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Part 3: Designing a Trading System in Torrent MetaStock.
By
David Jenyns
In Part 2 of Designing a Trading System in torrent MetaStock I covered
how to code the first two of the four major components of a mechanical
entry system. I had explained the coding of price and liquidity. In
this article I will cover the steps for coding the remaining two components,
trend and volatility, into torrent MetaStock. In the end, you will
have the complete codes for a mechanical entry system.
Let's begin with trend identification. Remember the trend is your
friend when trading. You always want to trade with the torrent Metastock
trend, not against it. Think of it this way, if you were swimming
in the sea, and got yourself caught in a rip tide, is it easier to
swim with the current or against it? It is the same with trading with
a trend.
There are many ways to identify torrent MetaStock trends, and it's
not particularly important which method you use. You just need to
use one. One of my preferred methods for identifying trending stocks
is to find stocks that are trading at their current highs. You can
do this by stipulating that the highest high price must have been
achieved in the last x number of days.
Once again, the torrent MetaStock variables you use will depend on
the time frame you are trading. But for this example, you want the
highest high price in the last 240 days to have occurred in the last
20 days.
Using the formula reference section in the torrent MetaStock Programming
Study Guide, you can find the syntax of the highest high function,
and then plug in the details. Then, using the less than symbol,
you can specify the number of days must be less than 20. In torrent
MetaStock language that would be:
HHVBars(H,240) < 20
The final component to our entry system is the volatility measure.
The aim of including this formula is to identify stocks that move
enough for us to make a profit, yet aren't so erratic that they keep
you up at night. There are a few ways to measure torrent MetaStock
volatility. However, my favorite is the ATR method. The ATR indicates
how much a stock will move, on average, over a certain period. Torrent
MetaStock will help you identify this.
For example, a one-dollar stock might move five cents on average over
the last 20 days. You can divide this value by the price of the stock
and you will have the average percentage movement of a stock. With
these values, you can stipulate a minimum and maximum daily volatility
value.
For example: You may want the ATR, divided by the average closing
price, over the last 21 days, to be greater than 1.5%. Therefore,
the average minimum volatility must be greater than 1.5%.
Additionally, you may want the ATR divided by the closing price, over
the last 21 days, to be less than 6%. This sets the average maximum
volatility at less than 6%. In MetaStock language that would be:
ATR(21)/Mov(C,21,S)*100 > 1.5 and
ATR(21)/Mov(C,21,S)*100 < 6
Putting all our code together, you see what your entry system looks
like:
C>1 and++Mov(v,21,s)*C > 200000 and
HHVBars(H,240) < 20 and
ATR(21)/Mov(C,21,S)*100 > 1.5 and
ATR(21)/Mov(C,21,S)*100 < 6
You now have now a workable entry system. Not only did you construct
a robust system, but it also adheres to the KISS principal (Keep It
Simple Simon). This system can be cut and pasted into the Explorer
within torrent MetaStock. However, the entry is only the beginning
of a successful trading system. In later parts of this series, you'll
find the rest of the components that you need to design a torrent
MetaStock trading system.
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