MetaStock Power
Tools
Introduction
Now that you know how MetaStock and MetaStock Performance Systems can improve your trading, we’ll show you, step-by-step, how to use each of MetaStock’s advanced features, the Power Tools. These tools contain the real power of MetaStock. Using MetaStock just to chart your prices and draw a trendline is like buying a luxury car and only sitting in it in the driveway. If you want powerful technical analysis to back up your trades, use the Power Tools! For our examples, we will use the Long Sell Short Sale-5 day (LSS) system. Finding the MetaStock Performance System tools
The MetaStock Performance Systems tools are built into MetaStock. All of the MetaStock Performance Systems tools begin with “PS.” For example, the exploration to find stocks that show an Adaptive Moving Average System buy or sell signal is named “PS Adaptive Moving Average (Signal).”
The MetaStock Performance Systems tools begin with “PS”.
Not all of the MetaStock Performance Systems provide custom indicators. Many systems use only the indicators that are already built into MetaStock for their calculations. Some of the performance explorations associated with the MetaStock Performance Systems are available separately by purchasing the MetaStock Performance Systems Plus plug-in. Check the descriptions in chapter four to find out what’s included with each system.
Choosing a Time Period
How many time periods should you load? This is a more important issue than it may appear. You want to load enough data to get a good look at the long-term trend. Two to three years is usually a fair choice. If you’re looking at long-term investments, you may want to look even further into the past. Whatever time periods you choose, you should be consistent across each of the tools. If you load 500 periods in your chart, load 500 periods in your explorations, also. If the time period is different in your explorations, the results may not agree with your system test.
Opening a Chart
Before we can apply any of the tools, let's open a chart. If you know which security you want to trade, go ahead and open that chart. We’re going to use Exxon Mobil in our example.
1. Click on the File Open icon, or choose Open from the File menu.
MetaStock Help – Open Dialog
File Open icon
2. Choose Load Options from the Options menu in the Open dialog. 3. Enter the number of periods you would like to be displayed in your
charts. Or (if you prefer), select Prompt for dates when chart is opened
if you’d like to choose different time periods or dates for each chart. We’ll choose this option for our example. Whatever option you choose will be the default for all charts.
4. Click OK.
5. Select the folder containing the security you want to open. If you’re using online data with DataOnDemand™, choose the data vendor shortcut from the shortcut bar. If you’re using local data, choose the Local Data shortcut from the shortcut bar, then navigate to the appropriate folder. We’ll choose the data vendor shortcut. Select the folder containing the security you want to open.
MetaStock Help – DataOnDemand Online data is accessed through the internet or other online resource. Local data is stored on
your hard drive. 6. Type the symbol of the security you want to look at in the Symbol field, and press the Enter key to open the chart. We know the name of our security, so we choose View by Name in the Options menu, and then enter Exxon Mobil in the Security Name field. Or if you see your security in the list, you can double-click on it to open the chart. 7. If you chose the Prompt for dates when chart is opened option in the
Load Options dialog, the following dialog appears.
8. Enter the number of periods to load, or a specific date in the past. We’ll enter a date 20 years in the past so we can look at the long-term trend. 9. Click OK.
10. The following chart appears:
Now that’s what they mean by “the trend is your friend”! Exxon has been grinding higher for nearly 20 years. That’s a trend you want to be on the right side of.
We’ve determined that the long-term trend is positive, but we don’t want to use the tools on 20 years of data. The more data you have loaded, the longer each calculation takes. Close this chart, and reopen with only 1000 periods (about four years) of data. Now we’re ready to use MetaStock’s advanced features, the Power Tools.
Custom Indicators
The Indicator Builder allows you to build custom indicators of your own design, or enter indicators that you may find in a magazine or web site. Many of the MetaStock Performance Systems use custom indicators in their calculations. These indicators are included in MetaStock so you can see how the associated indicators look on a chart. They are for reference only, and are not necessary for your analysis.
MetaStock Help – Plotting a Custom Indicator
Plotting a Custom Indicator
The MetaStock Performance System's custom indicators are plotted using the Indicator QuickList on the Standard toolbar.
1. Click the Indicator QuickList on the toolbar and scroll the list until the indicator PS Long Sell Short Sale-5 day appears.
(This indicator appears in a second alphabetical listing at the bottom of the QuickList.)
2. Position your mouse pointer over the small icon to the left of the indicator. Notice that the mouse pointer changes to a hand.
Cursor
3. Click and hold the left mouse button and drag the indicator until you have it positioned on any title bar within the chart. Notice that the mouse cursor changes its appearance when it is over the title bar.
Cursor
4. Drop the indicator by releasing the mouse button. The following illustration shows the indicator in the chart.
The Enhanced System Tester
All 26 MetaStock Performance Systems include a system test free with MetaStock. The Enhanced System Tester allows you to back-test a trading system to determine its past profitability. Past performance does not guarantee future results, but as you learned in chapter one, stocks tend to follow trends or patterns that can help predict the future. The Enhanced System Tester can show you how profitable a system was in the past, so you can decide how risky future trades may be. If a system did not perform well in the past, you would not want to risk your money on future trades.
Notes:
• The Enhanced System Tester should not be used to generate current trading signals. To find out if any signals have been generated by the current data, attach the expert for your system (see page 53).
• If you use a delay the results will not match the other tools. To Use the Enhanced System Tester
1. Choose Enhanced System Tester from the Tools menu, or click the Enhanced System Tester icon.
Enhanced System Tester icon
2. In the Systems list (the left panel), scroll down and select the PS Long Sell Short Sale-5 day (LSS) system.
3. Click the New Simulation button (at the bottom of the Enhanced
System Tester). The simulation wizard appears.
4. The first dialog in the wizard is the Select Systems dialog. Make sure PS Long Sell Short Sale 5 Day is highlighted. 5. Click Next. The Select Securities dialog appears.
6. Click the Add Securities button. The Add Securities dialog appears; here you can select any number of local or online securities.
7. Type XOM in the Symbol field. (XOM is the symbol for Exxon Mobil.) and click Open.
8. Back in the Select Securities dialog, click the Dates button. The Simulation Dates dialog appears.
9. Select Use price data from the last ___ available periods and enter 500
in the blank. Click OK.
10. Click Next. The System Testing Options dialog appears.
11. When you run a system test, you can factor in your specific trading conditions such as initial equity, commissions, and margins. To get an accurate calculation of past profit, the System Testing Options should be set to match, as closely as possible, the way that you would have traded the system. To get a general idea of how well a system works with a stock, you can run a basic test with no options. Then, if the system was profitable, you can set your specific options to get a more accurate calculation.
12. In the Trading section at the top of the dialog, select Points only test. 13. In the Portfolio section in the center of the dialog, select Long. 14. Click Next. The Begin Trading Simulation dialog appears.
15. Type LSS in the field under the words: The System Tester will now perform the simulation.
16. Click Start. The Perform System Test wizard closes, and a small window appears, showing you details about the simulation's progress. A blue bar next to a dollar sign in the lower right corner of the MetaStock
workspace also indicates the test’s progress. 17. When the test is complete, click View Results.
Results from the Systems Tests
After you've run the test, click the View Results button. Notice that the View
Results button disappears after thirty seconds or so if you don't click it. If it disappears, return to the Enhanced System Tester and click the All Systems
folder at the top of the Systems List (the left section), then double-click LSS in the Trading Simulations List (the lower right section). This opens the Summary Report in the Result Details View screen.
Note: Your results may differ from these, but the basic concepts still apply.
The Summary Report shows (among other things) the profit, the percent gain, the total number of trades, and the number of winning and losing trades. In our example, the Profit was 30.1437 points, with 58 trades. Scroll down a little and you'll see that 43 of the trades were profitable, and 15 were unprofitable. Our total net profit of 30.1437 compares very favorably with the buy-and-hold profit of 4.2850. Scrolling down in the Summary Report dialog, we see the average winning trade was 1.1183 points, or $111.83 if you are trading 100 shares. There were 43 winning trades, lasting an average of six days each. The losing trades were slightly bigger, an average of 1.1961 points, or $119.61 for 100 shares, but there were only 15 losing trades. They lasted, on average, fifteen days.
There are 4 other tabs in the System Report dialog:
• The Orders tab details every order that the system observed. • The Positions tab details every position opened during the test. • The Equity tab shows the day-by-day change in equity.
• The System tab shows the rules for the system, along with the stops and the testing options.
Arrows and Equity Line
While viewing the Summary Report, click the Plot on Chart button, and close the Enhanced System Tester. The security's chart appears with an equity line and buy and sell arrows are plotted on the chart. The most desirable equity line is one that shows a good, steady upward trend. Less desirable would be an upward but volatile line, and obviously worse would be a declining line. In our example, we’ve got a great equity line (in the upper window). There were so many trades that the “Buy” arrows are hard to see.
Cleaning Up the Chart
Before you continue, you should remove all unwanted buy and sell signals from your chart.
1. Choose Delete All from the Edit menu.
2. Check Symbols in the Delete All dialog. All other options should remain unchecked.
3. Click OK.
The Explorer MetaStock Help –
The Explorer Dialog Explorer icon MetaStock Help – Online Cache Local Securities
All 26 MetaStock Performance Systems include a signal exploration free with MetaStock. Ten of the systems include a performance exploration free with MetaStock. The performance explorations for the remaining 16 systems are available in the MetaStock Performance Systems Plus plug-in.
A signal exploration looks for stocks that have generated buy or sell signals. A performance exploration is similar to a system test. It displays the performance of the given system versus a buy-and-hold strategy.
The Explorer works with online and local data, but runs faster on local data. Selecting the Stocks
Which stocks should you include in your exploration? It depends on your system. A short-term system that catches very small moves would work best on the largest, most liquid stocks. The S&P 100 stocks are good examples of this type of stock, so we will use the S&P 100 for our example. A longer-term system designed to catch larger moves could be applied to a broader database of stocks such as the S&P 500, or even the entire database of U.S. stocks, available on the MetaStock Data CD. Try the performance exploration on different stocks, and see which stock shows the best results. You can filter out stocks that don’t meet price, volume, or other criteria (see page 51).
Setting Exploration Options MetaStock Help –
Exploration Options When running an exploration, you should load at least 500 records to generate reliable results. More records require more time to calculate,
however, so don’t be surprised if a 20-year scan takes several hours.
Remember to be consistent with the number of time periods you load on your charts or your results will not match the Enhanced System Tester.
Explorer icon
1. Choose The Explorer from the Tools menu, or click The Explorer icon. 2. Click the Options button in The Explorer dialog.
3. Enter the number of records to load.
We’ll enter 1000 records (about 4 years) for our example. 4. Click OK.
Running an Exploration
We’ll run our performance exploration first. A performance exploration tells us how the system has performed versus buy-and-hold on a group of stocks. We can get an idea of how well our LSS system has done on other stocks, besides Exxon Mobile.
1. Select the PS Long Sell Short Sale-5 Day (Perf) exploration.
2. Click the Explore button.
The Select Securities dialog appears.
3. Click Add Securities.... The Add Securities dialog appears.
4. Double-click the folder titled Stocks - Co..., and then double-click the folder titled S & P 100.
5. Click the Tools button and then click Select All. 6. Click Open.
7. Click OK to start the exploration.
8. After the exploration is complete, click the Reports button in the Exploration Completed dialog to get a complete report of the results.
Performance Exploration Results MetaStock Help –
Results Report The Exploration Report dialog has three tabs across the top – Results, Rejects, and Exploration. The Rejects tab displays any securities that were
rejected by the exploration filter, and why. The Exploration tab shows the options that were used in the exploration. The Results page displays the following columns.
L Point – the number of points gained per share on long trades over the time
period specified.
S Point – the number of points gained per share on short trades over the time
period specified.
LS Point – the total number of points gained per share on both long and short
trades over the time period specified.
The trade efficiency measures the performance of a system versus buy-and- hold.
L Perf – the performance, as measured by the trade efficiency, of the long trades. S Perf – the performance, as measured by the trade efficiency, of the short trades. LS Perf – the performance, as measured by the trade efficiency, of all trades. Note: Points are not the same as percents. If a system gained, say, 5 points, that
would be a $5 gain for a stock, which might be a move from $10 to $15, or a move from $100 to $105. If you’re trading 100 shares, 5 points is a gain of $500.
The results are sorted by security name by default. We want to see the best performers at the top of our list. We want to sort by L Perf, since we are only taking long positions, and we want to know how well the system did versus buy-and-hold. To sort the list by the L Perf column, we click on the column heading. Clicking once sorts in ascending order, so we click again to sort in descending order.
To get an idea of how the system did on all of the stocks, scroll down the list (with the scrollbar on the right) until the L Perf column shows a negative value. In this example, it occurs about 3/4ths of the way down the list, which tells us that the system was better than buy-and-hold on about 3/4ths of the securities in the S&P 100. That’s an excellent result.
You can get more information on the exploration with the buttons on the right: • The Inspect button allows you to view the day-by-day results.
• The Open Chart button will open the selected chart or charts. • The Sort button allows you to sort by up to three different columns. • The Print button will print out the results.
• The Save List button will save the securities into a list. This list could then be used as the source for a later exploration.
Trade Efficiency
The crux of the testing process is the trade efficiency. If a system’s profit per day in a trade exceeds the buy-and-hold profit per day, that system will have a positive trade efficiency. For example, if a system was in a position for 250 of 1,000 possible days, and it gained 250 points, it gained a dollar per share per day. If buy-and-hold gained 250 points in those same 1,000 days, it only earned 25 cents per share per day, so the trade efficiency would be .75 (1.00 minus .25), even though both systems gained the same absolute amount. The key is that the system managed the same profit in 25% of the time as buy-and-hold, so your money was freed up 75% of the time for other trades. A positive trade efficiency does not mean that a system was profitable; it means a system outperformed buying and holding that security.
Signal Explorations Results
To run the signal exploration, follow the instructions in the Running an
Exploration section above, but choose the PS Long Sell Short Sale-5 Day (Signal) exploration instead.
The Signal exploration will display a list of all securities that generated a buy or sell signal on the current bar.
The following columns are displayed in a signal exploration report:
Longs – will show a 1 if the Enter Long condition is met, otherwise 0. Shorts - will show a 1 if the Enter Short condition is met, otherwise 0.
If you get too many results from a Signal exploration, add additional filters (see