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<META content=text/html;charset=iso-8859-1 http-equiv=Content-Type><TITLE>What is a System Test and how do I create one?</TITLE><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><!DOCTYPE HTML PUBLIC "-//W3C//DTD W3 HTML//EN"><BASE
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<DIV><FONT color=#000000 size=2>This is a HTML-page best viewed in browser or
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<DIV>Freshly explained(below) from the Equis' excellent web-site:</DIV>
<DIV><A
href="http://www.equis.com/customer/faqs/sy00001.html";>http://www.equis.com/customer/faqs/sy00001.html</A></DIV>
<DIV> </DIV>
<DIV>More additional and very informative "support" also to be found
at Equis website:</DIV>
<DIV><A
href="http://www.equis.com/customer/techsupport/home.html";>http://www.equis.com/customer/techsupport/home.html</A></DIV>
<DIV>and on other pages as well, so try ALL of the
"press-link"-buttons available.</DIV>
<DIV><FONT size=5></FONT> </DIV>
<DIV><FONT size=5>What is a System Test and how do I create one?</FONT> </DIV>
<P><FONT size=1>REV. 01/06/97<BR><BR></FONT>
<P><FONT size=2>System testing involves the development and testing of trading
systems to determine the systems' historical profitability. System testing helps
answer the question, "If I had traded this security using these trading
rules, how much money would I have made or lost?" </FONT>
<P><FONT size=2>You can use MetaStock™ to: </FONT>
<UL>
<LI><FONT size=2>Write trading systems using your own trading rules. </FONT>
<LI><FONT size=2>Test your trading systems. </FONT>
<LI><FONT size=2>Examine the test results by plotting buy/sell arrows and
equity lines, and by examining tabular reports. </FONT>
<LI><FONT size=2>Automatically optimize parameters within your trading rules
to improve the results. </FONT>
<LI><FONT size=2>Compare trading systems to find out which trading system
works best on a particular security. </FONT></LI></UL>
<P><FONT size=2>How do I create a system test? </FONT>
<P><FONT size=2>System trading rules use the same syntax as custom indicators.
If you are unfamiliar with custom indicators, you should read the Formula
Tutorial (see Formula Tutorial) which is located in HELP, CONTENTS, TESTING YOUR
TRADING IDEAS, and then SYSTEM TESTER TUTORIAL. </FONT>
<P><FONT size=2>When developing trading systems, please keep in mind that
technical analysis is a dynamic tool (possibly an art) and as such, no
mechanical system is flawless. Don't let yourself get caught in the trap of
"overfitting" your system to a specific set of data. For tips on
system development, see System Development Tips in the help file. System
Developments is also located in HELP, CONTENTS, and then TESTING YOUR TRADING
IDEAS. </FONT>
<P><FONT size=2>Every trading system contains four trading rules. The trading
rules specify when long/short positions should be opened/closed. Trading systems
may also have optimization variables and stops. MetaStock can store up to 1000
system tests. </FONT>
<P><FONT size=2>To create a new system, click the New button in the System
Tester dialog. After you choose New, the System Editor dialog appears. The
System Editor dialog lets you name the system test, store notes regarding the
system, and define the four trading rules. </FONT>
<P><FONT size=2>Remember that a trading system can be in one of three different
states: long, short, or out. When out, simple interest is earned at the rate
specified in the System Testing Options dialog. </FONT>
<P><FONT size=2>You use the four tabs to select which rule to display and edit.
</FONT>
<UL>
<LI><FONT size=2>Enter Long: This rule specifies when the system should buy
long. A long position can only be entered when the system is short or out.
When in a long position, this rule is ignored. </FONT>
<LI><FONT size=2>Close Long: This rule specifies when the system should
close a long position. When in a short or out position, this rule is
ignored. </FONT>
<LI><FONT size=2>Enter Short: This rule specifies when the system should
sell short. A short position can only be entered when the system is long or
out. When in a short position, this rule is ignored. </FONT>
<LI><FONT size=2>Close Short: This rule specifies when the system should
cover (i.e., close) a short position. When in a long or out position, this
rule is ignored. </FONT></LI></UL>
<P><FONT size=2>A trading rule always returns a "true" or
"false" signal. When the trading rule condition is true, the
corresponding trade (e.g., enter long, enter short, etc.) is taken. When the
condition is false, no action is taken.<BR></FONT>
<P><FONT size=2>Here are a few examples of what you can use for your long
positions and your short positions. </FONT>
<P><FONT size=2>Note: Trading rules are entered using the same syntax as custom
indicators. This syntax is very similar to the syntax used to enter formulas in
spreadsheets.<BR></FONT>
<P><FONT size=2>The following example illustrates a trading rule: </FONT>
<P><FONT size=2>Enter Long: cross(CLOSE, mov(CLOSE,12,Simple)) </FONT>
<P><FONT size=2>If this were entered as the Enter Long rule, the system would
enter a long position when the close crossed from below to above a 12-period
simple moving average of the close.<BR></FONT>
<P><FONT size=2>Similarly, the following trading rule would be triggered if the
MACD is greater than zero. (The "macd()" in this rule is a function,
see MACD). </FONT>
<P><FONT size=2>Enter Long: macd() > 0 <BR></FONT>
<P><FONT size=2>All custom indicator functions (e.g., macd()) can be used in
trading rules. A specific custom indicator can be referenced using the fml()
formula as shown below: </FONT>
<P><FONT size=2>Enter Short: fml("My Formula") > 0<BR></FONT>
<P><FONT size=2>You can combine multiple functions within a trading rule using
the AND and OR operators as shown below. </FONT>
<P><FONT size=2>Enter Long: macd() > 0 AND CLOSE > mov(CLOSE,12,S) </FONT>
<P><FONT size=2>The above rule requires that the MACD be above zero and that the
close be above its 12-period simple moving average.<BR></FONT>
<P><FONT size=2>The following rule uses the OR operator to generate a trade when
the MACD falls below zero, or when the close falls below its moving average.
</FONT>
<P><FONT size=2>Close Long: macd() < 0 OR CLOSE <
mov(CLOSE,12,S)<BR></FONT>
<P><FONT size=2>Multiple ANDs and ORs can exist within a trading rule. The best
way to control the precedence (i.e., the order of operation) of multiple ANDs
and ORs within a trading rule is by using parentheses as shown in the following
trading rule: </FONT>
<P><FONT size=2>Enter Long: (macd() > 0 AND C > 100) OR H-L>5 </FONT>
<P><FONT size=2>The preceding trading rule will generate a trade when either of
the following conditions are met: </FONT>
<UL>
<LI><FONT size=2>The MACD is above zero and the close is above 100 (i.e.,
both of these conditions are met). </FONT>
<LI><FONT size=2>The high minus the low is greater than five. </FONT></LI></UL>
<P><FONT size=2>You can select the Functions button when editing the trading
rules (you must be editing the trading rules, not the name or notes). The Paste
Functions dialog with a list of the available functions will then be displayed.
Double-clicking on a function name will insert the function into the trading
rule at the current cursor location.<BR></FONT>
<P><FONT size=2>Trading rules may be left blank. However, blank rules never
generate trades. </FONT>
<P><FONT size=2>Trading rules may only access the security's price data (e.g.,
high, low, close, etc.) and custom indicator functions. Trading rules may not
reference the trading system itself (e.g., the number of days since the last
trade). However, several of the stops perform this functionality.<BR></FONT>
<P><FONT size=2>A special variable called the "P" variable can be used
to reference any selected price or indicator plot. See The "P" Data
Array Identifier in the MetaStock™ manual for more information on the
"P" variable. <BR></FONT>
<P><FONT size=2>Entering Stops </FONT>
<P><FONT size=2>In addition to trading rules, each trading system can have up to
five "stops." Stops are used to close long and/or short positions
based on the position's gains/losses. For example, the Maximum Loss stop will
close a position if it loses more than a specified amount. </FONT>
<P><FONT size=2>When a stop is triggered, the position is closed regardless of
the current status of your trading rules. </FONT>
<P><FONT size=2>You specify the parameters at which the stops are triggered and
the positions that the stop can close (i.e., long and/or short). </FONT>
<P><FONT size=2>Stops automatically take entry and exit commissions into
account. For example, the Maximum Loss stop knows the amount of your
"exit" commission and will attempt to close the position so the
maximum loss will not be exceeded after you pay the exit commission. </FONT>
<P><FONT size=2>Stops are set by clicking the Stops button from the System
Editor dialog. The following are the stops that are available in MetaStock.
<BR></FONT>
<P><B><FONT size=2>Breakeven</B> </FONT>
<P><FONT size=2>This stop closes an open position when the closed-out value of
the position would fall below the current equity amount (i.e., the equity amount
at the time the current trade was opened). The stop is placed at the price where
the trade could be closed and the proceeds generated would equal the current
equity amount. </FONT>
<P><FONT size=2>To prevent this stop from being executed every time a position
is opened (because commissions ensure there is never a profit when a trade is
first opened), the Breakeven stop is enabled only after the profit for the trade
meets or exceeds the user specified "floor level." </FONT>
<P><FONT size=2>Tip: If the floor level is set to zero, the Breakeven stop will
become enabled only after the security's price increases to the point where the
position could be closed without incurring a loss. <BR></FONT>
<P><B><FONT size=2>Inactivity</B> </FONT>
<P><FONT size=2>This stop closes an open position when the security's price does
not generate a minimum positive price change within a specified time period. (A
"positive price change" is defined by an upward price movement while
in a long position and a downward price movement while in a short position.)
Type the Minimum Change and the number of Periods. The Method to use when
calculating the Minimum Change can be specified in Percentage or Points. </FONT>
<P><FONT size=2>Example: If you specify 1% as the Minimum Change and 20 as the
number of Periods, MetaStock will automatically close any long (short) positions
where the security's price has not increased (decreased) by at least 1% within
any 20-period time frame. </FONT>
<P><FONT size=2>This stop analyzes changes in price, not equity, and therefore
ignores commissions. <BR></FONT>
<P><B><FONT size=2>Maximum loss</B> </FONT>
<P><FONT size=2>This stop closes an open position when the losses resulting from
the trade exceed the specified Maximum Loss amount. </FONT>
<P><FONT size=2>Example: If you set the Maximum Loss to 5%, positions will be
closed when losses exceed 5% of your current equity (including commissions).
</FONT>
<P><FONT size=2>Warning: If you set the Maximum Loss to a value that is less
than or equal to the Entry Commission, every trade will be closed immediately
after opening the position, because all trades will have a loss the moment they
are entered (due to commissions). <BR></FONT>
<P><B><FONT size=2>Profit target</B> </FONT>
<P><FONT size=2>This stop closes an open position when a specified Profit Target
level is reached. </FONT>
<P><FONT size=2>Example: If you specify 10% as the profit target, open positions
will be closed when they generate a 10% increase in your current equity (after
considering the effect of commissions). <BR></FONT>
<P><B><FONT size=2>Trailing</B> </FONT>
<P><FONT size=2>This stop closes an open position when a specified amount (i.e.,
Profit Risk) of the current position's profits are lost. </FONT>
<P><FONT size=2>Each time a position's profits reach a new high, the Trailing
stop is placed at a level that allows a specified portion of the position's
profits to be lost. You specify the amount of the loss in the Profit Risk box
(using either Percent or Points method). </FONT>
<P><FONT size=2>MetaStock allows you to specify the number of Periods to ignore.
For example, if you specify "4" for the Periods, then the Trailing
stop will lag by four periods. This means that the last four periods' profits or
losses will be ignored when determining the current stop level. This filters out
any price swings (up or down) that occur during the last four periods. </FONT>
<P><FONT size=2>This stop is designed to lock in profits, not to limit losses.
The Trailing stop only limits the amount of profits that can be lost. Losses are
limited by the Maximum loss stop. </FONT>
<P><FONT size=2>Since trailing stops are determined by the profit level, not the
price level, no special considerations exist for short positions. </FONT>
<P><FONT size=2>Example: 5% is specified for the Profit Risk, 0 for the Periods,
and your current position has a profit of $100.00. The stop would be triggered
if the change in the security's price caused your profits to drop to $95.00 (or
less). <BR></FONT>
<P><I><FONT size=2>Due to the inherent complexity in the design and creation of
trading systems, Equis International cannot provide free support for this
process. However, support is available for a fee. Please complete the Custom
Request.DOC you will find in the MSWin 6.0 folder. It is also available in our
forums on CompuServe and America On Line, as well as from our web site
www.equis.com. Or call our support department at 801-265-9998 for details and to
request the necessary form. </FONT></I></P></BODY></HTML>
</x-html>From ???@??? Wed Jul 08 08:53:46 1998
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Date: Wed, 8 Jul 1998 09:40:26 +0000
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Subject: Re: MIRAT went Long July 3
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My systems also went long BUT ... there are alot of divergences.. the
rally in the US is narrow.. and sentiment is at an extreme to the
high side.. this makes me nervous... Does anyone know where I can get
off the internet.. % stocks above 10 week and 30 week moving
averages.. thanks
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