In the other hand, some traders trade against deviations and for a return to normalcy. It is normal for prices to remain within channels. Most breakouts are exhaustion moves that are quickly aborted.

Therefore, they like to trade against them. They sell short as soon as an upside breakout stalls and buy when a downside breakout stops reaching new lows.

There is nothing wrong trading breakouts, since it can produce spectacular gains for traders when a major new blows out of a channel. However, most breakouts are false and are followed by reversals.

The following are some recommended rules for trading with channels:

1. In cases of using a moving average channel, when channel’s slope is relatively flat, it is almost always good to buy near the bottom of its trading channel and good sell near the top.

2. In trending market while a channel rises sharply, an upside breakout of the upper channel line shows very strong bullish momentum. This indicates that you will probably have one more chance to sell in the area of the highs that are being made. When the market returns to the upper channel line, it is time to sell your long position.

3. The above rule can also be applied in reverse during sharp downtrends. A breakout below the lower channel boundary indicates that a pullback to the moving average is likely to occur, offering another opportunity to sell short. When the market returns to the bottom of channel, it is time to cover shorts.

The better trading signals are given by a combination of channels and technical indicators. Most well-known signal from indicators is when they diverge from prices.

Let’s continue with some recommended rules for combination of channels and indicators:

4. A sell signal is given strongly when prices reach the upper channel line while an indicator, such as RSI, traces a lower top and creates a bearish divergence.

5. A buy signal is given strongly when prices reach the lower channel line while an indicator traces a higher bottom and creates a bullish divergence.

6. Go long below the moving average when the channel is rising, and take profits at the upper channel line. Go short when the channel is falling, and take profits at the lower channel line.

In this article, we will talk about a few obvious benefits of strategy trading.

Let’s begin with the most important one. The most important benefits of strategy trading is it will allow you to sleep well at night when you have a confidence by knowing that your trading strategy has been back-tested and is proven to be successful. No matter what happens in the market during the day or night, you will have a string belief that your strategy will gain you profits eventually.

The other one of the benefits, you are able to choose a market and a trading strategy that is appropriate to your personality. The basic idea of choosing a strategy is to select a market and a trading strategy that you feel most comfort when trading.

For example, traders who want to stay in market all the time will choose different strategies than day traders. If you are a trend follower, then you will choose a different type of strategy than traders who trade the swings.

Another advantage for strategy trading is you always know your financial situation. If you stick with the strategy’s rules, the rules will tell you how to manage your money and how to size your trading positions.

Strategy Traders will always know the maximum equity drawdown associated with their strategies from the results of historical tests. Hence, they are able to determine the capital requirements and prepare enough capital to maneuver through the eventual drawdown. There will be no financial surprises such as your broker give you an unexpected call for additional margins.

I have been providing you reasons why the strategy trading is the most viable way to make money in the markets in this article. And included type of skills and knowledge that are necessary
to be a successful strategy trader in earlier article. I hope they will give you enough motivations and can convince you to turn to strategy trading.

So, what are you waiting for? Let’s go on to the nuts and bolts of finding your viable trading strategies.

Latest version of MetaStock (current version is v.11) is shipped with over 100 indicators. Since I MetaStock for many years, one of the most frequently asked question is what is the best indicator? Honestly, I do not know the answer for this question.

Why don’t I know what is the best indicator?

Firstly, I’m sure that I’m not the most successful trader. There are so many traders who are using MetaStock for their analysis. Maybe there is someone who knows or develops the best MetaStock indicators, but I don’t.

Secondly, according to my experiences over the years using MetaStock, one of them may look good with a period of time or in a particular market. Therefore it requires you to optimize and test them before using in real trade periodically. It depends on what you are trading, what time frame you are using and what is the market situation therefore one of them may better than others in a given criteria, however you can’t say that it’s the best, right?

Lastly, even you have a best indicator that does not guarantee that you will be success in trading. I have seen many traders who lose their money even they have a good indicator in hand. For clearer example, a group of traders who are using the same method and same indicators in trading often get different outcome according to the turtles, the most well-known experiment in trading world.

It’s good to wonder that what indicators that successful traders are using, but even you use the same indicators as them you may not be success as them. One indicator may more suitable that one trader than others.

Therefore, finding your suitable indicators and stick with them. Learn them, study them in every aspect. When you master in them, you will see what are the advantages and disadvantages of using them. You can also optimize them to maximize your profits.

However, by saying that stick with your indicators I don’t mean that do not change your indicators. Keep studying, don’t afraid to change if you think others are better. Also don’t afraid to accept when you are wrong.

Here in this article, I would like to talk about some tips for designing a trading system in MetaStock.

tip#1. Find a trading system that will produce positive returns in long run.

This is the first thing you have to make sure. You have to find a strategy that has an edge in order to guarantee that you will gain profits from it in long run. Most traders focus on short-term results of trading but you have to be different to be success.

tip#2. The system must contain risk management or money management system.

As I have always mentioned, a good trading system must contains risk management. Even the best trading system in the world is not going to win all the times. There always are draw-down periods in every system. Therefore you have to survive from draw-down periods and stay in the market long enough to make profits from the system.

tip#3. Write down your system in a paper.

After you found a good and profitable trading system, you should write the system down in a piece of paper before program it into MetaStock. This will help you understand the system and avoid mistakes.

tip#4. Do back test for the trading system.

To gain you more confidence in the system, do back test for it and see its results and optimize it. There is integrated tool in MetaStock for back testing. Third party software is also available for you to back test your system.

tip#5. Be consistent.

You have to execute your trades consistently to achieve positive expectation of your system. In order to do this, you must have strong believed in your system which you should already have it if you have followed the first three tips.

That’s it. The simple tips that will help you when you are designing a MetaStock trading system.

One of the most commonly used tools for MetaStock is The Explorer, with this tool traders can filter out securities that do not match any given criteria. The criteria can be defined by writing MetaStock formula as the following example.

According to the turtle trading system, the shorter term entry system based on a 20-days breakout. Traders can easily write a formula for daily charts as follow.

H > Ref(HHV(H, 20), -1) OR L < Ref(LLV(L, 20), -1);

H = Today’s high; L = Today’s low
HHV(H, 20) = Highest value that the high price (H) has reached in the last 20 days.
LLV(L, 20) = Lowest value that the low price (L) has reached in the last 20 days.
Ref(HHV(H, 20), -1) = The highest high price in the last 20 days refer to yesterday.
Ref(LLV(L, 20), -1) = The lowest low price in the last 20 days refer to yesterday.

If traders want a list of securities that match the turtle exit system, 10-days low for long positions and 10-days high for short positions. The formula will be as follow.

L < Ref(LLV(L, 10), -1) OR H > Ref(HHV(H, 10), -1);

These are examples of how to apply trading systems by using MetaStock formula. Besides The Explorer, traders can also write the formula in other tools such as Expert Advisor or Indicator Builder as well.

Suppose that traders would like to modify the exploration which has built in the Writing Formula for MetaStock Explorations tutorial. Instead of finding all stocks that their 3 days moving average has just crossed above their 10 days moving average, let find stocks that have met the chosen crossover criteria in the past five days.

To list the MetaStock functions, just simply click the Function button in Exploration Editor dialog.

In the Paste Functions dialog, select the Alert function then click OK

Note: Alert(Expression, Periods) function used in conjunction with other functions to extend a signal for a specified number of periods. In other words, it holds an expression as true for as long as traders wish.

So, the MetaStock formula to find all stocks that their 3 days moving average crossed above their 10 days moving average in the past five days will be Alert( Cross( Mov(C, 3, E) , Mov(C, 10, E) ), 5)

Let’s suppose that traders want to find all stocks that their 3 days moving average has just crossed above their 10 days moving average. Traders might build the MetaStock Explorations as the following steps.

1. Click The Explorer icon on MetaStock Toolbar to pop The Explorer dialog up.

2. On The Explorer dialog, press the New button to start writing MetaStock Formula Explorations.

3. Let’s give the exploration name “Moving Average Crossover” for the sake of this tutorial. Traders may enter some Notes for this MetaStock Exploration.

4. Click the Filter tab and enter the MetaStock Formula : Cross( Mov(c,3,E) , Mov(c,10,E) )

5. Just simply click OK button then the Moving Average Crossover Exploration appears in The Explorer dialog.

6. Traders are able to use a desired MetaStock Explorations to search or filter stocks as described in How to use The Explorer in MetaStock tutorial

To use MetaStock’s Explorer, just simply click The Explorer icon on MetaStock Toolbar to pop The Explorer dialog up.

In The Explorer dialog, traders select an existing formula to perform an exploration by highlighting it. Then click the Explorer button.

Adding a list of securities to be searched by clicking the Add Securities button then click OK button to begin searching.

During MetaStock is searching, the progress is shown in Exploration Status dialog.

When MetaStock searching is completed, traders are able to view the result by clicking Reports button.

A list of all the stocks that match the search or filter criteria will be displayed.

Developing a trading system involves the following components.

• Entry Rules (when traders should open a position)
• Exit Rules (when traders should close a open position)
• Money Management Rules (how much money should traders put in a trade?)
• Back-Testing (test the trading system by using historical data)

Before going further, there is an importance thing to be remember
There is no Holy Grail of trading systems.
There is no MetaStock Formula that makes traders win markets 100%.

Only one component, Entry Rules, from four components is taken into consideration to build an example trading system. The following factors are picked to be used in identifying possible entry points.

1. Liquidity: how much money the stock trades at. Avoid stocks that don’t trade enough whether traders can risk being trapped in stocks where the market is moving against them if the stocks have low liquidity.
   For example here, the 21-day average of volume multiplied by the closing price of liquid stock must greater than $200,000. This can be written in the MetaStock Formula format as follow.

   Mov(v, 21, e)*C > 200000

2. Trigger: the signal that will indicate it is time to enter a trade. The trigger condition doesn’t hold “true” over extended periods of time but occurs only at one point in time, such as moving average cross over. For example, the first day the when a faster moving average (a shorter period Moving Average) crosses above a slower Moving Average (a longer period moving average) which is considered a bullish crossover as follow.Mov(C, 5, e) > Mov(C, 10, e)*C

Simply put all formulas together, A simple entry system looks like:

Mov(v, 21, e)*C > 200000
Mov(C, 5, e) > Mov(C, 10, e)*C

That is the basic of designing a MetaStock Trading System

*Note: The tutorial on MetaStock Formula and how to use MetaStock Trading System can be found in MetaStock Tutorial

The first step to create a layout is opening a number of desired stock charts.
At this point traders are able to construct each of the charts the way they want them.
Then traders can arrange and resize charts to suit their requirements by clicking the Window menu and select Cascade, Column, Stack, Tile or Auto Tile. This is the way the layout will look every time traders open it.

When traders are satisfied with the layout then it can be saved. The save procedure is not intuitive.
Go to File then New, then select Layout.

The Layout dialog box lists all of the opened charts you have. Click Add All button to shift all the charts into the new layout record box. Then click OK to finish. This returns traders to the original screen.

To give the layout a name so it can be easily opened, traders now use the File and Save As menu. This brings up the Save as dialog box.

The file type, Layout (*.mwl) is automatically selected.
Type in the File name and File description.
Make sure it is saved in the Charts directory of MetaStock software. Otherwise it might be difficult to find it.

Opening a layout

Select File then Open from the menu. This automatically displays the Open dialog box. Simply select the Files of type as Layout (*.mwl) and double click on the icon of the layout traders want to use.