehhee..
    mohon ijin ikut sedot :peace:

    YOA, silahkan sedot Bro hehehe... :mrgreen:


    Semoga Sukses;


    MANTAPS;


    :arrow:
    Trading = Action !

  7. #7
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    Re: STOCK TRADING SYSTEM



    [url="http://www.4shared.com/get/26774624/619e11e4/John_Crane_-_Advanced_Swing_Trading.html"]http://www.4shared.com/get/26774624/619 ... ading.html[/url]


    MANTAPS;


    :arrow:
    Trading = Action !

  8. #8
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    Lightbulb Louis Mandelson ebook



    [url="http://rapidshare.com/files/122776034/Louis_B_Mendelsohn_-_Trend_Forecasting_With_Technical_Analysis.pdf.htm l"]http://rapidshare.com/files/122776034/L ... s.pdf.html[/url]
    Trading = Action !

  9. #9
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    Re: STOCK TRADING SYSTEM

    thanks for the velez books san2x the master trader ebook is more like a summery instead of the whole book. Do you r anyone else have this tools and tactics book?

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    Re: STOCK TRADING SYSTEM

    I know a good site for trading systems, maybe somebody is interested in...

    [url]http://forex-strategies-revealed.com/[/url]

    The "menu":
    # How to profit trading Forex
    # Forex trading strategies
    * Basic strategies
    * Simple strategies
    * Complex strategies
    * Advanced strategies
    # Trading methods & ideas
    # Money Management & Exit Strategies
    # Forex Scalping
    * Tips and Facts
    * Forex Brokers
    * Scalping systems

    and so on...

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