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Jim,
Thanks for one of the most useful posts I've seen on this mailing list
in a long time! You post is a real gold mine of trading ideas and
systems and deserves serious study by anyone getting more serious
about System Testing. It's wonderful when people post complete
trading systems and the reasoning behind their development.
Kudos to you,
Chip
---Jim Greening <jimginva@xxxxxxxxxxxxx> wrote:
>
> All,
> I've tweaked my existing MS 6.5 formulas, profit system tests,
> explorations, and expert and added a
> binary wave test. I sent an MS 6.5 import file with the revised
> formulas to everyone on my MS 6.5 formula
> list. If someone isn't on the list and wants to be added, just yell.
> I thought I'd take this opportunity to explain the binary wave
> test. The basic idea behind a MetaStock
> binary wave is to use if statements on several MetaStock indicators
> and have them return plus one for a
> bullish indication, minus one for a bearish indication, and zero for a
> neutral condition. Then you add them
> all up for your binary wave indicator. I decided to format all my
> indicators so they would plot as a
> histogram. For my indicators plotting as histograms, positive is
> bullish and negative is bearish. To cut
> down on whipsaws, I decided that over +5 would be bullish, under -13
> would be bearish and anything in
> between would be neutral. Therefore my binary wave formulas are:
> BW2 Demand Index
> If(Tema(DI(),21) > 5,+1,If(Tema(DI(),21) < -13,-1,0))
> BW3 Linear Regression Slope
> If(Tema(10000*LinRegSlope(C,34)/C,34) > 5,+1,
> If(Tema(10000*LinRegSlope(C,34)/C,34) < -13,-1,0))
> BW4 CCI
> If(Tema(CCI(21),21) > 5,+1, If(Tema(CCI(21),21) < -13,-1,0))
> BW5 ROC
> If(Tema(ROC(C,21,%),21) > 5,+1,If(Tema(ROC(C,21,%),21)
> < -13,-1,0))
> BW6 Money Flow
> If(Tema(MFI(21),21)-50 > 5,+1,If(Tema(MFI(21),21)-50
> < -13,-1,0))
> BW7 CMO
> If(Tema(CMO(C,21),21) > 5,+1,If(Tema(CMO(C,21),21)
> < -13,-1,0))
> BW8 VAR ma
> If(Mov(C,21,VAR) > Mov(C,55,VAR) AND HHV(Mov(C,233,VAR),5) =
> HHV(Mov(C,233,VAR),13),+1,If(Mov(C,21,VAR) < Mov(C,55,VAR)
> AND
> LLV(Mov(C,233,VAR),5) = LLV(Mov(C,233,VAR),13),-1,0))
> The next formula just adds up the binary wave.
> BW Add
> Fml("BW2") + Fml("BW3") + Fml("BW4") + Fml("BW5") +
> Fml("BW6") + Fml("BW7") +
> Fml("BW8")
> Next, I decided to do something a little different. Since the whole
> purpose of this test is to catch a trending
> stock, I decided to add an amplifier that would get larger as the
> trend got stronger. Since I like Fibonacci
> numbers, I decided to use Rsquared as a measure of trend strength and
> base my amplifier on Fibonacci
> numbers. The formula I finally came up with after a lot of tinkering
> follows.
> BW Amplifier
> If(RSquared(C,21) > 0.8,5,If(RSquared(C,21) >
> 0.6,3,If(RSquared(C,21) > 0.4,2,
> If(RSquared(C,21)>0.2,1,0))))
> The last step in constructing the binary wave was to decide on the
> smoothing and put it all together. Of course, I used tema smoothing.
> Tema Binary Wave Composite
> Tema(Fml("BW Add")*Fml("BW Amplifier"),21)
> The final step is to come up with a system test for the Tema
> Binary Wave Composite. Using the same
> rationale that I used on the Tema DI S/C that I explained a few weeks
> ago, I decide on a +8 crossover for
> my buy trigger and an optimized negative crossover for my sell
> trigger. I found that using optimized
> numbers for closing the long and entering the short worked best. I
> try to optimize just enough to get the
> test in the right ball park without over optimizing to the extent that
> I curve fit. Using cross over of positive
> and negative values that envelope the zero line for signals rather
> then the zero cross over helps reduce
> whipsaws. I also used the Alert function rather then just the cross
> over so I could confirm with other
> signals within a 13 day period. I decided to use Qstick and C being
> higher then the previous high or lower
> then the previous low for confirmations to reduce false signals.
> Therefore my buy signal became:
> Enter Long
> Alert(Cross(Fml("Binary Wave"),8),13) AND
> Tema(Qstick(34),34) > 0 AND
> C > Ref(H,-1)
> My sell signal became:
> Enter Short
> Alert(Cross(-opt2,Fml("Binary Wave")),8) AND
> Tema(Qstick(34),34) < 0 AND
> C < Ref(L,-1)
> Finally I wanted exit conditions that were less then full signal
> reversals, so I used the following
> Exit Long
> Fml("Binary Wave") < -opt1 AND
> Tema(Qstick(34),34) < 0
> Exit Short
> Fml("Binary Wave") > 0 AND
> Tema(Qstick(34),34) > 0
> Finally I also used Fibonacci numbers for my optimization
> Opt 1: Min 3, Max 13, Step 5
> Opt 2: Min 8, Max 34, Step 13
> That's it. I'd appreciate any comments, ideas, or suggestions
> for improvements.
> Jim
>
>
>
>
>
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