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Alex  
#1 Posted : Tuesday, September 22, 2009 4:24:35 PM(UTC)
Alex

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Joined: 9/14/2006(UTC)
Posts: 321

In this issue:

 

Main Article

Creating an Effective System: Acceleration Bands and Williams' Percent R

Contributed by Price Headley

For option traders, correctly forecasting short-term price action is imperative to long-term success and, in my view, technical analysis is the best way to achieve this. Many would say the “Holy Grail” of technical analysis is to find true “leading” indicators … those that point to directional movements and trends as they are occurring or before they occur, not lagging indicators that show what has already occurred. I’ve tested and designed hundreds of technical indicators over the years, and I want to share with you one of my trading systems that uses two of my favorite and time-tested indictors. The two indicators? One is Acceleration Bands, which I created. The other is Williams’ Percent R, which I have modified and created specific rules to utilize that are different than is seen in normal trading systems.
A major problem that many traders have is too many signals. In other words, their criteria needs to be tightened and refined. As many of you already know, I look for the Big Trends that rarely occur, this helps me leverage my capital while reducing the number of total trades. Now, don’t be fooled, there is no fool-proof system out there … so risk control is an important part of any technical system. In life, it's good to be an optimist, but excessive optimism in system development can easily lead to ignoring the risks and the weaknesses in your trading system. All systems have weaknesses. Make sure your systems have a risk control element to it.
Today I want to share with you a system that uses only two indicators, Acceleration Bands and Williams’ Percent R – remember keep your system simple. First, it’s important to describe each system independently to see the strength and weaknesses of each.
Acceleration Bands: Available in the MetaStock Big Trends ToolKit
Description: Adaptive bands that contain 95% of price action usually used in 20 or 80 bar periods. Trading signals occur when price action is confirmed outside the bands. This indicator targets the top 5% of moves, keeping traders focused on the best trends.
The 20 Bar Acceleration Band Expert Advisor (SPX chart below) shows buy and sell signals based on my system. Notice that in the 14 months shown, the S&P500 only exposed a signal 4 times, each was profitable. This depicts the 5% theory well – Acceleration Bands highlight only the extreme moves for option traders. The issue many traders face is really two-fold; many traders want more signals and the entry point can use some refinement. Like the Yin & Yang relationship, I’ve developed a system that combines Acceleration Bands with Williams’ Percent R to remove any weaknesses and refine trading signals. Let’s take a look at how it works.

Williams’ Percent R – Traditional indicator available in MetaStock. The Big Trends Willams’ %R is available in the Big Trends Toolkit with two separate systems based on breakout and retest (lower risk entries) methods. We have smoothed out and modified Williams’ Percent R to make it a better and more usable trading vehicle.
Descriptions: Larry Williams created the Percent Range oscillator to highlight overbought versus oversold levels in securities. Traditionally overbought connotates a long exit or sell short entry as oversold would insinuate the opposite, however, we in general consider overbought to be bullish and oversold to be bearish. The Big Trends Percent R system targets the top 20th percentile and bottom 20th percentile.
In the chart below we have the Expert Advisor for Big Trends ToolKit (BTTK) Percent R Retest System applied to the S&P500. My first impression is that there may be too many signals with 11 trades in 14 months (compared to 4 with the Acceleration Bands). The Percent R Retest System targets lower risk entry points by signaling buy or sell-short signals after a corresponding breakout confirmation occurs. These pullbacks, or retests, are patterns that help identify fast moving trades that are immediately profitable. If they do not move in the expected direction immediately an exit signal is triggered for effective risk control.

Notice that we also have 20 Bar Acceleration Bands applied to the price action -- my favorite system employs both Percent R and Acceleration Bands; reducing the number of trades while only trading the best pullbacks. I focus on Percent R retests within Acceleration Band signals. Let’s take a look at an example of this signal below.

Notice above that we also have 20 Bar Acceleration Bands applied to the chart (but not a part of the trading signals) -- my system employs both Percent R and Acceleration Bands; reducing the number of trades while only trading the best pullbacks. I focus on Percent R retests within Acceleration Band signals. Let’s take a look at an example of this signal below.
When developing a system I look for winners that are at least twice the size of losses and a minimum 50% winning average, however, I’ve found that 60% winning average is optimum and realistic. That’s why using Acceleration Bands and Willams’ Percent R has become one of my favorite two indicator systems. Acceleration Bands highlight extremely strong moves, while Percent R Retest Method highlights low risk entry points within those Accelerations. In addition, I found that this system works particularly well on individual stocks, which typically provide more Acceleration signals than market averages like the S&P500.

For ease of learning I want to show you a quick example of a signal using both indicators within the same time frame as the charts above on the S&P500. In the chart below we have the Acceleration Band Expert Advisor (20 Bar) exposing a sell-short signal based on momentum. Notice that in the days after extreme selling signals an Acceleration short signal, we see a bounce, or retest, in price action. This typically occurs from value seekers, however, we know that once the trend has Accelerated thus far it’s probable to continue.
The blue arrow shows us where Percent R initially confirms bearish activity (prior to Acceleration signal) , and we know that any Percent R spike above 20% is now a qualified retest. Furthermore, if the retest occurs after the Acceleration Band signal it’s a lower risk entry within a highly probable signal. Adding the Percent Retest filter to your Acceleration bands will help you be patient for those lower risk entries after momentum has confirmed; while Acceleration signals help you identify weaker trends where retest become reversal.



As I’ve mentioned, in general keep a trading system simple – I have found that the unique combination of Acceleration Band breakouts and Williams Percent R re-tests (utilizing Big Trend Percent R methods) is a very effective trading tool & system. I encourage you to start testing this on your favorite stocks as it has helped me increase my winning percentage, while reducing those whipsaws that many traders experience from Acceleration Bands alone.

Trade Well,
Price Headley
BigTrends.com
1-800-244-8736

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Support Tip

How do I color my volume for up / down colors?

Contributed by Equis Support

Volume is one of the most powerful technical analysis tools traders use in predicting the way a security is about to move. The difference between a smaller return and a bigger return is sometimes only a matter of seconds. Coloring volume bars to identify up volume and down volume can be used as a tool to give traders the edge they need.

To do this we must create a custom indicator in MetaStock.

1. Open MetaStock.
2. From the Tools menu on the main toolbar, select Indicator Builder.
3. Click New on the right hand side to open the Indicator Editor to create the new indicator.
4. Type in the desired name of the indicator in the name section.
5. Check the option to “Display in quicklist”.
6. Click in the larger “Formula” window and type or copy and paste this formula:
When comparing volume data to yesterday’s volume data:
If(V>=ref(V,-1),V,0);
If(VOr when comparing volume data to yesterday’s close price:
If(C>=ref(C,-1),V,0);
If(C7. Click ok to close the Indicator Editor and create the indicator, then close the Indicator Builder dialog.
8. Open any chart.
9. Using the indicator quick list, plot your new volume indicator; this will plot two different lines.
10. Scroll to the end of the chart and right click onto the line going up and select properties. Next select the Color/Style tab and select green for the color and set the style to histogram. Then select OK.
11. Scroll to the end of the chart and right click onto the line going down and select properties. Next select the Color/Style tab and select red for the color and set the style to histogram. Then select OK.

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MetaStock Features

Big Trends Toolkit Review

Contributed by David Derricott

The Big Trends Toolkit has been an immensely popular add-on. The reason is simple; people have found that the system works. Big Trends Toolkit features Explorations, System Tests, and Expert Advisors. The systems included in the add-on are Price Headley’s time tested strategies and can be used in any market. When market changes happen, as they have in the last year, it is important to have strategies that have proven their merit over time, and this is why the toolkit has been so popular. The Toolkit can be used to identify low-risk entry and exit points, spot accelerations, and more. I would encourage users to use the System Tests included with the Big Trends Toolkit to identify the best system to match the stocks you are trading. Customers really appreciate the level of detail in which the commentaries define how to use the system in trading. Each commentary provides detailed explanations of the systems and detailed instructions on how to trade each entry with your risk tolerance in mind. You have the opportunity to try this add-on on a 30 day money back guarantee. For more information regarding the scanning feature found within MetaStock, please contact David Derricott directly at 800.587.8012 or via email at david.derricott@thomsonreuters.com.

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hollow_man  
#2 Posted : Wednesday, September 30, 2009 1:39:54 AM(UTC)
hollow_man

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I'm interested in the text related to the coloring of up/down volumne. The default plot is line graph and I need to change it to histogram every time I invoke the inidicator. Can Metastock be made to remember that the default line style is histogram for this indicator? Thanks. HM
sawari  
#3 Posted : Friday, October 2, 2009 7:05:39 PM(UTC)
sawari

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Posts: 3

Hi I could not close the indicatorEditor and create the indicator, I recieve a message - An '(' must immediately follow a function name-. & cant do it eventhough i tried many times in diffrent ways would you please try it tell me how to doit
Justin  
#4 Posted : Wednesday, October 28, 2009 3:07:45 PM(UTC)
Justin

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Posts: 673
Location: Salt Lake City, UT

hollow_man wrote:
I'm interested in the text related to the coloring of up/down volumne. The default plot is line graph and I need to change it to histogram every time I invoke the inidicator. Can Metastock be made to remember that the default line style is histogram for this indicator? Thanks. HM


MetaStock has 1 default color/style for all plotted indicators. This can be changed under Tools-->Default Colors and Styles. Be aware that this change would affect all indicators though, so you'd likely not want to use this method.

The only other way to have MetaStock "remember" the style of the indicator is to save the indicator as part of a template. Once the template is saved, you can apply that template to any symbol, and it should remember the style of the indicator.
Justin  
#5 Posted : Wednesday, October 28, 2009 3:11:11 PM(UTC)
Justin

Rank: Advanced Member

Groups: Registered, Registered Users, Unverified Users
Joined: 9/13/2004(UTC)
Posts: 673
Location: Salt Lake City, UT

sawari wrote:
Hi I could not close the indicatorEditor and create the indicator, I recieve a message - An '(' must immediately follow a function name-. & cant do it eventhough i tried many times in diffrent ways would you please try it tell me how to doit


More than likely there is a space where there shouldn't be, or you are missing a parenthesis. I'd double check what was typed in, but as a general rule, there must be a right parenthesis for every left parenthesis.
mstt  
#6 Posted : Wednesday, October 28, 2009 5:19:47 PM(UTC)
mstt

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Was thanked: 57 time(s) in 54 post(s)

It might be of interest for fellow forum members to know that it’s possible to assign two or more colors to an indicator without having to revert to the histogram style. Justin’s comments are spot on but the boundaries can be pushed a little further even. The following text is my reply this morning to a question about using two colors for the plot of a moving average. I don’t think the chart image I mention can be displayed (we'll see), but the fact is that a couple of very simple tricks make plotting a multi-colored line possible. That’s as long as you don’t mind the line being a dotted line. The trick that most people don't know is that by making the last output of an indicator plot N/A any earlier plots will successfully scale to the price plot but without distorting the price by forcing zero indicator values to plot inside the visible chart window.

http://www.metastocktips.co.nz/two_colours.png

"MetaStock does not allow you to plot two alternating colors on a single plot but there are ways to approximate what you want if you don't mind some inconvenience to go with it. If you use the "dotted" style you can alternate between one plot and another of a different color by switching in the wanted plot and out (to zero or some other value) the unwanted plot. Then by fooling MetaStock into thinking that your indicator is N/A the zero portion of each plot drops out of the display range leaving only one plot with the desired color.

All this is probably best done by adding the plots to a chart and setting them up as required. From there you can save the chart as a template. This might be the default template if you want to display the MA all the time, or a new template if you only want to plot the MA occasionally. The point of saving the indicator to a template is that you only have to do the setup work once; otherwise you would waste a lot of time each time you needed to use the MA indicator.

I’ve attached a chart that’s using the method I've just suggested, and the indicator formula for two colors is also included. You'll need to do your own setup once to create a template though."

{Plot MA in two colors}

A:=Mov(C,21,E);

If(A>=Ref(A,-1),A,0);

If(A<Ref(A,-1),A,0);

ValueWhen(1,0,A);

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