Visually stunning and intuitive to use, the PowerTools Trading System for eSignal Advanced Charts automatically generates buy and sell signals for any market and can be used with tick, intraday and daily charts.
USO Daily Chart with Swing Trading Settings
BUY RULE: When the trading system is on a sell signal, blue dots will appear above the pink price bars to indicate the stop loss/reversal point; if price *closes* above the dot, a buy signal will be issued.
SELL RULE: When the trading system is on a buy signal, pink dots will appear below the blue price bars to indicate the stop loss/reversal point; if price *closes* below the dot, a sell signal will be issued.
Monthly Subscription: US$49
The PowerTools trading system is available by monthly subscription directly from eSignal. Simply add PowerTools to your eSignal (Premier OR OnDemand) account at your convenience.
If you’ve never used eSignal’s charting service before, contact Scott Wilks at 1-800-322-1819 or email him directly at Scott.Wilks@interactivedata.com. Mention “INVIVOANALYTICS” and receive a free month of eSignal, (EXcludes exchange fees and PowerTools subscription). Also, ask Scott about qualifying for eSignal’s “Exchange Fee Waiver” program.
The complete trading system is contained within one file: PT-TradingSystem.efs.
To apply PowerTools:
- Left click on the background of a chart to activate it,
- Right click on a blank part of the chart to bring up the menu,
- Scroll down the menu, select Add-On Studies > PowerTools > PT-TradingSystem.efs
PowerTools User Manual
Be sure you are familiar with the elements of a well-balanced directional trading program:
- Identify appropriate trading candidates;
- Trade a basket of the qualified candidates;
- Implement position sizing to limit exposure and risk;
- Follow the buy and sell signals;
- Avoid countertrend trading; and most of all,
- DO NOT USE INSANE LEVERAGE.
Once you have taken the time to think over how to handle each element, the actual operation of PowerTools 10.5 needs no thick instruction manual. It is as simple as adding the study and adjusting the study properties.
Adjusting Default Study Properties
Buy signals, sell signals and trade logistics discussed in Chapter Four are calculated according to individual symbol settings and the formula parameters listed below.
To change any of the parameters, alert status or display preferences, adjust the default study properties by right clicking on a blank part of the active chart and select Edit Studies from the menu. Select PowerTools 10.5 from the panel on the left and proceed.
TradeStart/TradeEnd: Default = 00:00/24:00
For intraday trading of any kind, it may be better to use a 24-hour time chart and restrict the hours of operation of the trading system to the most liquid times of the day.
OwnCapital (in dollars): Default = 50000
Enter the amount of capital you will contribute. For example, if you have $50,000 in capital and wish to trade 10 stocks with equal dollar weighting, apply the TradingSystem to ten chart windows (one window for each stock symbol), each beginning with OwnCapital = 5000.
PercentOwnCapital (percent): Default = 50
This is the margin calculation. If you use a cash account with no funds borrowed from your broker, enter PercentOwnCapital = 100 since you are contributing 100 percent of the funds.
If you trade stocks on an overnight basis in a typical margin account with Regulation T limits, enter PercentOwnCapital = 50 since you are contributing 50 percent of the funds.
Pattern day-traders using 3:1 intraday margin should enter PercentOwnCapital = 25 since you are contributing 25 percent of the funds.
Futures and FOREX generally require very low initial and maintenance margins. For example, intraday margin for most stock index futures contracts is typically 3%. If ES (CME E-Mini S&P 500) is trading at 1,500, then one contract represents $75,000; $1,750 intraday margin works out to OwnCapital = 2.33, 42:1 leverage. If ER2 (CME E-mini Russell 2000) is trading at 850, then one contract represents $85,000; $2,000 intraday margin works out to OwnCapital = 2.35, 42:1 leverage.
Explore the effects of leverage by applying the eSignal Back Testing Tool over a range of values for the PercentOwnCapital parameter. Additional information on backtesting is provided at the bottom of this page.
DollarsPerPoint: Default = 1
For stocks, use the default setting as each 1 point move = $1.00. Futures and FOREX are different, and user must provide the DollarsPerPoint in order for the TradingSystem to calculate the appropriate position size.
How to calculate DollarsPerPoint for:
- ES, the CME E-mini S&P 500 futures: each minimum fluctuation = .25 index points or $12.50; DollarsPerPoint = ((1 /.25 ) * $12.50) = $50.00;
- ER2 (eSignal = AB), the CME E-mini Russell 2000 futures: each minimum fluctuation = .10 index points or $10.00; DollarsPerPoint = ((1 / .10) * $10.00) = $100.00;
- YM, the CBOT mini-sized Dow Futures $5: each minimum fluctuation = 1 point or $5.00; DollarsPerPoint = ((1 / 1) * $5.00) = $5.00;
- YG, the CBOT mini-sized Gold futures: each minimum fluctuation = .10/fine troy oz. or $3.32; DollarsPerPoint = ((1 / 10) * $3.32) = $33.32;
- For FOREX, the setting is usually 100000.
ShortFactor: Default = 0.5
Given the challenges of shorting (see Chapter Four, Own The Zone), the ShortFactor parameter was added to help users formulate their own shorting policy by exploring the effects of ratios other than the standard 1:1 short vs. long size using eSignal’s Back Testing Tool. Default = .5 means that the TradingSystem executes short positions at 50% of “full size”.
Universal StopFactor: Default = true
The “tightness” of the stops is controlled by the StopFactor setting. By default, the ideal StopFactor is dynamically calculated on a bar-by-bar basis to automatically select a setting between 1.0 and 1.5, making it unnecessary for you to select a specific setting.
Stops must be placed strategically, yet nearly all commercially available stops have serious flaws. In Engineering Better Bollinger Bands and Thoughts on the Kase Dev-Stop, we demonstrated that our stops accurately reflect volatility and range. This is a must, because we never, ever place stops based on what we can afford to lose. Stops must be placed where they ought to be, and we reduce our trading size as required to manage risk to the account. This is our definitive edge.
Used alone, the stops form what is known as a stop and reverse system, that is, it is always in the market long or short. In practice, traders impose additional conditions (such as a time filter, trend filter, a moving average filter, etc.) to qualify trades. In addition, they must also decide on the amount of leverage to use and calculate the position size based on the foregoing. There may be many moving parts, but make no mistake, the right stop is the backbone of any trading system or method.
StopFactor: Default = 1.5
The StopFactor parameter allows you to explore the effects of tightening or loosening stops. If you wish to test the stops with the eSignal back testing tool, my suggestion is to test the range between 1 and 1.5 at 0.1 increments. StopFactor settings under 1 are insufficient. When it comes to directional trading, it is perhaps not possible to tighten the initial stop or trailing stop beyond what volatility dictates.
FilterLength: Default = 40
The default length of the TrendFilter (see next parameter) is a 40-period weighted moving average, a setting suited to swing trading off the daily chart. An intraday example is provided in Chapter Four, Own The Zone. Users can explore the effects of other settings using eSignal’s Back Testing Tool.
Use TrendFilter?: Default = false
The TrendFilter allows users to avoid contratrend trades and facilitate multiple time frame trading. Use of this parameter is documented with examples in Chapter Four, Own The Zone. false = filter is OFF, true = filter is ON
For Swing Trading with daily charts, we suggest you use the TrendFilter and set it to a period of 50- to 63-days.
Use Pyramiding?: Default = true
The TradingSystem will capitalize on profitable trades on the long side. The algorithm is built in. true = pyramiding is ON, false = pyramiding is OFF.
When the TrendFilter is ON,
- TFLE (TrendFilter Long Entry) indicates a new long position
- TFSE (TrendFilter Short Entry) indicates a new short position
When the TrendFilter is OFF,
- LE (Long Entry) indicates a new long position
- SE (Short Entry) indicates a new short position
When Pyramiding is ON,
- Add (Add) indicates the number of shares added
- LX (Long Exit) indicates entire long position is sold
- SX (Short Exit) indicates entire short position is covered
The trading system will NEVER be long and short at the same time.
Setting Up Alerts
Track pending buy and sell signals with the eSignal alert system. You can customize alerts to use sound, popup or email, and even change the sound file. By default, all alerts are OFF. T = ON, F = OFF.
The Back Testing Tool
Back testing is easy to do. Simply right click on a blank area of the chart, select Tools > Back Testing.
Choose the desired time template, and load PT-TradingSystem.efs as the Formula of choice by clicking the small square button with “…” on it. If you have the typical eSignal installation, the EFS file will be in
Back testing preference gives users the choice of evaluating “long only” or “short only” trades. The trading system position sizing algorithm overrides the “default lot size” input settings.
The time frame and look-back period for back testing is based on your time template. eSignal Central knowledgebase article #2797 has a video on time template basics. To change the time template on a chart, right click on the chart > select Time Template > Edit.
For more information on back testing, please read this article in the eSignalCentral knowledge base.
While I owe the eSignal engineering team many thanks (Todd P, Todd G, Jason K) for their help, this upgrade would have been impossible without Chris Kryza of Divergent Software. His dedication and excellence in EFS programming is unparalleled.