SmarterSuite for eSignal v2009

SmarterSuite v2009 was made for eSignal 10.x, and contains tools and strategies for both intraday and swing trading.

Introduction to SmarterSuite

This is the orientation video of how to use eSignal charting. It’s especially important to those not familiar with Advanced Charts.

eSignal Chart Basics

Using eSignal Formula Script (EFS) Files

Assuming that eSignal 10.x Advanced Charts is installed on your C: drive and the EFS files you downloaded were saved to My Computer > C: > Program Files > eSignal > Formulas > Advanced > PowerTools folder, apply each of the indicators as you would any other indicator:

  1. left clicking on the background of a chart to activate it,
  2. right clicking on a blank part of the chart to bring up the menu,
  3. scrolling down the menu, select Add-On Studies > PowerTools > InVivo.RMI.Stops.efs (or whatever)

OR find CHART OPTIONS on the menu along the top and select Add-On Studies > PowerTools > InVivo.Stops.efs. This will apply the indicator to whatever chart is active.
Click Chart Options > Edit Studies to adjust the settings.

Apply Time Template to Current Chart!

This is very important. If studies fail to appear, check your time timeplate

Make sure that the time template is set to 2000 bars for daily charts. This ensures that enough data is downloaded for the studies to calculate values; otherwise, studies may not plot and price bars will not be painted.

Swing Trading with RMI Tools

Trading stocks or sector ETFs using a daily price chart is called swing trading. A trade may last for a period of days or weeks. Apply the following:

  1. Smarter.Stops.efs
  2. Smarter.Swings.efs
  3. RMI.Histogram.efs
  4. RMI.PaintBar.efs
  5. RMI.Strategy.efs

Trading with the trend — also known as “directional” trading — is basically a game of musical chairs. The key to playing it profitably is to get out when the music stops, but if the party ends abruptly, stop losses indicated by Smarter.Stops provides guidance as to an appropriate exit.

Smarter.Stops.efs AND RMI.PaintBar.efs Applied to Intel, Daily Chart

Smarter.Stops Buy and Sell Rule

The Smarter.Stops indicator calculates superior stops. While the math behind it is complex, using this indicator is easy as 1-2-3. It shows you the exactly where your stop loss should be at all times.

Apply the indicator (Insert > Indicator > _Smarter.Stops) to a chart with a couple of clicks. Use the dots plotted by Smarter.Stops as trailing stops according to the following two rules:

  1. BUY RULE: A *close* above a blue dot is buy signal.
  2. SELL RULE: A *close* below a pink dot is a sell signal.

While Smarter Stops are a great guide for exits, DO NOT rely solely on these dots to initiate a new trade. In addition to the stockpicking methodology (which is your responsibility), always do your homework.

The RMI.Histogram Indicator (for Daily Bars)

The RMI.Histogram indicator compares price action of a stock (or sector) against an appropriate benchmark index and plots a histogram in a separate pane of the chart.

RMI stands for relative (price) momentum indicator and should only be used with DAILY CHARTS.

Relative Momentum: USO vs. S&P 500 Index, Daily Chart

Investors tend to be extremely bullish at the top and very bearish at the bottom. Relative price momentum tools can help traders avoid performance chasing (buying after a long uptrend) and countertrend trading (buying all the way down).

RMI calculates the price change of A against B. For example, we can measure GOOG against a benchmark index such as the NASDAQ 100 Index. We can also measure a sector index against a broad-based index.

This type of analysis is often called “relative strength” (NOT Wilder’s RSI or the IBD ranking) or “ratio charts”, and since there is so much confusion, I call it relative price momentum.

Having a tool that objectively measures relative price momentum is very important because knowing where we stand in a speculative cycle is often the only way to protect yourself.

The RMI.PaintBar (for Daily Bars)

The RMI.PaintBar colors price bars according to the status of the histogram values.

This provides us with (i) a detailed, bar-by-bar account of a stock’s performance against the benchmark and (ii) helps identify potential change of trends in the big picture when price bars are painted yellow.

The position of the green and red histogram bars relative to the grey threshold line is very important. A number of combinations and permutations can occur. Price bars are colored based on information provided by the histogram according to these rules:

  1. Green = RELATIVE OUTPERFORMANCE = Histogram > 0 AND Histogram > Threshold Line
  2. Red = RELATIVE UNDERPERFORMANCE = Histogram < 0 AND Histogram < Threshold Line
  3. Yellow = POTENTIAL CHANGE OF TREND = all other combinations

Selecting the Benchmark for RMI Studies

The whole idea of relative price momentum is to compare two ticker symbols against each another. It is VERY IMPORTANT to use the correct benchmark index with RMI.Histogram and RMI.PaintBar.

Select or Enter Symbol for Your Own Benchmark Index

To change the BENCHMARK INDEX, right click on a blank spot on the chart and select Edit Studies from the menu that pops up to adjust the settings. There is a convenient drop-down menu with frequently-used indexes such as $SPX, $NDX, $RUT, $TSX-TC, $JX-TC, etc.

To use an index not on the list, simply type the desired index symbol into the box. You can also compare a stock against a stock or a stock against a sector index.

Using RMI.Strategy and Smarter.Strategy


DRYS with InVivo.RMI.Strategy, Daily Chart

The crux of this strategy is to BUY ONLY when the stock is outperforming the benchmark index and SHORT ONLY when the stock is underperforming the index.

In practice, traders would use other factors in their stock scans to narrow the list of trading candidates. We suggest using the TrendFilter as well.

Last, But Not Least

Two more studies are included: The Smarter.Range indicator and the Smarter.Swings indicator.

Smarter.Range Indicator
Range (spikey red line) is expressed in percent. Grey line is the 3 (4 or 5) standard deviation of range. A high reading is associated with high volatility. For example, large range is typically observed in the mornings when discretionary trading using hit and run techniques is more appropriate.

Prologue.Range Study

Smarter.Swing Indicator
Plotting swing lines with Smarter.Swings helps train the eye by making it easier to spot patterns such as flags, pennants, ABC corrections and triangles.

Prologue.SwingLines Study

A Word About The StopFactor

The “tightness” of the stops is based on the StopFactor setting.

The default is set to UniversalStop = True so that the indicator automatically selects an appropriate StopFactor setting between 1.0 and 1.5 based on prevailing market conditions.

You can also manually select a StopFactor. If you wish to set the StopFactor yourself to accommodate a particular trading style or setup, enter UniversalStop = false AND the desired setting for the StopFactor. Use settings between 1 and 1.5, increased at 0.1 increments. StopFactor settings under 1 are insufficient while settings larger than 1.5 are unnecessary.

In trend (directional) trading, it is preferable to change to a different time frame rather than tighten the initial stop or trailing stop beyond what volatility dictates. In my experience, a wide range of trading “problems” tend to be resolved by trading in a larger time frame while simultaneously reducing trade size and leverage with the use of appropriate stops.

A Word About Backtesting

You are responsible for picking the ticker symbols, the markets and time frames that you trade. They may be inappropriate. Always remember that stock scanning = stock picking (see comments in Q&A at Backtesting handfuls of stocks without knowing if the ticker symbol would have met your stock selection criteria not only produces misleading results: you may never find out that your stock scan is ineffective.

If your stock selection method is poor, there is no reason to believe that any trading system will “perform”. Nevertheless, using relative momentum to qualify the trades will help because the trading system only go long when a stock outperforms the appropriate benchmark index and only goes short when a stock underperforms the benchmark. Be sure to trade only 50% of “full size” when shorting due to the high volatility (necessitating larger stops) typically seen in downtrends.

While I leave it to the trader to come up with stock scan criteria that can identify DRYS as a trading candidate, using relative momentum as a qualifying condition is one way to tilt the odds in their favor. There are also any number of other conditions that a trader might want to add, such as a trend filter.

From comments on blogs and message boards, I’d say that the system traded DRYS better than most humans since it followed the rules in a disciplined manner. Please remember there is nothing I can do to help the long-only guy who hears about DRYS from the neighbor at the top tick…

One last tip: if nothing “works”, check the leverage in case it’s the culprit.

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