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Barbara Star’s article on confirming the price trend discusses using R
squared and the slope of a linear regression line in conjunction with moving
averages and the stochastic. All these indicators are built into
MetaStock and require no custom formula to use. Below is a system based
off her suggestions in her article.
Long positions are entered when:
<li>A 10 period moving average is above a 30 period moving average
<li>The Stochastic Oscillator has risen above 20
<li>R squared is above .2
<li>A 20 period linear regression lines slope is above 0
Short positions are entered when:
<li>A 10 period moving average is below a 30 period moving average
<li>The Stochastic Oscillator has fallen below 80
<li>R squared is above .2
<li>A 20 period linear regression lines slope is below 0
Positions are closed when:
<li>R squared is equal to .2 or less
<li>A 20 period linear regression lines slopes against the position
<li>Either the moving averages or the Stochastic Oscillator give an opposing
signal
The formulas and the steps to create this system in MetaStock are listed
below:
<li>Select Tools > the Enhanced System Tester.
<li>Click New
<li>Enter a name.
<li>Select the Buy Order tab and enter the following formula:
<li>stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
<li>mov(c,10,S)>mov(c,30,s) AND rsquared(c,20)>.2 AND
<li>LinRegSlope(c,20)>0 AND stsig=1
<li>Select the Sell Order tab and enter the following formula:
<li>stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
<li>rsquared(c,20)<=.2 AND LinRegSlope(c,20)<=0 AND
<li>(stsig=-1 OR mov(c,10,S)<mov(c,30,s))
<li>Select the Sell Short Order tab and enter the following formula:
<li>stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
<li>mov(c,10,S)<mov(c,30,s) AND rsquared(c,20)>.2 AND
<li>LinRegSlope(c,20)<0 AND stsig=-1
<li>Select the Buy to Cover Order tab and enter the following formula:
<li>stsig:=if(cross(stoch(14,3),20),1,if(cross(80,stoch(14,3)),-1,prev));
<li>rsquared(c,20)<=.2 AND LinRegSlope(c,20)>=0 AND
<li>(stsig=1 OR mov(c,10,S)>mov(c,30,s))
<li>Click OK to close the system editor.
William Golson
Equis International
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