Getting Started with Trading Strategies, Chart Analysis, and Indicators

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Member NYSE, FINRA, NFA and SIPC

20090707-A

TradeStation

®

Securities

Getting Started with

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20090707_A

Important Information and Disclaimer:

TradeStation Securities, Inc. seeks to serve institutional and active traders. Please be advised that active trading is generally not appropriate for someone of limited resources, limited investment or trading experience, or low risk tolerance, or who is not willing to risk at least $50,000 of capital.

This book discusses in detail how TradeStation is designed to help you develop and test trading

strategies. We offer you unique tools to help you design your own strategies and look at how they could have performed in the past. While we believe this is very valuable information, we caution you that simulated past performance of a trading strategy is no guarantee of its future performance or success. We also do not recommend or solicit the purchase or sale of any particular securities or securities derivative products. Any securities symbols referenced in this book are used only for the purposes of the demonstration, as an example; not a recommendation.

Finally, this book shall discuss automated electronic order placement and execution. Please note that even though TradeStation has been designed to automate your trading strategies and deliver timely order placement, routing and execution, these things, as well as access to the system itself, may at times be delayed or even fail due to market volatility, quote delays, system and software errors, Internet traffic, outages and other factors.

All proprietary technology in TradeStation is owned by TradeStation Technologies, Inc., an affiliate of TradeStation Securities, Inc. The order execution services accessible from within TradeStation are provided by TradeStation Securities, Inc. pursuant to a technology license from its affiliate and its

authority as a registered broker-dealer and futures commission merchant. All other features and functions of TradeStation® and EasyLanguage ® are registered trademarks of TradeStation Technologies, Inc. “TradeStation”, as used in this document, should be understood in the foregoing context.

Option Risk Disclosure

Option trading carries a high degree of risk. Purchasers and sellers of options should familiarize themselves with option trading theory and pricing, and all associated risk factors. Please read the Characteristics and Risks of Standardized Options available from the Options Clearing Corporation website: http://www.optionsclearing.com/publications/risks/riskstoc.pdf or by writing TradeStation Securities, 8050 SW 10 Street, Suite 2000, Plantation, FL 33324.

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20090707_A

Charting

Chart Analysis Windows

Chart Analysis windows, or charts, are used to display price data, for historical and real-time technical analysis and also for strategy back-testing and automation.

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Format Symbol

You can change the settings and appearance of a Chart Analysis window by formatting the symbol. To access the Format Symbol dialog, click on Format – Symbol… menu sequence or right-click on the background of a Chart Analysis window and click on Format Symbol…. The Format Symbol dialog has four tabs with all the settings to customize the data and appearance in a Chart Analysis window.

Settings tab

In the Select Interval box, you can choose the method used to build bars. Interval refers to the rule that will be used to determine when a bar (or column, etc.) closes and the next begins. TradeStation offers intervals that are time-based, activity-based, and price-based.

Under the section labeled Range, you can specify the amount of historical data to load. Historical data can be a specific number of days, weeks, months, or years back. It can also be a specific number of Bars Back, or it can be a range between a First Date and a Last Date.

Note: In order for a Chart Analysis window to update real-time, Last Date under Range must be the

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Time-based Intervals

Intraday bars: each bar represents the trading

activity within a user-defined number of minutes.

Daily bars: each bar represents the trading

activity from the beginning to the end of the symbol‟s trading session (1 day).

Weekly bars: each bar represents the

trading activity from the beginning of the week to the end.

Monthly bars: each bar represents the

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Activity-based Intervals

Tick bars: each bar represents the trading

activity within a user-defined number of trades.

Volume (Share) bars: each bar represents

the trading activity within a user-defined number of shares traded.

Price-based Intervals

Kagi Chart

Kagi charts display a series of connecting vertical lines whose thickness and direction are dependent on price direction. When the market moves in the same direction as a prior Kagi line, the line will be extended. When the market moves in the opposite direction by at least the reversal amount, a new Kagi line in the opposite direction will be displayed. The color and width of the Kagi line changes when the Kagi line breaks a prior high or low.

Kase Chart

Kase charts create bars with a true range based on a user's specified Target Range value by using only real price data. Kase Bar charts look like a traditional bar (or

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Line Break Chart

The Line Break is made up of a series of vertical blocks called lines. Line Break charts are most commonly set to three, and are known as "three-line break" charts. A break of the lowest low of the last three up lines will generate a down line. A break of the highest high of the last three down lines will generate an up line.

Momentum Bar Chart

The size of Momentum bars will always be the range size set by the user and will never be anything smaller or larger unless it is the current bar that is building. Since a new bar cannot be started until the specified Range is exceeded, the open of each Momentum bar is always one price tick above or below the close of the previous Momentum bar. There are no gaps displayed on Momentum bar charts so, when there is a price gap in the underlying data, "virtual bars" will be inserted to fill in the gap.

Range Bar Chart

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Renko Bar Chart

When the market moves in the same direction of the prior Renko brick by the specified Brick Size, a new brick will be added in the same direction as the prior brick. When the market moves in the opposite direction of the prior brick by twice the specified Brick Size, a new Renko brick will be added in the opposite direction of the prior brick. If there is no significant change in price, i.e. the price oscillates within the range of the last brick, no new brick will be added.

Point & Figure Chart

Point & Figure charts filter out time and insignificant price changes, leaving a chart that contains only relevant price

movements. Rising prices are displayed as columns of Xs and falling prices are

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Style tab

This tab lets you select the display style for the chart, including colors and weights. In the Bar type box, the available styles are:

OHLC (open, high, low, close) Bar HLC (high, low, close) Bar

Candlestick

Candlestick with Trend Dot on close

Line on close

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Chart Styles

On the Style tab, Bar Type refers to the display style for the bars in the chart. It is independent of data interval, although some price-based intervals are restricted to only their traditional Bar Type setting.

OHLC – Displays the open, high, low, and close for each bar HLC – Displays the high, low, and close of each bar

Candlestick Chart

The candlestick chart uses the same price data as a bar chart. The "thick" part of the candlestick is known as the "real body" and represents the range between the open and closing prices. A green real body represents a bullish candle - the close price was higher than the open price. A red real body represents a bearish candle - the close was lower than the opening price. The thin line above the body extends to the high, and the thin line below the body extends to the low.

Candlestick with Trend – Displays candlestick bars with hollow and filled bodies. A hollow body

represents a bullish candle - the close price was higher than the open price. A filled body represents a bearish candle - the close was lower than the opening price. The bar color is used to indicate the trend direction. By default, green indicates the current bar close is greater than the previous close, red indicates the current bar close is less than the previous close, and gray indicates no change in close from the previous to current bar.

Dot on close – Paints a single dot at the close of each bar. Line on close

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Scaling tab

This tab has selections for setting the style and range of the chart scaling.

Under Type, selecting Linear, which is the default, produces a scale on which the height of each price increment is equal regardless of the price of the symbol; Semi-Log produces a scale on which the height of each price increment is weighted towards percent of price.

A Chart Analysis window containing text annotations, drawing objects or Trendlines may need additional space above and below the bars. You can select Sub-graph Margins under the Range section to add space above and below sub-graphs based on a percentage of the chart scale.

Custom Axis Increment, under the Display section, allows you to add more price detail to the price

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Properties tab

The Properties tab provides access to settings for sessions in an intraday chart. These include Pre and Post market sessions for stocks as well as Custom Sessions. Click the View/Customize… button to see session selections and details.

Sessions provided are: Regular market session 24 Hour session

US Stock with Post-market session (stocks) US Stock with Pre & Post Market session (stocks) US Stock with Pre-market (stocks)

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Background Dragging

Enabling Background Dragging on a chart allows you to change the scaling of a sub-graph by dragging the sub-graph background or any selected object using the mouse.

To enable Background Dragging, right-click on the background of a chart, select Background Dragging from the menu and click on Enable.

You may also click on the Background Dragging button on the toolbar.

With Background Dragging enabled, the mouse pointer changes to a hand which lets you click and drag to move the background horizontally or vertically to display different sections of the chart window; all indicators and other chart features in a sub-graph will move together.

You may also adjust the price scale manually by clicking directly on the price axis area and dragging the mouse pointer up to expand the scale or down to contract the scale.

To disable Background dragging, right-click on the background of the chart, select Background

Dragging from the menu and you have two options: restoring the original scale range or maintaining the

new scale and range. Maintaining the new scale range means that the price scale is fixed and any price fluctuations outside this new range will not be displayed in your Chart Analysis window.

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Analysis Techniques

Analysis Techniques is the name used to refer to a variety of market analysis tools in TradeStation. To access the TradeStation supplied analysis techniques, click on Insert – Indicator menu sequence. This will display the Insert Analysis Techniques dialog which contains market analysis tools listed in five different tabs. You may also right-click on the background of a Chart Analysis window and click on Insert

Analysis Techniques… to access the same dialog.

All supplied Analysis Techniques for charting are written in EasyLanguage and the formulas may be viewed, copied or modified. From the Insert Analysis

Techniques dialog, select the analysis

technique and click the Edit

EasyLanguage… button. This will open

the EasyLanguage document for that specific analysis technique.

To view a synopsis of the technique, click the Definition button to open the

TradeStation Help on that specific topic;

this will provide additional information on how to format and interpret the analysis technique.

There are five different types of analysis techniques supplied in TradeStation: Indicators, ShowMe studies, PaintBar studies, ActivityBar studies, and ProbabilityMap studies.

Indicators

Generally, Indicators are Analysis Techniques that graphically represent mathematical formulas. In a Chart Analysis window, an Indicator is usually displayed using lines or histograms. TradeStation comes with a very large selection of Indicators ready for you to use. These include moving averages, stochastic and ADX, just to name a few.

ShowMe Studies

A ShowMe study is an Analysis Technique that places a marker on each bar that meets a specified condition. The condition might be notably high volume or an unusually large range. TradeStation‟s selection of Analysis Techniques includes many ShowMe studies for your convenience.

PaintBar Studies

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Inputs

Inputs are user-editable values (parameters) used by TradeStation to perform the calculations in its set of instructions or rules. For example, inputs could be the PRICE, FASTLENGTH, and SLOWLENGTH values used to calculate two moving averages (see picture below). Inputs are designed to be edited by the user while working in the Chart Analysis window and without knowing or editing the underlying EasyLanguage.

To access the Inputs of any analysis technique, click on Format – Analysis Techniques… menu sequence, select the analysis technique to format, and click the Format… button on the dialog. This will

display the Format dialog for that specific analysis technique. Click on the Inputs tab to view all editable inputs.

Depending on the analysis technique and the inputs you are editing, you can also use formulas, numeric expressions, true/false expressions, or functions as the input value. For example, in the Format

Indicator: Mov Avg 2 Line dialog shown in the picture above, instead of just using Close for the Price

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Multi-Data Analysis

TradeStation allows you to plot more than one data set or symbol in a single Chart Analysis window. In fact, for detailed comparative analysis, you may include as many as 50 different data sets or symbols in a single Chart Analysis window. By default, each additional symbol is plotted beneath the other in a separate sub-graph and is assigned its own data-stream number. For example, you might combine a futures symbol with a cash market symbol to view their relationship, or an option symbol with the underlying asset‟s symbol to view correlation.

To insert a second symbol or data stream into a Chart Analysis window, click on Insert – Symbol… menu sequence, type the symbol in the Symbol box, and click on Plot. You may also access the Insert

Symbol dialog by right-clicking on the Chart Analysis window and clicking Insert Symbol… from the

menu.

There are several analysis techniques in TradeStation that utilize multiple symbols. For example the

Spread – Diff indicator calculates the difference between the first and the second symbols in a Chart

Analysis window. Using the Chart Analysis window in the picture above the Spread – Diff indicator would plot as follows:

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Percent Change Charts

A Percent Change Chart provides a convenient way of comparing market performance. These charts may display a single data set or be created from multi-data charts. In this example, the percent changes of three symbols are compared from the end of the prior calendar year.

To create a Percent Change Chart, right click on the background of a chart and from the right-click menu select Percent Change Chart – Enable. For multi-data analysis, insert additional symbols by using the Insert – Symbol menu sequence from the menu bar.

By default, the Percent Change Chart starts calculating percent change from the first bar on the chart. To begin the calculation from a different starting point, right click anywhere on the Chart Analysis window, select Percent Change Chart from the right-click menu, and you can choose from three different options:

Calculate from first bar, Calculate from last bar, or Calculate from this bar.

To disable Percent Change Chart, right click on the Chart Analysis window, select Percent Change

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Drawing Objects

The Drawing menu provides access to graphic tools that you may draw onto a chart. These include analytical tools such as Regression Channels, Fibonacci Tools or Andrew’s Pitchfork. Other Drawing tools are available for making notes and adding markers to a chart: Ellipse, Text, etc.

Some of the drawing objects will require you to click once, twice, or even three times on the Chart

Analysis window in order to draw. For example, a Horizontal Line will require just one click; a Trendline requires two clicks (a starting point and an ending point), Andrew’s Pitchfork requires three clicks, etc. All drawing objects can be formatted for color, style, and display. The only ways to access the Format dialog for a drawing object are by right-clicking or double-clicking on it. For example, to change the color and width of a Trendline, right click on the Trendline and from the right-click menu click on Format

‘Trendline’…, click on the Style tab to change the color and width.

You may also turn on Alerts for most analytical drawing tools. From the Format dialog, click the Alerts tab and put a check in the Enable Alert checkbox.

Note: If you use Drawing tools frequently, you may find it convenient to add the Drawing toolbar to your

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Strategy Testing and Optimization

Strategy trading is using a set of trading rules to systematically enter and exit the market, typically based on technical indicators. TradeStation can also employ strategies based on fundamental data for stocks. Strategy testing in TradeStation is done in Chart Analysis windows.

Strategies or groups of strategies may be inserted into charts for the purpose of testing historical

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Using Strategies

Dozens of Strategy components, based on most of the standard technical indicators and many fundamental data fields, are supplied with TradeStation. This gives you the ability to test many of the indicators you already use every day. In addition, there are exit strategies for Stop Loss, Profit Targets, Trailing Stops, and many others. Together, these allow you to build and test complex strategies by combining different strategy components.

To access the TradeStation built-in

Strategies, click on Insert – Strategy menu sequence. This will display the Insert

Strategies dialog. You may also right-click

on the background of a Chart Analysis window and click on Insert Strategy… to access the same dialog.

All supplied Strategies are written in EasyLanguage and the formulas may be viewed, copied or modified. From the Insert

Strategies dialog, select the Strategy and

click the Edit EasyLanguage… button. This will open the EasyLanguage document for that specific Strategy.

Note: When you are working in a Chart Analysis window containing multiple symbols, Strategies are

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Formatting Strategies

To format Strategies, click on Format – Strategies… menu sequence and the Format Analysis

Techniques & Strategies dialog will appear displaying all Strategies. The Status button on this dialog

allows you to turn off any Strategy component that you wish to disable without removing it from the Chart Analysis window; clicking Status a second time will enable it. The Remove button will remove the highlighted Strategy from the list.

Each Strategy applied to a Chart Analysis window has its own Format Strategy dialog, containing an

Inputs tab. This allows you to test each Strategy with different Input values. On the Format Analysis Techniques & Strategies dialog, select the Strategy you wish to format and click the Format… button.

In the Format Strategy dialog, click the Inputs tab to make changes to the Inputs of that specific Strategy.

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Strategy Properties

From the Format Analysis Techniques & Strategies dialog, click the Properties for All… button to set such Properties as commission and slippage amounts to be used in your back-testing.

Commission and Slippage amounts can be entered per Trade or per Share/Contract. You may also adjust the strategy trade size by entering the quantity in the box next to Fixed Shares/Contracts or a dollar amount if using the Dollar(s) per trade option.

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Strategy Performance Report

The Strategy Performance Report provides a detailed view of how well a strategy might have performed for the period and on the data being tested.

It contains a series of tabbed pages that allow you to view detailed and summarized reports, graphs, and analysis of all the trades that would have been generated by the Strategy's criteria.

The Strategy Performance Report can be accessed by clicking View – Strategy Performance Report menu sequence.

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Strategy Optimization

Optimization is the process of testing a range of input values for the purpose of fine-tuning a trading strategy. TradeStation‟s optimization feature allows you to test a range of values for any number of numeric inputs simultaneously. TradeStation will then generate a Strategy Optimization Report displaying results from these tests.

To optimize Inputs in a Strategy, go to the Format Strategy dialog for the specific Strategy you wish to optimize, click on one of the numeric Inputs, and then click on the Optimize… button. In the Optimize dialog select the range of Inputs to test and the Increment to be used in stepping through the range of Input values.

Once the optimization is complete, you may view an Optimization Report by clicking on View – Strategy

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Strategy Automation

A Strategy is considered automated when you apply the Strategy, or group of Strategies, to a live Chart Analysis window and enable at least the first automation checkbox. As new data is collected, the corresponding Strategy orders are automatically generated.

To automate the execution of your Strategy orders, click on Format – Strategies… menu sequence and,

towards the bottom of the Format Analysis Techniques & Strategies dialog, you will find the Automation checkboxes.

TradeStation has two „levels‟ of Strategy Automation:

Generate strategy orders for display in TradeManager’s Strategy Orders tab

This checkbox, used alone, will track hypothetical positions and create a real-time log of orders in the TradeManager window but will NOT send orders to the market for execution.

Automate execution using 1234567 account with confirmation On/Off

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24 Before automating execution, you will be asked to read the Enable Order Generation disclaimer and confirm your intention to turn on automated order generation. If you agree, it will apply only to the Strategy, or Strategies, running in this Chart Analysis window.

To disable Strategy automation you may click on Format – Strategies… menu sequence and uncheck the Automation checkboxes. A shortcut to disable automation is to right click on the Strategy

Automation indicator SA located at the top left corner of the Chart Analysis window and click on Disable

Strategy Automation.

To disable Strategy Automation on all Chart Analysis windows at once, click on the Lock/Unlock Order

Placement button on the Toolbar, and, in the drop-down menu, click on Disable All Strategy

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TradeStation Support Resources

New clients who log on to TradeStation for the first time will be greeted with the Learning Center and a welcome video that automatically starts playing when the platform is opened. These provide useful

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Using the TradeStation Help

The TradeStation Help is accessible from the Help menu, and from the Help section of the Shortcut Bar. It is installed on your computer when you download and install TradeStation.

The TradeStation Help is your ready reference to descriptions of product features and detailed procedural instructions on their use. In addition, TradeStation Help includes definitions of

EasyLanguage Analysis Techniques, Functions, and Strategies along with other conceptual topics relating to the use of the TradeStation platform.

TradeStation Help provides you with multiple ways to locate TradeStation information.

Contents: This tab groups help topics by category. Click the + to the left of the purple books to expand a

category. Click the – to collapse a category. Click on a topic name to view the related topic.

Index: The Index tab lists keywords and phrases to help guide you to related topics within the Help.

Type a keyword or select it from the list, then click Display to view the related topic.

Search: Use this tab to find occurrences of word(s) within help topics. Once a list of topics is displayed,

you may click on any of the column headers to sort the list.

Favorites: Create your own list of pages that you refer to frequently or wish to revisit. To add topics to

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Using the TradeStation Support Center

The TradeStation Support Center offers a variety of account and platform support resources. The navigation bar on the left has the following sections:

Account Services: Provides you the ability to open and manage accounts including access to

balances, positions, activity, and other account services.

TradeStation Platform: Download a new version or reinstall TradeStation, change features and

services in your account, and find out what is new in TradeStation as new versions are released.

Tutorials, Seminars and Books: See next page.

Trading Strategy Resources: The EasyLanguage Library and other analysis

resources.

Support: Discussion forums, FAQs, and more.

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Tutorials, Seminars and Books

This section of the Support Center provides access to a range of TradeStation training resources for everyone from the new user to the experienced trader.

The Online Tutorials are short audio-visual presentations designed to familiarize you with TradeStation's features: windows, Analysis Techniques, strategy testing, etc.

To start a tutorial, click the Online Tutorials header and select the title from the list that appears to the right. To enhance your learning experience, we encourage you to listen to the audio narration along with the video.

Note: Tutorials use a Flash plug-in and require that a properly configured version be installed on your

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29 TradeStation QuickTips offer an easy way to learn about the many advanced features of TradeStation. Each QuickTip is a short, narrated video demonstration of a spotlighted feature. To view a QuickTip, click on the Play button to the right of its description.

TheLiveOnTheWeb header provides access to web-based classes on a variety of topics.

Getting Started with TradeStation is a LiveOnTheWeb educational program designed to help you better

utilize the power of TradeStation. The program is divided into three sessions, each covering different aspects of using TradeStation. Learn how to use TradeStation's Order Bar for manual order entry, including powerful advanced orders. Find out how you can track your positions with TradeStation's real-time TradeManager. See how TradeStation's Matrix window combines order, position and market

information into a single order-entry and trade-management window. Discover how to back-test your own trading strategies to simulate how they would have performed in the past, and then how to automate your strategy orders. Although we suggest that you view and participate in these sessions in sequence, you may do so in any order and as often as you like.

Other LiveOnTheWeb presentations cover a range of topics from basic uses of TradeStation to more advanced concepts and EasyLanguage. Some include conversations with noted guests: traders, authors, analysts, etc. Click Schedule to see the list of upcoming presentations and register to attend.

In the On-Demand Catalog you will find archived LiveOnTheWeb classes. They are organized onto tabs labeled

Essential Tools Market Analysis Strategy Trading EasyLanguage Special Events

Note: Seminars require that a properly configured version of the Microsoft Media Player be installed on

your system.

Live Classes and Events are held in our own offices and in major cities across the country. The

purpose of these classes and special events is to help you take full advantage of TradeStation features including advanced analysis and order execution capabilities, as well as strategy backtesting and automation. Here you will find descriptions of the classes, class calendar, and registration information.

TradeStation Books displays a variety of books, in hard copy and digital formats, on using TradeStation,

EasyLanguage, and on market topics.

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Recommended Learning Resources

Online Tutorials

Charting Basics

Charting Analysis Techniques Introduction to Strategy Trading Strategy Testing & Optimization Strategy Automation

Introduction to EasyLanguage

LiveOnTheWeb Seminars

Mastering Drawing Tools in TradeStation Charting TradeStation Charting Basics

Working with TradeStation Analysis Tools Introduction to Technical Analysis

Candlestick Analysis in TradeStation Multi-Data Analysis

Volume and Tick Bars: Activity-Based Intervals Introduction to Strategy Trading

Building Strategies Using TradeStation‟s Built-in Strategies Components Real-world Strategy Automation

Strategy Performance Report Analysis

QuickTips

Click the link below to access the QuickTips webpage:

https://www.tradestation.com/support/webinars/quicktips.aspx Window Linking in TradeStation

TradeStation Symbol Lookup

Adding Real-Time data to your TradeStation Platform Understanding Candlestick with Trend

Copy/Paste Window Feature is a Real Time-Saver The Data Window in Charting

Using an Automated Strategy to Exit a Position

Customize Indicators and Strategy Calculations with Inputs Import Indicators and Strategies

Building Simple Trading Strategies Without EasyLanguage Working with Analysis Groups in Charting

Charting 90 years of historical Dow Jones Industrials data Drawing Trendlines

Percent Change Charts

Setting the Pointer Tracking Mode Scrolling though the Bars in a Chart

Getting Started with Trading Strategies, Chart Analysis, and Indicators

TradeStation

Securities

Getting Started with

Important Information and Disclaimer:

Option Risk Disclosure

Table of Contents

Charting

Chart Analysis Windows

Format Symbol

Settings tab

Time-based Intervals

Activity-based Intervals

Price-based Intervals

Renko Bar Chart

Point & Figure Chart

Style tab

Chart Styles

Scaling tab

Properties tab

Background Dragging

Analysis Techniques

Indicators

ShowMe Studies

PaintBar Studies

Inputs

Multi-Data Analysis

Percent Change Charts

Drawing Objects

Strategy Testing and Optimization

Using Strategies

Formatting Strategies

Strategy Properties

Strategy Performance Report

Strategy Optimization

Strategy Automation

TradeStation Support Resources

Using the TradeStation Help

Using the TradeStation Support Center

Tutorials, Seminars and Books

Recommended Learning Resources

Online Tutorials

LiveOnTheWeb Seminars

QuickTips