Two additional explorations are part of the on. The user manual for this add-on is the video available add-on YouTube that was mentioned toward the beginning of this review. One thing to keep in mind, to avoid confusion, is that Burton often uses the terms longer line or shorter line to refer to range.
s
ummaryWhat a deal. This add-on makes use of many great features of MetaStock such as expert advisories and explorations.
MetaStock’s user interface is
straight-forward and robust. Gibby did the cod-ing, and the formula language he used is clever and short. To use this add-on, you need MetaStock. If you don’t already use MetaStock and are looking for a charting platform, consider that it has been the recipient of numerous Readers’
Choice Awards in this magazine and is a top-notch program. Technical support is extremely capable and free.
This caret is controlled by arrows at the top of the commentary
FigurE 6: wEEKly gM (gEnErAl MOTOrS). Starting with the price chart shown in Figure 5, two changes have been made. Most apparent is the addition of expert advisory commentary on the right. A black caret on the price chart points to the candle being described. You can control placement of the caret by using the arrows at the top of the commentary.
Each pattern is explained for you.
f
urtherreadingBurton, Gary [2015]. “Candlesticks And The Haguro Method,” Technical Analysis of StockS & commoditieS, Volume 33: April.
Shimizu, Seiki [1990]. The Japanese Chart Of Charts [English translation], Shroff Publishers.
‡MetaStock
A Priori—Known ahead of time.
Average Directional Movement Index (ADX)—
Indicator developed by J. Welles Wilder to measure market trend intensity.
Average true range—A moving average of the true range.
Back-resting—A strategy is tested or op-timized on historical data and then the strategy is applied to new data to see if the results are consistent.
Candlestick charts—A charting method, originally from Japan, in which the high and low are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. If the close is above the open, the body is white. If the close is below the
open, the body is black.
Chandelier exit—A stop order calculated based on either the highest high or the close and some multiple of average true range.
Drawdown—The reduction in account equity as a result of a trade or series of trades.
Dynamic link library —Refers to a group of small programs that can be used (“called”) by your main program while running under Windows.
Efficient market theory—All known informa-tion is already discounted by the market and reflected in the price due to market par-ticipants acting upon the information.
Fast Fourier transform—A method by which to decompose data into a sum of sinusoids of varying cycle length, with each cycle
being a fraction of a common fundamental cycle length.
Market maker—A broker or bank continually prepared to make a two-way price to pur-chase or sell for a security or currency.
Moving average convergence/divergence (MACD)—The crossing of two exponen-tially smoothed moving averages that are plotted above and below a zero line. The crossover, movement through the zero line, and divergences generate buy and sell signals.
Volatility index—A widely used measure of market risk. Sometimes referred to as the
“investor fear gauge.”
E xplore Y our O ptions
May 2015 • Technical Analysis of StockS & commoditieS • 45 using USO.
USO as of this writing sits just above
$18. You believe the price will be above
$16 by summer, but want to be covered in case you are wrong. You create a credit spread using puts, selling the 16 puts and buying the 14 puts for a combined credit of 0.50 or $50 per spread. This is the most that you can receive, if USO is above $16 by mid-July. What are your costs and risks of this type of spread?
A credit spread, as this is, has limited reward and risk. The reward is limited by the amount of money received, as you make money when the spread drops in value to zero. So what’s the risk? The risk is that USO drops in value, causing the prices of puts to rise, so much so that the 16 and 14 puts are deep in-the-money. The good news is that because of the purchase of the 14 puts, the most that can be lost is the difference between strikes, minus the credit received.
Let’s dive into this a bit deeper. Look-ing at Figure 3, this chart shows what could happen if the price of USO were to rise, fall, or stay the same over time.
Figure 3 clearly shows where the price
of USO is on the left, as well as where you don’t want it to go. Statistically, oil has a 68% chance of being above the sell price of $16, and a 95% chance of being above $14 by mid-July. This means there’s a 68% chance of keeping the full amount collected ($50 per spread) and you have a 5% chance that you will lose
$150 per spread.
This is exactly how insurance com-panies work—they play the numbers,
spread their risk around different areas, and most important, they reinsure in risky demographics, where premiums are highest. Do yourself a favor: If you are going to sell option premiums, do what the insurance companies do. They have been in business a long time, and they will be here long after we are gone!
Q & A
of the program’s terms hurt the case for price improvement, and we address this in our submitted comments.
We strongly believe that the lack of dis-played liquidity in the small-cap space is primarily due to the rise in off-exchange trading and broker–dealer internaliza-tion. Displayed market makers are set-ting the price but not getset-ting the reward of getting the execution on their limit
BRIGHT
Continued from page 29 orders. This discourages participants from placing passive limit orders on the exchanges, which, at certain levels, may impair public price discovery.
Further, we are concerned about the so-called “dark markets” (that is, non-displayed bids & offers) in the market-place. Because of this, we recommend that one of the tests be modifi ed to restrict broker–dealer internalization to see if market quality improves in the underlying securities.
The pilot program is currently
sched-uled to begin in May 2015 and is expected to run for 12 months. Thus, it will be a while before changes are implemented.
Readers can view our complete comment letter at http://www.sec.gov/comments /4-657/4657-82.pdf or can read more about the pilot program itself at the SEC’s website.
I will be interested to see the data that the SEC starts to gather on the pilot program later this year. I’ll return to this topic then.
Q&A
I will prepare a followup treatise after a few months of data is gathered.
GENTILE
Continued from page 41
FIGURE 3: PLAYING THE NUMBERS. Oil has a 68% chance of being above the sell price of $16, and a 95%
chance of being above $14 by mid-July. You have a 68% chance of keeping the full amount collected ($50 per spread) and a 5% chance you will lose $150 per spread.
MetaStock
90 South 400 West, Suite 620 Salt Lake City, UT 84101 Phone: sales 800 508 9180 Email: [email protected], [email protected]
MetaStock XIV
M
Product rEVIEw
by S&C Staff
etaStock has had a devoted following since its early days and continues to have one. It’s a terrific product that has only gotten better. In this version, navigation is more robust, the Forecaster tool has been enhanced, and there’s a new trading system that’s part of version 14, just to name a few of the changes. We’ll start by looking at the power console.
P
owerconsoleIn Figure 1 you see the new look of the power console. If you are familiar with MetaStock, the first thing you’ll notice is the split screen. On one side is a tree structure that lets you find the instrument you want to use in your analysis. The advantage of the tree structure is you can start with a broad class of securities and then use subclasses to narrow your search to view only your pertinent subclass of equities. Since the charts tab on the left was chosen, the right side of the screen lets you choose chart periodicity, use of a template, how many records you want to load, and more. It’s not obvious from the screenshot for Figure 1, but you can resize the power console screen. In earlier versions, it was a fixed size.
At the very top of the tree list shown in Figure 1 is the word instrument. If you right-click on it, you will be prompted with a screen that asks if you want to manage your public online data list or build a custom list. If your focus is going to be North American instruments, it might make sense to pare down the tree a bit. Let’s say you select “manage public lists…” You get a screen similar to what you see in Figure 2. It’s simple to use. All you have to do is scroll down the list on the left, and use the buttons in middle, that is, add, remove, and remove all, and create a list of items you want to see. Give this newly formed list a name by using the header button. Then, the next time you use the charts tab in the Product: Trading platform
System requirements: Windows 7 and above, 4GB RAM, 1.6GB disk space; see website for specifics Price: Daily charts, $499; real-time,
$1,395
FIGURe 1: PoWeR coNSoLe ScReeN. On the far left are tabs you can use to select one of four major catego-ries. For this screen capture, the major category chart was selected, but explore, system test, and forecaster are alternative choices. To the right of the tabs is a split screen, with the left-hand portion being an instrument (that is, equities) tree structure and the right being chart options, such as the number of records to load and whether or not to use a template. At the top of the instrument tree for this screen capture, it reads “Instruments 1 of 359972.”
This means one instrument out of a possible 359,972 has been selected. Using the tree structure and looking for a
“1 of …” type of statement, the next class of items is public online data lists, followed by equities – North America, and then US ETF. From the list of ETFs, we selected the symbol QQQ.O.
FIGURe 2: PUBLIc LISt eDItoR. Choose an item from the left and then an action using the buttons in the middle to add, remove, or remove all from the list on the right. If you don’t like the order of the items in this newly created list, select one and move it up or down using the move up and move down buttons on the right. You can create a header to name your list. Use a button on the right or pick a header from the left-hand list of equities and add it to items on the right.
power console, you’ll see just the list you have created.
Other bells and whistles have been added to this revised power console interface, but one worth noting is that you can now open a chart using a template with several different periods.
For example, if you have a template that has three charts with monthly, weekly, and daily periodicities, you can open that three-chart layout from the power console. Prior to version 14, if you opened that kind of template, the software would have selected one of the periodicities and used it for all of the charts. Speaking of periodicity, you can now create bars using ticks.
The interface defaults to a selection of Fibonacci numbers. All of this is well and good, but what will really tickle the trader is the Forecaster.
F
orecasterThis ingenious, clever feature unique to MetaStock has been made better. Here’s the idea: Suppose you wanted to know what a price would do after a technical event such as a Bollinger Band upward breakout. Ideally, you would like to see some sort of depiction of the prob-ability of price change after this event has occurred. When you say “after,” it could range anywhere from a few days up to 90 days. What Forecaster does is find out, on a purely statistical basis, if price moved in the direction you thought it would, based on the technical event that occurred.
MetaStock has over 70 events you can choose from. If you are not exactly sure what a specific event is, you can click on the event and get a short and complete textual description. In version 14, in addition to adding six new events and more ways to sort the results, MetaStock has added the ability to draw your own pattern and have the software match it against a price series.
There are a couple of ways to go about doing this. You start from the power console, select the Forecaster tab, and follow an instrument from the tree.
You are now in the Forecaster, which has its own window separate from the MetaStock XIV window. Here’s where you are going to make a decision about
which way you want to go. You can draw the pattern free-hand, or you can start with the price series you’ve chosen and locate the pattern you want. Let’s try the latter because it illustrates some of the steps you would go through if you choose the path of starting with a free-hand drawing and then seeing how well
it fits a price series.
In the Forecaster window there are two tabs: forecast analysis and event recognizer library. Choose the former and then choose the price, volume, and event markers tab to arrive at a chart with your selected price series. Clicking on a button in the upper right allows you to
FIGURe 3: FoRecaSteR PRIce aND VoLUMe chaRt. The title above the price series chart displays the symbol and the last event used from the library. The gray highlighted square overlaying the price series is the result of clicking & drag-ging a special mouse icon created when you choose user-defined pattern select in the upper right-hand corner. As soon as you click a second time, the area where you want to base your pattern is created and the dialog screen overlaying the price appears asking you if you are done with the selection portion of the price chart with the pattern you want.
FIGURe 4: PRIce PatteRN eDItoR. The top portion reflects the pattern you identified in the price series defined in Figure 3 by clicking & dragging the mouse cursor over the area of interest in the price series. Circles connect straight-line segments. The circles correspond to closing prices from your price series, and only the closing prices that require a change in direction. You can use your mouse to alter the shape of the pattern, you can decide how many price bars you want in the pattern, the sensitivity, and your cloud focus. There’s a button on the lower-left corner of the circle and line diagram that allows you to get the pattern quick test, which is displayed in the bottom portion with green and red segments.
use your mouse in a click & drag fashion to identify the portion of the price series you want for your pattern (Figure 3).
In Figure 3 you see a dialog screen overlaying the price series. In that dialog screen is this question: “Do you want to capture the selected price formation as a user-defined pattern?” If you select the “yes” button on the right, it’ll result in the upper portion of the screen you see in Figure 4. The series of straight lines drawn between the circles is a representation of the pattern you located in Figure 3. You can take your cursor and move the circles to draw a slightly different pattern or you can create a new one. You can now name your pattern to save it in the event library. Next, you can click on the button pattern quick test, which will display what you see in the bottom portion of Figure 4.
The quick test allows you to scroll your price series underneath your pattern to see how well it fits other parts of the price series. This makes perfect sense since you have the ability to alter the shape of your pattern using the circle and line diagram that is displayed above the pattern quick test. When you get to the point where you are satisfied with the
pattern, you can easily save it in the event recognizer library, which is one of the first tabs you could have chosen from the Forecaster window. Once saved, you can select the pattern and request the software to find out how well it did in actual use by selecting the tab that lets you see the forecast cloud (Figure 5).
You get to make a couple of important inputs from the screen shown in Figure 4.
One of these is pattern match sensitivity.
You have three choices: high, medium, or low. The idea behind these three choices is to give the user the ability to say how closely they want to have the pattern match a part of the price series. If you select low sensitivity, you’ll have more events but the match may not be too close to what you’re looking for. You could go to the opposite extreme and select high sensitivity, in which case you’ll probably get fewer events but with a much better match. A key element in this process is that a cloud will not be drawn if there are fewer than three events. In other words, your pattern must match some part of the price series at least three times. Thus, a key result is in the heading of Figure 5, which states that the cloud is based on the most recent 14 events.
o
therAnother feature of MetaStock XIV is the LCI trading system. It is so robust that it will take a second review to cover it sufficiently. Suffice it to say, it is a system based on support & resistance using support & resistance calculations and Fibonacci levels.
You can find a number of webinars on YouTube that will help you understand how to use the Forecaster feature and the LCI system. There is also friendly and knowledgeable support available at no extra cost.
s
ummaryWith navigation made easier and more features added to the Forecaster, this new iteration has made an outstanding
With navigation made easier and more features added to the Forecaster, this new iteration has made an outstanding