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Friday
Oct192012

Are we there yet? Index Alert for TradeOptics

By request,
I want TradeOptics to alert me when the SPX is overbought or oversold using a slow stochastic setting 5,4,4 on a daily chart.
There are a few things we want to think about here.
  1. Is TradeOptics the only place we will use this rule?
  2. How often do we want to see this alert?
  3. What is our Stochastic setting for overbought and oversold?
  4. Is the Stochastic moving in the right direction?
One of the things I see people trying to do for a rule like this is to use a Single OHLC.  But in this case that won't work because the Single OHLC is used to compare a stock or ETF to the current stock being tested in the watchlist. By its self the Single OHLC will not return any results.  So we will use a regular OHLC and run it against a watchlist containing just the Indexes we want to see. 
 
I'm thinking that we want to see this alert happen during the day instead of just once a day in the morning. I might consider turning the Forming Bar on since there's not a lot going on in this rule as far as competing time frames.  But I'm a little set in my ways, (see: Getting control of intra-day signals in daily timeframe rules).  For the purposes of this exercise I'm going to set this rule to test our watchlist of Indexes every half-hour.  
 
Since there are 13 half-hour periods in a six and a half hour trading day we need to adjust our settings for the Stochastic to 65,54,54 (5*13=65, 4*13=54).
 
To start with, we will use the default settings for overbought (80) and oversold (20). 
 
And then we want the Stochastic to be moving in the up direction to go long and down to be going short.  
 
We will need to setup two logical tests in our rule to test for two conditions like this.
 
Now that we have one of our rules, next we need to use it to build a Strategy to run in TradeOptics.  Remember this is only going to be run in TradeOptics so we don't need to worry about a fancy exit strategy.  In fact we will just use the tried and true Test a Rule setup I use to backtest a rule.  That is we will use a Stop Order and a Target Order both set to zero offset.  This will allow us to backtest this when ever we want and TradeOptics doesn't care since it is not looking for a exit.
 
 
Next we need to set up our list.
Use the sprocket icon on the Quotes tab or from the Backtest page and make a new list with the Index or Indexes that you want to alert you to their change in trend. 

Now go to the TradeOptics Tab and check your rule to ON and select the list that you made.
  

 (For more info here is a video on TradeOptics)

 
We now have an alert running to tell us when the market is OverSold and start climbing back up. It might be time to go long or sell some of our short positions.  
 
You can take this template and rework the logic to get a alert for the OverBought condition.
 
Subscribers can go to the Wizards Rules Section and down load both the OverBought and OverSold rules. 
Non-Subcribers can Buy the rules here in the WizTools area.
 

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