pdf 4.3 MB - Gecko Software, Inc.

pdf 4.3 MB - Gecko Software, Inc.
Gecko Software
Track ‘n Trade High Finance Manual
Track ‘n Trade High Finance
Track ‘n Trade High Finance
A Special Thanks to:
Lan Turner
Erik Larson
Jacob Anawalt
Phillip Arnoldson
Brad Dickson
Derrick Hathaway
Jeffrey Keller
Todd Hendricks
Kimberly Lyon
Paige C. Mehlhoff
Matt Langenheim
Joe Chambers
Erik Akins
Published by PitNews Press
Gecko Software, Inc.
271 N. Springcreek Parkway, Suite A
Providence, UT 84332
www.GeckoSoftware.com
Copyright © 2007 Gecko Software, Inc. All Rights Reserved.
Track ‘n Trade High Finance
Track ‘n Trade High Finance
Table of Contents
Table of Contents
Chapter 1:
Chapter 2:
Chapter 3:
Introduction to Stocks
15
Introduction to Forex
37
Getting Started
43
Introduction17
Common Stock18
Preferred Stock19
Primary Markets20
Secondary Markets21
Over-The-Counter Trading and NASDAQ23
Stock Exchanges24
Global Stock Markets26
Stock Market Indices28
Mutual Funds30
Exchange Traded Funds33
Hedge Funds33
Stock Options34
Warrants35
Introduction39
Quoting Conventions39
Buying/Selling
41
Rollover
41
Installation
45
Log-in
45
Account Manager
46
Getting Started
47
Keyboard Shortcuts Quick Reference
48
File Menu
49
Toolbars50
Control Panel 53
Chartbooks57
Charting Preferences59
Track ‘n Trade High Finance
Table of Contents
Chapter 4:
Chapter 5:
Chapter 6:
Chapter 7:
Charting Tools
65
Introduction
67
Crosshair Tool
67
Line Tool
69
Multi-Line Tool
72
Arc Tool
75
Day Offset Tool
77
123 Tool
80
Head & Shoulders Tool
83
Dart/Blip Tool
86
Wedge and Triangle Tool
90
Trend Fan Tool
92
Trend Channel Tool
96
Horizontal Channel Tool 98
N% Tool100
Advanced Charting Tools
103
Notation Tools
121
Calculator Tools
129
Introduction105
Elliott Wave Tool106
Gann Fan Tool108
Andrews Pitchfork Tool111
Fibonacci Ruler Tool114
Fibonacci Arc Tool117
Fibonacci Time Zones119
Introduction123
Notes Window123
Arrow Tool123
Flag Tool125
Text Tool126
Rectangle Tool127
Circle Tool128
Introduction131
Dollar Calculator131
Risk/Reward Calculator133
Track ‘n Trade High Finance
Table of Contents
Chapter 8:
Chapter 9:
Using Indicators
135
Advanced Indicators
181
Williams Accumulation/Distribution (AD) 139
Commodity Channel Index (CCI)141
Directional Movement Index (DMI)144
Fast Stochastics (FSTO)149
Historic Volatility (HVOL)152
Moving Average Convergence/Divergence (MACD)157
Momentum (MOM)161
Williams Percent R (%R)164
Relative Strength Index (RSI)166
Slow Stochastics (SSTO)170
Overlay Indicators in the Chart Window173
Moving Average Lines 173
Bollinger Bands 177
Introduction183
Average True Range (ATR)183
Percent Bollinger Bands (%B)185
Bollinger Bandwidth (BW)187
Chaikin Money Flow (CMF)189
Gator (GTR)191
Know Sure Thing (KST)192
Money Flow Index (MFI)194
Percent Price Oscillator (PPO)195
On Balance Volume (OBV)196
Price Volume Oscillator (PVO)200
Rate of Change (ROC)202
Stochastic Relative Strength Index (SRSI)204
Triple Exponential Average (TRIX)206
Ultimate Oscillator (ULT)208
Advanced Overlay Indicators210
Advantage Lines210
Alligator212
Donchian Channels (DON)214
Keltner Bands216
Parabolic Stop and Reversal (PSAR)218
Pivot Points 221
10x8 Moving Average Calculation 225
Zig Zag 227
Track ‘n Trade High Finance
Table of Contents
Chapter 10: Accounting & Simulator 229
Chapter 11: Bulls ‘n Bears
239
Introduction231
Control Panel 231
Simulation Tools232
Setting Up your Stocks Account233
Setting Up your Forex Account233
Deposit and Withdrawals233
Placing an Order234
Order Properties237
Introduction241
Preferences 243
Track ‘n Trade High Finance
End User License Agreement
END-USER LICENSE AGREEMENT FOR GECKO SOFTWARE
IMPORTANT-READ CAREFULLY: This Gecko End-User License Agreement (“EULA”) is a legal agreement between you (either
an individual or a single entity) and Gecko Software, Inc., corporation for the Gecko software product identified above, which
includes computer software and may include associated media, printed materials, and “online” or electronic documentation and data
(“SOFTWARE PRODUCT”). The SOFTWARE PRODUCT also includes any updates and supplements to the original SOFTWARE
PRODUCT provided to you by Gecko. Any software provided along with the SOFTWARE PRODUCT that is associated with a
separate end-user license agreement is licensed to you under the terms of that license agreement. By installing, copying, downloading,
accessing or otherwise using the SOFTWARE PRODUCT, you agree to be bound by the terms of this EULA. If you do not agree to
the terms of this EULA, do not install or use the SOFTWARE PRODUCT; you may, however, return it to your place of purchase for a
full refund. No verbal or written agreement may supersede this agreement.
SOFTWARE PRODUCT LICENSE
The SOFTWARE PRODUCT is protected by copyright laws and international copyright treaties, as well as other intellectual property
laws and treaties. The SOFTWARE PRODUCT is licensed, not sold.
1. GRANT OF LICENSE. This EULA grants you the following rights:
Track ‘n Trade High Finance. You may install as many copies of Track ‘n Trade High Finance on as many computer systems as you
so desire. Track ‘n Trade High Finance requires a login and password to gain access, you are not allowed to share your login and
password with anyone else whosoever; in so doing, you will be in violation of this agreement. You may not allow remotely connected
COMPUTERS, nor to invoke application sharing of the software. This connection includes any indirect connections made through
software or hardware which pools or aggregates connections. This license agreement allows you to personally use the software while
at home, work or on the road; this is not the right to lend out copies of this software to your friends and family. Even though you are
allowed to install the SOFTWARE on multiple workstations, the SOFTWARE can only be executed and running on one COMPUTER
at a time; no simultaneous use is allowed without the purchase of additional licenses. (Logging in from any other computer will
automatically “kick off” any other active user logged in and using that same login and password. The person who is logged into the
system has complete access to all account information, it is the users responsibility to keep their login and password secure, Gecko
Software will not be liable for loss due to lost or stolen login information, Gecko Software recommends users use highly cryptic
login and password information. If you feel your login and password information has been compromised, contact Gecko Software
immediately. )
Storage/Network Use. You may also store or install a copy of the SOFTWARE PRODUCT on a storage device, such as a network
server, used only to install or run the SOFTWARE PRODUCT on your other COMPUTERS.
License Pak. If this package is a Gecko License Pak, you may install and use additional copies of the computer software portion of the
SOFTWARE PRODUCT up to the number of copies specified above as “Licensed Copies”.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS
Academic Edition Software. If the SOFTWARE PRODUCT is identified as “Academic Edition” or “AE,” you must be a “Qualified
Educational User” to use the SOFTWARE PRODUCT. If you are not a Qualified Education User, you have no rights under this
EULA. To determine if you are a Qualified Educational User, please contact the Gecko Sales Information Center in the USA at 435752-8026.
Not For Resell Software. If the SOFTWARE PRODUCT is labeled “Not For Resell” or “NFR,” then, notwithstanding other sections
of this EULA, your use of the SOFTWARE PRODUCT is limited to use for demonstration, test, or evaluation purposes and you may
not resell, or otherwise transfer for value, or install the SOFTWARE PRODUCT on more than one single COMPUTER.
Limitations on Reverse Engineering, Decompilation, and Disassembly. You may not reverse engineer, decompile, or disassemble the
SOFTWARE PRODUCT, except and only to the extent that such activity is expressly permitted by applicable law notwithstanding
this limitation.
Separation of Components. The SOFTWARE PRODUCT is licensed as a single product. Its component parts may not be separated.
Rental. You may not rent, lease or lend the SOFTWARE PRODUCT.
Trademarks. This EULA does not grant you any rights in connection with any trademarks or service marks of Gecko Software, Inc.
Support Services. Gecko may provide you with support services related to the SOFTWARE PRODUCT (“Support Services”). Use
of Support Services is governed by the Gecko polices and programs described in the user manual, in “on line” documentation and/or
Track ‘n Trade High Finance
End User License Agreement
other Gecko-provided materials. Any supplemental software code provided to you as part of the Support Services shall be considered
part of the SOFTWARE PRODUCT and subject to the terms and conditions of this EULA. With respect to technical information you
provide to Gecko as part of the Support Services, Gecko may use such information for its business purposes, including for product
support and development.
Software Transfer. The user of the SOFTWARE PRODUCT may make a one-time permanent transfer of this EULA and SOFTWARE
PRODUCT only directly to an end user. This transfer must include all of the SOFTWARE PRODUCT (including all component parts,
the media and printed materials, any upgrades, this EULA, and, if applicable, the Certificate of Authenticity). Such transfer may not be
by way of consignment or any other indirect transfer. The transferee of such one-time transfer must agree to comply with the terms of
this EULA. Both parties must contact Gecko Software to make the transfer complete.
Even though we have given the right to transfer the software application license, we do not give the right to transfer data subscription
services. Data subscription services are non-transferable.
Termination. Gecko Software, Inc. may terminate your license and this EULA at any time for any reason what so ever; without the
obligation of reimbursement or compensation. Therefore, if Gecko gives notice of termination of your license, or you fail to comply
with the terms of use set forth in this agreement, you must destroy all copies of the SOFTWARE PRODUCT and all of its component
parts.
3. UPGRADES. If the SOFTWARE PRODUCT is labeled as an upgrade, you must be properly licensed to use a product identified
by Gecko Software, Inc. as being eligible for the upgrade in order to use the SOFTWARE PRODUCT. A SOFTWARE PRODUCT
labeled as an upgrade replaces and/or supplements the product that formed the basis for your eligibility for the upgrade. You may use
the resulting upgraded product only in accordance with the terms of this EULA.
4. COPYRIGHT. All title and intellectual property rights in and to the SOFTWARE PRODUCT (including but not limited to any
images, photographs, animations, video, audio, music, text, and “applets” incorporated into the SOFTWARE PRODUCT), the
accompanying printed materials, and any copies of the SOFTWARE PRODUCT are owned by Gecko Software, Inc. or its suppliers.
All title and intellectual property rights in and to the content which may be accessed through use of the SOFTWARE PRODUCT
is the property of the respective content owner and may be protected by applicable copyright or other intellectual property laws and
treaties. This EULA grants you no rights to use such content. All rights not expressly granted are reserved by Gecko Software, Inc.
5. DUAL-MEDIA SOFTWARE. You may receive the SOFTWARE PRODUCT AND/OR Educational materials in more than one
medium. Regardless of the type or size of medium you receive, you may use only one medium that is appropriate for your computer.
You may not loan, rent, lease, lend or otherwise transfer the other medium to another user, except as part of the permanent transfer (as
provided above) of the SOFTWARE PRODUCT.
6. BACKUP COPY. After installation of the SOFTWARE PRODUCT pursuant to this EULA, you may keep the original media on
which the SOFTWARE PRODUCT was provided by Gecko solely for backup or archival purposes. If the original media is required to
use the SOFTWARE PRODUCT on the COMPUTER, you may make one copy of the SOFTWARE PRODUCT solely for backup or
archival purposes. Except as expressly provided in this EULA, you may not otherwise make copies of the SOFTWARE PRODUCT,
EDUCATIONAL LITERATURE, OR MULTIMEDIA PRODUCTS or the printed materials accompanying the SOFTWARE
PRODUCT.
7. U.S. GOVERNMENT RESTRICTED RIGHTS. All SOFTWARE PRODUCTS provided to the U.S. Government pursuant to
solicitations issued on or after December 1, 1995 is provided with the commercial license rights and restrictions described elsewhere
herein. All SOFTWARE PRODUCT provided to the U. S. Government pursuant to solicitations issued prior to December 1, 1995 is
provided with “Restricted Rights” as provided for in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT
1988), as applicable.
8. EXPORT RESTRICTIONS. You agree that you will not export or re-export the SOFTWARE PRODUCT, any part thereof, or any
process or service that is the direct product of the SOFTWARE PRODUCT (the foregoing collectively referred to as the “Restricted
Components”), to any country, person or entity subject to U.S. export restrictions. You specifically agree not to export or re-export
any of the Restricted Components: (i) to any country to which the U.S. has embargoed or restricted the export of goods or services,
which currently include, but are not necessarily limited to Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria, or to any national
of any such country, wherever located, who intends to transmit or transport the Restricted Components back to such country; (ii) to
any person or entity who you know or have reason to know will utilize the Restricted Components in the design, development or
production of nuclear, chemical or biological weapons; or (iii) to any person or entity who has been prohibited from participating
in U.S. export transactions by any federal agency of the U.S. government. You warrant and represent that neither the BXA nor any
10
Track ‘n Trade High Finance
End User License Agreement
other U.S. federal agency has suspended, revoked or denied your export privileges. MISCELLANEOUS This EULA is governed by
the laws of the State of Utah. If this product was acquired outside the United States, then local law may apply. Should you have any
questions concerning this EULA, or if you desire to contact Gecko for any reason, please contact Gecko on the World Wide Web at:
www.GeckoSoftware.com.
LIMITED WARRANTY. Gecko Software provides a full 30 days to try our software, plug-ins, and expansion packs and data services
before ever needing to make any kind of purchasing decision. This allows our clients the added security and benefit of having a trybefore-you-buy satisfaction guarantee; therefore, no returns are available after purchase of these items.
Gecko warrants that the SOFTWARE PRODUCT will attempt to perform in accordance to our advertisements for a period of thirty
(3) days from the date of receipt. If it does not perform to your expectation, the only guarantee Gecko Software gives is a refund of
the purchase price paid of the said software application. This warranty is only good for a period of 3-days from the date of purchase,
and only applies to software identified as Track ‘n Trade & its corresponding expansion packs and plug-ins; this warranty does not
apply to any accompanying educational materials or supplies, which carries no warranty whatsoever.
Gecko does not guarantee that any mathematical formulas are correct, or that any data is correct, or that any of the rules used to
create the software to simulate real life situations are correct. These are just our best guess, and you as the licensee agree not to hold
Gecko liable for any mistakes, discrepancies, inaccuracies or mathematical errors that may be included with the software application,
supporting materials, manuals, or supplemental products provided by Gecko Software, Inc. or its subsidiaries, groups, friends,
associates, managers, employee’s, spouses, or anyone else who lives on planet earth. You agree to use this software totally and 100%
at your own risk, “as is”, therefore you take upon yourself the total and entire risk of loss if you decide to actually use this software in
an attempt to trade real money. (User recognizes that the list of support technologies, provided by numerous companies, is long and
the ability to bring all these capabilities together in a workable solution is magic at best, and the user recognizes that any failure of any
of these technologies along the way could cause any part of or all of this program and associated features to fail, and agrees to hold
Gecko harmless in all respects.)
If an implied warranty or condition is created by your state/jurisdiction and federal or state/provincial law prohibits disclaimer of it,
you also have an implied warranty or condition, BUT ONLY AS TO DEFECTS DISCOVERED DURING THE PERIOD OF THIS
LIMITED WARRANTY (THIRTY (3) DAYS). AS TO ANY DEFECTS DISCOVERED AFTER THE THIRTY (3) DAY PERIOD,
THERE IS NO WARRANTY OR CONDITION OF ANY KIND. Some states/jurisdictions do not allow limitations on duration of
an implied warranty, so the above limitation may not apply to you. Any supplements or updates to the SOFTWARE PRODUCT,
including without limitation, any (if any) service pack or hot fixes provided to you after the expiration of the thirty (3) day Limited
Warranty period are not covered by any warranty or condition, express or implied.
LIMITATION ON REMEDIES; NO CONSEQUENTIAL OR OTHER DAMAGES Your exclusive remedy for any breach of this
Limited Warranty is as set forth below. Except for any refund elected by Gecko, YOU ARE NOT ENTITLED TO ANY DAMAGES,
INCLUDING BUT NOT LIMITED TO CONSEQUENTIAL DAMAGES, if the SOFTWARE PRODUCT does not meet Gecko’s
Limited Warranty, and, to the maximum extent allowed by applicable law, even if any remedy fails of its essential purpose. The
terms “Exclusion of Incidental, Consequential and Certain Other Damages” below are also incorporated into this Limited Warranty.
Some states/jurisdictions do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or
exclusion may not apply to you. This Limited Warranty gives you specific legal rights. You may have others that vary from state/
jurisdiction to state/jurisdiction.
YOUR EXCLUSIVE REMEDY Gecko and its suppliers’ entire liability and your exclusive remedy shall be, at Gecko’s option
from time to time, (a) return of the price paid (if any) for, or (b) repair or replacement of, the SOFTWARE PRODUCT that does not
meet this Limited Warranty and that is returned to Gecko with a copy of your receipt. You will receive the remedy elected by Gecko
without charge, except that you are responsible for any expenses you may incur (e.g. cost of shipping the SOFTWARE PRODUCT to
Gecko). This Limited Warranty is void if failure of the SOFTWARE PRODUCT has resulted from accident, abuse, misapplication,
abnormal use or a virus. Any replacement SOFTWARE PRODUCT will be warranted for the remainder of the original warranty
period of thirty (3) days. Outside the United States, neither these remedies nor any product support services offered by Gecko are
available without proof of purchase from an authorized international source. To exercise your remedy, contact: Gecko Software, Inc.,
Attn. Gecko Sales Information Center at the Web address specified above.
DISCLAIMER OF WARRANTIES The limited warranty that appears above is the only express warranty made to you and is
provided in lieu of any other express warranties (if any) created by any documentation, packaging, or outside reseller advertisements
or claims. Except for the limited warranty and to the maximum extent permitted by applicable law, Gecko and its suppliers provide
the SOFTWARE PRODUCT and Support Services (if any) AS IS AND WITH ALL FAULTS, and hereby disclaim all other
warranties and conditions, either express, implied or statutory, including, but not limited to, any (if any) implied warranties or
Track ‘n Trade High Finance
11
End User License Agreement
conditions of merchantability, of fitness for a particular purpose, of lack of viruses, of accuracy or completeness of responses, of
results, and of lack of negligence or lack of workmanlike effort, all with regard to the SOFTWARE PRODUCT, and the provision of
or failure to provide Support Services. ALSO, THERE IS NO WARRANTY OR CONDITION OF TITLE, QUIET ENJOYMENT,
QUIET POSSESSION, AND CORRESPONDENCE TO DESCRIPTION OR NON-INFRINGEMENT WITH REGARD TO THE
SOFTWARE PRODUCT.
EXCLUSION OF INCIDENTAL, CONSEQUENTIAL AND CERTAIN OTHER DAMAGES To the maximum extent permitted
by applicable law, in no event shall Gecko or its suppliers be liable for any special, incidental, indirect, or consequential damages
whatsoever (including, but not limited to, damages for loss of profits or confidential or other information, for business interruption,
for personal injury, for loss of privacy, for failure to meet any duty including of good faith or of reasonable care, for negligence, and
for any other pecuniary or other loss whatsoever) arising out of or in any way related to the use of or inability to use the SOFTWARE
PRODUCT, the provision of or failure to provide Support Services, or otherwise under or in connection with any provision of this
EULA, even in the event of the fault, tort (including negligence), strict liability, breach of contract or breach of warranty of Gecko or
any supplier, and even if Gecko or any supplier has been advised of the possibility of such damages.
Gecko Software, Inc. at its discretion may, from time to time, contact you by telephone, fax, email, paper mail, express mail, etc. By
agreeing to this EULA and installing this software, you are giving digitally written consent to receive telephone calls from Gecko
Software, its affiliates, and associated vendors, and you wave your rights to any laws prohibiting Gecko from contacting you via
telephone, fax, email, or any other method preferred by Gecko.
DATA DOWNLOAD/DATA SERVICE IS DEFINED AS: This is a non-guaranteed service, with no rights or privileges whatsoever,
and is only an extension of the service provided by Track ‘n Trade, and Gecko Software, Inc. not a standard feature.
SUBSCRIPTION BASED DATA DOWNLOAD IS DEFINED AS: Data in which Gecko Software provides by computer
transmission services to their subscribing customers. This service is not a guaranteed service, and may be discontinued, off line or late
for any given period or amount of time without warranty or restitution. Data subscription services and fees are a non-refundable, nonguaranteed extension of service provided by Gecko Software Inc.
Data has been provided from sources believed to be reliable but no guarantee is made as to its accuracy, when trading “real” markets,
consult a licensed brokerage firm to confirm ALL price action. This license does not give any recipient the right to re-transmit or redistribute this data in any format whatsoever.
LIMITATION OF LIABILITY AND REMEDIES Notwithstanding any damages that you might incur for any reason whatsoever
(including, without limitation, all damages referenced above and all direct or general damages), the entire liability of Gecko and any of
its suppliers under any provision of this EULA and your exclusive remedy for all of the foregoing (except for any remedy of repair or
replacement elected by Gecko with respect to any breach of the Limited Warranty) shall be limited to the amount actually paid by you
for the SOFTWARE PRODUCT. The foregoing limitations, exclusions and disclaimers described above shall apply to the maximum
extent permitted by applicable law, even if any remedy fails its essential purpose.
Trading foreign exchange/stocks/equities on margin carries a high level of risk, and may not be suitable for all investors. You should
be aware of all the risks associated with such trading, and seek advice from an independent financial advisor if you have any doubts.
Options traders should be aware that the exercise of a long option will result in a position in the underlying asset, and therefore will no
longer entail limited risk. In addition, traders should be aware of the large potential of loss of capital, and therefore only genuine risk
capital should be used in all speculative/trading endeavors.
Currency/Stock trading involves substantial risk of loss, and thus is not suitable for all investors. You should carefully consider your
financial situation before opening a trading account and speculating, and only genuine risk capital should be used when trading in the
markets. Leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment
objectives, level of experience, and risk appetite. The possibility exists that you will sustain a loss of some, all, or more (in the event
that margin is used) of your initial investment and therefore you should not invest money that you cannot afford to lose? Genuine risk
capital. In addition, we recommend you consult your financial advisor to help you determine if trading is appropriate for you.
Past market performance is not necessarily indicative of future results. Past performance figures are derived with the benefit of
hindsight and therefore do not account for actual trading risk. For example, the ability to withstand losses or to adhere to a particular
trading program, in spite of losses, are material points which can adversely affect actual trading results. There are numerous other
factors related to the markets, in general, or to the implementation of any specific trading program which cannot be fully accounted for
in the preparation of any past performance (research) synopsis. In addition the market conditions, commissions, bid/offer spreads as
well as other factors all can adversely affect actual trading results.
12
Track ‘n Trade High Finance
End User License Agreement
Gecko Software, Inc. does not provide personal trading advice, and no information provided by Gecko Software, Inc. should be
construed as personalized trading advice. Although Gecko Software, Inc. obtains its information from sources that it deems reliable,
no warranty can be given as to the accuracy or the completeness of any of the information provided or as to the results obtained by
those using such information. While Gecko Software, Inc. believes the information contained herein is accurate, Gecko Software,
Inc. cannot be held responsible for the accuracy of the information, the timeliness of the transmissions, errors or omissions in the
transmission of such information. Any reliance on the information contained within this website in making investment decisions is
solely at the risk of the user, and each user shall be solely responsible for any and all losses resulting from such investments. In no
event shall Gecko Software, Inc. nor any of its employees, agents or affiliates be liable for any direct, indirect, actual, special, or
consequential damage or losses resulting from the use of the information provided herein.
Track ‘n Trade High Finance
13
End User License Agreement
14
Track ‘n Trade High Finance
Introduction to Stocks
Basics of Stocks Trading
Track ‘n Trade High Finance
1
15
Introduction to Stocks
Chapter 1
16
Track ‘n Trade High Finance
Introduction to Stocks
Introduction
This introduction was written to provide a basic understanding of the stock market and introduce
the terms and concepts that you will encounter as you progress as an investor. This basic
vocabulary and knowledge is vital because it is the foundation of your future understanding
and success in the market. I was extremely honored when my friend and colleague, Lan Turner,
invited me to write this portion of the Track ‘n Trade High Finance manual. I hope you will find
it to be a great asset. If this is your first introduction to the stock market, I want you to know how
excited I am for you.
I am an investor with extensive experience in many markets. Stocks are the only investment I
have found that allow you the flexibility to decide how you want to interact with the market.
You can choose active and aggressive participation in the short term for quick money. You can
take a very relaxed and passive approach in the long term for a safe investment. No matter which
strategy you choose, Track ‘n Trade will supply you with the tools and information you need to
excel in the stock market.
-Dr. Scott Brown, Ph.D.
Equity Securities Defined
Equity security is the formal term for stock in a publicly traded company. When you hear the
word “equity” it means ownership, which is what a share of stock represents. Similarly, bonds are
always equated with the word “debt.” The word “security” references either stocks or bonds. It
is defined as the evidence of ownership in the case of stocks, and evidence of debt in the case of
bonds. Thus, stocks are an equity security while bonds are a debt security.
There are three types of stocks: common, preferred, or convertible. As the name says, common
stock is the most common type of equity security. The term common stock is used for any equity
security that has no special dividend rights and has the lowest priority claim in the event of
bankruptcy. Owners of preferred stock, in contrast, usually receive preferred treatment when it
comes to receiving dividends of cash payoffs in bankruptcy. There are also convertible securities
that start as one type but can be converted into another if the investor desires. Most convertible
securities are preferred stock or bonds that are convertible into common stock.
Track ‘n Trade High Finance
17
Introduction to Stocks
Welcome to the tight-knit investing community that we have created for you as an investor. We
are here to teach you how to get an edge on the market, helping you grow wealthy as a successful
trader!
Chapter 1
Common Stock
Introduction to Stocks
Common stock represents a basic ownership claim in a corporation. Think of this as the investors
who have put up investment capital to get things going, just like if you decided to invest in the
creation of a business in the town or city that you live. Whoever starts the company can sell
partial ownership of it in order to capitalize, or raise money for company growth.
The most important thing about common stock is that it represents a residual claim against the
corporation’s cash flows or assets. In other words, if the company goes bankrupt, shareholders
have a legal right to repayment in bankruptcy court. However, common stockholders are last in
line. All prior debts must be paid to the employees (wages), the government (taxes or judgments),
short term creditors (banks), bondholders (long term lenders), and preferred shareholders
(owners). The common stockholders get whatever is left, the residual value of the firm. Therefore,
the value of common stock is directly related to the company’s profits.
Legally, common stockholders enjoy limited liability, meaning that their losses are limited to
the original amount of their investment when they bought their common stock. For example,
the Bhopal Disaster of 1984 is considered to be the worst industrial disaster in history. It was
caused by the accidental release of 40 tons of methyl isocyanate (MIC) from Union Carbide India
Limited, a pesticide plant located in the heart of the city of Bhopal, India. The accident, in the
early hours of December 3, 1984, produced heavier-than-air toxic MIC gas which rolled along the
ground through the surrounding streets killing thousands outright. The gas also injured anywhere
from 150,000 to 600,000 people, of whom at least 15,000 later died. Heads rolled at the corporate
level in the aftermath, but none of the common or preferred shareholders stood to lose more than
the initial investment they made when they purchased the company stock.
Common Stock Dividends
A dividend is a portion of a company’s profits that is paid to its stockholders. Common stock
dividends are not guaranteed, and are often irregular or even non-existent. Dividends are always
paid from the company’s after-tax cash flows. Because dividend income is taxable for most
investors, dividends are double taxed – once when the company pays the corporate income tax on
its profits, and once more when the investors pay their personal income taxes. To avoid double
taxation, some investors hold stocks in growth companies that reinvest their accumulated earnings
instead of paying large cash dividends.
Companies will sometimes reinvest their accumulated earnings back into the business instead
of paying out dividends. This allows the company to accumulate capital and grow faster than
it otherwise might. As a firm’s earnings grow, people expect its stock price to rise. If this
happens, the stockholders can sell their stock and pay capital gains taxes on their profits. The Tax
Reduction Act of 1997 set a lower tax rate on capital gains than on dividends. Taxes on capital
gains are paid only upon the realization of the gain, meaning when it is sold. Investors can reduce
their tax bills by delaying the sale of securities to postpone realization of capital gains.
18
Track ‘n Trade High Finance
Introduction to Stocks
Voting Rights of Common Stockholders
Even though stockholders hold ownership of the corporation, they do not exercise control over
the firm’s day-to-day activities of doing business. They do, however, exercise control over
the firm’s operations indirectly by electing the board of directors. It is the task of the board of
directors to monitor the management’s activities on behalf of the shareholders. As a practical
matter, most shareholders cannot actually vote in person, but instead by proxy where they vote by
absentee ballot or endorse a representative.
Preferred Stock
Like common stock, preferred stock represents ownership in a corporation. As the name implies,
it receives preferential treatment over the common stock with respect to dividend payments and
their claim to the firm’s assets in the event of a bankruptcy. Preferred stockholders are entitled
to the issue price of their stock plus the dividends they are owed. This is, of course, after the
bondholders have been paid.
Firms can decide, however, not to pay the dividends on preferred stock right away. They will be
paid in a later period, and are called dividends in arrears. The cumulative feature of preferred
stock means that the company always owes these dividends to the preferred stockholders, and
they accumulate over time. The firm must pay preferred dividends in arrears before a dividend on
its common stock can be paid.
Some preferred stock is issued with adjustable dividends. Adjustable-rate preferred stock became
popular in the early 1980s when interest rates were rapidly changing. The dividends of adjustablerate preferred stocks adjust periodically to changing market interest rates.
Voting Rights of Preferred Stockholders
Preferred stockholders do not have voting rights. Exceptions to this rule can occur when the
corporation is in arrears on its preferred dividend payments, but this is rare.
Convertible Securities
Convertible preferred stock can be converted to common stock at a predetermined ratio (such
as two shares of common stock for each share of preferred stock). If the common stock rises
in price, the holder can choose to convert the preferred shares into common shares. After
conversion, preferred dividend payments are no longer received.
Track ‘n Trade High Finance
19
Introduction to Stocks
Preferred Stock Dividends
A preferred stock’s dividend is a payment made by the firm at regular intervals, similar to the
interest payments on a bond. Most preferred stock is nonparticipating and cumulative. Preferred
stock is nonparticipating in the sense that the preferred dividend remains constant regardless of
any increase in the firm’s earnings.
Chapter 1
Convertible bonds are bonds that can be exchanged for shares of common stock. Before
conversion it is corporate debt, thus the bond interest and principal payments are contractual
obligations of the corporation. Most convertible bonds are subordinated debentures, meaning
that they get paid after other bonds are paid, so investors who own convertible bonds have lower
ranking claim against corporate profits than most other debt holders.
Primary Markets
Introduction to Stocks
New issues of securities are called primary offerings. Stock purchases through primary offerings
are called primary market transactions. The company uses the funds raised by the sale of
securities in primary offerings to expand production, enter new markets, further research, or
enhance other aspects of the firm’s operations. After this, whenever the securities are bought or
sold it is in the secondary market.
If the company has never before offered a particular type of security to the public it is called an
unseasoned offering or initial public offering (IPO). If they issue additional securities that are
similar to those trading in the secondary market, it is known as a seasoned offering. For example,
Wal-Mart “went public” in 1978 when it made its first IPO of common stock that immediately
started trading on the New York Stock Exchange under the ticker symbol “WMT.” This was an
unseasoned offering at the time. When WMT issued more shares of the same common stock it
was called a seasoned offering because it was just more of the same stock being released into the
market.
A ticker symbol, also simply called a symbol, is a system of letters used to uniquely identify a
stock or mutual fund. Symbols with up to three letters are used for stocks which are listed and
traded on an exchange. Symbols with four letters are used for most Nasdaq stocks. Symbols with
five letters are used for Nasdaq stocks with multiple issues of common stock. Symbols with five
letters ending in X are used for mutual funds.
Companies raise money quickly when the stock prices rise because they can sell seasoned
offerings to the public at a price higher than the unseasoned offering. They don’t have to pay
interest to bondholders or loan payments to banks when they raise money this way. Alternatively,
as the company’s stock drops, it becomes more expensive for the company to capitalize with
equity and they have to use more debt, either bonds or bank financing. New issues of equity
securities may be sold directly to investors by the issuing corporation, but are usually distributed
by an investment banker in an underwritten offering, a private placement, a rights offering, or a
shelf registration.
The most common distribution method is an underwritten offering in which the investment
banker purchases the securities from the firm at a guaranteed amount and then resells the equity
securities to public investors for a greater amount. The difference is called the underwriter’s
spread, which compensates the investment banker for the expenses and risks involved in the
offering.
20
Track ‘n Trade High Finance
Introduction to Stocks
Also, some equity securities are distributed through private placements in which the investment
banker acts only as the company’s agent and receives a commission for placing equity securities
with investors.
A company will occasionally place equity securities with its existing shareholders. In a rights
offering, a company’s existing stockholders are given the rights to purchase additional shares at a
slightly below-market price in proportion to their current ownership in the company.
An important innovation in the sale of securities is shelf registration. Shelf registration permits
a corporation to register a large quantity of securities and sell them over time, rather than all at
once. The issuer is able to save time and money through a single registration. In addition, these
securities can be brought to market with little notice, thereby providing the issuer with maximum
flexibility in timing an issue to take advantage of favorable market conditions.
Secondary Markets
From an investor’s perspective, the function of a secondary market is to provide liquidity of their
assets at fair prices. An asset is an item of value owned by an individual or corporation. Liquidity
is the speed at which an asset such as stock, bonds, or real estate, can be converted into cash.
Liquidity is achieved if investors can trade large amounts of securities without affecting prices.
Prices are said to be fair if they reflect the underlying value of the security correctly.
There are three liquidity-related characteristics of a secondary market that investors find
desirable: depth, breadth, and resiliency. First, a secondary market is said to have depth if there
are orders both above and below the price at which it is currently trading. When a security trades
in a deep market, temporary imbalances of purchase or sale orders that would otherwise create
substantial price changes are offset with corresponding orders. Second, a secondary market is said
to have breadth if its orders give its market depth in a significant volume. The broader the market
for a stock, the greater the potential for stabilization of temporary price changes that may arise
from order imbalances. Third, a market is resilient if orders promptly respond to price changes.
There are four types of secondary markets: direct search, brokered, dealer, and auction. Each
type differs according to the amount of price information investors have access to.
Direct Search
The secondary market that offers you the least amount of price information is that in which the
buyers and sellers have to search each other out directly. For this reason, this is called a direct
Track ‘n Trade High Finance
21
Introduction to Stocks
Any trade of a security after its primary offering is called a secondary market transaction. When
an investor buys 100 shares of IBM on the New York Stock Exchange, the proceeds of the sale
do not go to IBM. They go to the investor who sold the shares.
Chapter 1
Introduction to Stocks
search secondary market. Because the full cost of locating and bargaining with a willing and
capable trading partner is paid by an individual investor, there is only a small incentive to conduct
a thorough search among all possible partners in the market for the best possible price. By the
time a trade is agreed upon by the two investors, at least one of the participants could have gotten
a better price if they were in contact with some other participant they never found. Stocks that
trade in direct search markets are the ones people buy and sell so infrequently that a third party,
such as a broker or a dealer, has no incentive to provide any kind of service to facilitate this
trading. The common stock of smaller companies, especially small banks, trades in direct search
markets. Buyers and sellers of those issues must rely on word-of-mouth communication to attract
compatible trading partners. The relatively small number of trades makes it difficult to find an
economical way of broadcasting quotations or transaction prices. Trades can occur at the same
time at quite different prices, and these transactions are usually far from the best possible price.
Brokered
When the trading of a specific stock becomes sufficiently heavy, brokers begin to offer
specialized search services to market participants. For a fee, called a brokerage commission,
brokers help find compatible trading partners and negotiate acceptable transaction prices for their
clients.
Brokers are most likely to be involved when a lot of investors are in the market because it is more
profitable for them. If a broker can fill two customer’s orders at a cost less than twice the cost of
the direct search that would otherwise be conducted by each of those customers, then brokers will
offer their services. This is important because they can profitably acquire the business of both
investors by charging a commission somewhat less than the cost of a direct search.
Since brokers are frequently in contact with many market participants on a continuing basis,
they are likely to know what a “fair” price is for a transaction. Stock brokers arrange transactions
closer to the best available price than is possible in a direct search market. Their extensive
contacts provide them with a pool of price information that individual investors could not
economically duplicate because of cost. By charging a commission less than the cost of direct
search, they give investors an incentive to use the information the broker has.
Even though a brokered market is better than a direct search market, a brokered market cannot
guarantee that orders will be executed promptly. Not knowing about the speed of execution
creates price risk. While a broker is searching for a trading partner for a client, prices may change
and the client may suffer a loss.
Dealer
As the trading of a stock becomes even more active, some market participants may begin to
maintain bid and offer quotations of their own. These traders become dealers. They buy and
sell their own inventory at their own quoted prices. Dealer markets eliminate the need for
22
Track ‘n Trade High Finance
Introduction to Stocks
time consuming searches for trading partners, because investors know they can buy or sell
immediately at the quotes given by a dealer.
Dealers often sell their stocks at a price greater than the bid price they pay. The difference
between the two, called the bid-ask spread, compensates them for providing the liquidity of an
immediately available market to occasional participants. This also pays for the risk that dealers
incur when they position a security in their inventory. The bid price is the highest price that
someone is willing to pay to buy shares of stock. This also means that this is the highest price you
can expect to get for your shares of stock when selling them. It is always lower than the ask price.
The ask price is the lowest price you can pay for a stock. This is because it is the lowest price
any seller is offering their shares for.
Auction
Auction markets provide centralized procedures for the exposure of purchase and sale orders
to all market participants simultaneously. In other words, an auction market is a place where
anyone who wants to buy and sell can go to. This is important because auction markets virtually
eliminate the expense of locating compatible partners and bargaining for a favorable price. The
communication of price information in an auction market may be oral if all participants are
physically located in the same place, or the information can be transmitted electronically.
Over-The-Counter Trading and NASDAQ
Securities not sold on an organized exchange like the NYSE are traded over-the-counter (OTC).
A stock may not be listed on an organized exchange for several reasons, including lack of
widespread investor interest, small issue size, or insufficient order flow. The OTC stock market
is a dealer market. Since different OTC issues are not usually close substitutes for each other, a
dealer with limited capital can make a profit with a relatively narrow range of stock inventory.
As a result, there is a large number of small OTC dealers. They often concentrate their trading in
particular industry groups or geographical areas. It is estimated that about 30,000 various types
of equity securities are traded in the OTC market. However, only about 15,000 of these securities
are actively traded.
When customers place a buy or sell order for a stock in the OTC market, a broker will contact
other dealers who have that particular stock for sale and search out the best price. When satisfied,
Track ‘n Trade High Finance
23
Introduction to Stocks
Although dealer markets provide investors with the opportunity for an immediate execution of
their orders, and although dealer markets can usually be searched more rapidly and cheaply than a
direct search or brokered markets, they do have several disadvantages. No one can guarantee that
the quotation of a particular dealer could be improved upon by contacting another dealer. This
being the case, investors operating in dealer markets have to bear some cost of searching for the
best price.
Chapter 1
he or she will complete the buy or sell transaction with that dealer and charge his or her customer
the same price plus a commission for the brokerage services.
Introduction to Stocks
Nasdaq
A major development of the OTC market occurred in 1971 when the National Association of
Securities Dealers (NASD) introduced an automatic computer-based quotation system, called
NASDAQ. The system offers continuous bid-and-ask prices for the most actively traded OTC
stocks. NASDAQ’s development accelerated the disclosure of price information, and it also
fundamentally altered the structure of the OTC market.
There are three levels of access to the NASDAQ system. Level 3 terminals are available only to
dealers and allow them to enter bid and ask quotations for specific stocks into the system. These
quotations, together with information identifying the stock and the dealer, appear within seconds
on the terminals of other dealers and brokers. For this reason, the NASDAQ always has current
prices. Level 2 terminals display all the dealer bid and ask quotations for a given stock, but do not
allow that quotation to be changed on the terminal. These terminals are available to brokers and
institutions. Level 1 terminals provide only the best bid and ask price (called the inside quote) for
a stock. These terminals are used by stockbrokers when quoting prices to their customers.
This greatly increased the efficiency of a broker’s search for the best bid-and-ask prices, reducing
the amount of trading away from the best available prices.
Stock Exchanges
The New York Stock Exchange (NYSE), the preeminent, biggest and most organized stock
exchange in the United States, is an example of an auction market. Other regional stock
exchanges in the United States include the American Stock Exchange (AMEX) in New
York, the Pacific Stock Exchange in both San Francisco and Los Angeles, the Chicago Stock
Exchange, the Philadelphia Stock Exchange, the Boston Stock Exchange, and the Cincinnati
Stock Exchange. The NASDAQ and the NYSE account for the vast majority of stock trading.
Regional exchanges account for little of the total stock trading volume in the United States.
All transactions in a stock listed on the NYSE and completed within that exchange occur at
a unique place on the floor of the exchange, called a post. There are three major sources of
active bids and offerings in an issue available at a post: (1) floor brokers executing customer
stock orders, (2) limit price orders for stock left with the specialist for execution, and (3) the
specialist in the stock buying and selling for his or her own account. Since trading is physically
localized, the best available bid-and-offer quotes are very available. Competition and ease of
communication among market participants at a post ensure the absence of bids above the lowest
offer price or offerings below the highest bid for the stock.
24
Track ‘n Trade High Finance
Introduction to Stocks
Types of Orders
Orders from the public are transmitted by internet, telephone, or telex from brokerage houses to
brokers on the floor of the NYSE, who bring the orders to the appropriate posts for execution.
Most of these orders are either market orders or limit orders.
A market order is an order to buy or sell at the best possible price available at the time the
order reaches the post. The broker bringing a market order to a post might execute the order
immediately upon his arrival, or he might hold back all or part of the order for a short time to see
if he or she can get a better price than is currently available. He or she may also decide to quote a
price on the transaction to reduce the amount of time he or she will have to wait until completing
the trade.
When a limit order is at a price that is not very close to the current market prices (the bid-andask), the broker handling the order knows it is unlikely the order will be executed anytime
soon. For example, a bid or purchase order at $50 on a stock currently trading at $55 may not
be satisfied for days, or even may never be satisfied. As an alternative to maintaining a physical
presence at the post, the broker can enter the limit order on the order book maintained by the
specialist. No trades can take place at a particular price unless all bids are above and all offerings
are below it. In other words, the market has to move up through all of the sell limit orders in the
book to hit your sell limit orders. Alternatively, the market has to move down through all other
limit orders in the book between your limit order’s price before it can be executed. Entering a
limit order on a specialist’s book is a great alternative to floor brokers who would otherwise have
to maintain a physical presence at a post to keep a limit order active.
Specialists
Specialists provide the third source of bids and offers in listed securities. On the NYSE,
Specialists are members of the exchange who are both dealers and order clerks. Specialists have
to maintain the price quotations at all times for the issue in which they specialize. Specialists also
act as dealers, trading for their own account and at their own risk. NYSE specialists act as order
clerks as well, maintaining the book of limit orders for the floor brokers.
Heavy trading volume ensures that there are always active bids and offerings available from
either floor brokers or the limit order book. In these cases, the dealer function of the specialist
is to be a source of liquidity so that your orders get filled quickly if trading is more sporadic
Track ‘n Trade High Finance
25
Introduction to Stocks
A limit order is an order to buy or sell at a designated price or at any better price. Investors place
limit orders when they want to buy or sell at a price well above or well below the bid-ask spread.
A floor broker handling a limit order to buy at or below a stated price, or to sell at or above a
stated price, will usually stand by the post with his order if the limit price on the order is near the
current market bid-and-ask prices.
Chapter 1
or infrequent. In these cases the obligation of the specialist to provide the liquidity service
of immediate execution is vital. Indeed, if the prices of the purchase and sales orders on the
specialist’s book have a wide spread (which is common for infrequently traded stocks), the
specialist may be the sole source of a market for immediate transaction.
Global Stock Markets
Introduction to Stocks
Better communications and computer technology have reduced transaction costs, making it easier
for other financial intermediaries to compete with securities firms. This has led to the emergence
of a so-called “national market” system, online discount trading, 24-hour trading of equity
securities, and the globalization of equity markets.
The Securities Act Amendment of 1975 mandated that the Securities and Exchange Commission
(SEC), the primary regulator of U.S. financial markets, move toward creating a national market
system. In its ideal form, a national market system would have a comprehensive method of
recording and reporting transactions regardless of where they take place in the country. It
would also be a system that allowed investors to get price information from any exchange
instantaneously, and thus a way to buy or sell stock at the best price regardless of location.
Progress has been made toward electronically linking the national exchanges, regional exchanges,
and over-the-counter markets, but we are still many years away from a truly nationwide system.
There is competitive pressure to link international stock markets as well. Many U.S. firms are
issuing stocks on overseas exchanges to take advantage of differences in tax laws, to increase
their visibility and reputation, and to avoid flooding local stock markets. In 1986, the London
Stock Exchange created a computer network similar to the NASDAQ system and permitted U.S.
and Japanese investment firms to enter trades on the system. This development was important
because it created a virtual 24-hour global trading environment, given time differences between
New York, London, and Tokyo.
Stock exchanges in the United States are panicked about losing business to overseas stock
markets. As a step toward increasing the global competitiveness of the U.S. financial markets,
the SEC permitted after-hours trading on the NYSE. Before this, trading only took place between
9:30 AM and 4:00 PM Eastern time. The NYSE now has several after-hours trading sessions
during which shares trade electronically at the day’s closing price. The biggest beneficiaries of
the NYSE’s move toward globalization will be U.S. companies that expect to broaden the market
for their securities.
American Depository Receipts
Unfamiliar market practices, confusing tax legislation and insufficient shareholder
communication often discourage investors from participating in foreign stock markets. Many
foreign companies overcome these road blocks by means of American Depository Receipts
(ADR). An ADR is a dollar denominated claim issued by a bank representing ownership of
26
Track ‘n Trade High Finance
Introduction to Stocks
shares of a foreign company’s stock held on deposit by U.S. investors. With over 1,600 ADRs
from 63 countries trading in the United States, they are very popular with U.S. investors because
they allow investors to diversify internationally.
A sponsored ADR is one for which the issuing foreign company absorbs the legal and financial
costs of creating and trading the security. An un-sponsored ADR is one in which the issuing firm
is not involved with the issue at all and may even oppose it. Un-sponsored ADRs typically result
from U.S. investor demand for shares of particular foreign companies.
Regulation of Equity Markets
Under the 1934 act, the SEC has the authority to register and regulate securities exchanges, overthe-counter (OTC) trading, brokers, and dealers. The SEC is responsible for broad oversight of
secondary markets. In addition, security trading is also subject to state laws.
Equity Valuation Basics
Stock valuation is a tricky matter and a subject you must understand as a stock investor. To
understand stock value you need to understand market capitalization, book value, fundamental
analysis, and technical analysis.
Market capitalization is simply the total value of all outstanding shares of a company. To
calculate the market capitalization, multiply the total number of shares outstanding of each
class of common and preferred stock by its corresponding share price. Assume, for instance,
that a company has 1,000,000 shares of common stock outstanding trading at $15 per share and
2,000,000 shares of preferred stock trading at $10 per share. The market capitalization of the
company is as follows:
Market Capitalization:
(1,000,000 Shares)($15/Share) + (2,000,000 Shares)($10/Share) =
$15,000,000 + $20,000,000 =
$35,000,000
Track ‘n Trade High Finance
27
Introduction to Stocks
Trading in securities in the United States is regulated by several laws. The two major laws are
the Securities Act of 1933 and the Securities Exchange Act of 1934. The 1933 act requires full
disclosure of relevant information relating to the issue of new stock in the primary market. This
act requires full registration of an IPO and the issuance of a prospectus which details the recent
financial history of the company, and is concerned only that the relevant facts are disclosed to
investors. The 1934 act established the Securities and Exchange Commission (SEC) to administer
the provisions of the 1933 act. It also extended the disclosure of the 1933 act by requiring firms
with stocks traded on secondary exchanges to periodically release current financial information.
Chapter 1
Book value is the value of the company as shown on the firm’s balance sheet. This is the value
of everything the company owns less everything it owes. This number may not necessarily reflect
the true value of the firm, but it is generally a fair indication.
Fundamental analysis focuses on the company’s financial information, including the balance
sheet, the income statement, and cash flow statement. The primary concept here is that increased
earnings enhance the value of the firm. Since the shareholders are the owners of the firm, the idea
is that increased corporate profits increase the share price of the company’s stock.
Technical analysis attempts to predict the future direction of stock price movements based on
three types of information: historical price, volume behavior, and market sentiment.
Introduction to Stocks
Stock Market Indices
Stock market indices provide a useful tool to summarize the vast array of information generated
by the continuous buying and selling of stocks. However, the use of market indices presents
two problems. First, many different indices compete for attention. Second, indices differ in their
composition and can give contradictory information regarding price movements of the stock
market.
When constructing a stock market index, the base value and the starting date have to be selected.
Only the relative changes in the index values are useful. For example, knowing only that a
particular stock market index finished the year at a level of 354.7 is of no value. But if you also
know that the same index finished the previous year at a level of 331.5, then you can calculate
that the stock market, as measured by this particular index, rose approximately 7 percent over the
past year.
The next decision is which stocks should be included in the index. There are three methods for
deciding stock market composition: (1) the index can represent a stock exchange and include
all the stocks traded on the exchange, (2) the organization producing the index can subjectively
select the stocks to be included, or (3) the stocks to be included can be selected based on some
objective measure such as market value. Often an index represents the performance of various
industry segments such as industrial, transportation, or utilities.
Once the stocks to be included in an index are selected, the stocks must be combined in certain
proportions to construct the index. Each stock, therefore, must be assigned some relative weight,
usually by share price or market value of the company.
Price-Weighted Indices
A price-weighted index is computed by summing the prices of the individual stocks in the
index. Then the sum of the prices is divided by a divisor to yield the chosen base index value.
Thereafter, as the stock prices change, the divisor remains constant.
28
Track ‘n Trade High Finance
Introduction to Stocks
For example, if the price per share of three stocks in a price-weighted index were $20, $10, and
$50 respectively, then the prices would sum to $80. If the base index value is to be 100, then the
initial divisor would be 0.8 because 100 = 80/0.8. On the next trading day, say prices per share of
the stocks change to $25, $10, and $40. Now the new sum of share prices would be $75 and the
price weighted index value would be 75/0.8 = 93.75 or 6.25 percent lower.
Market Value-Weighted Indices
A market value-weighted index is computed by calculating the total market value of the firms in
the index and the total market value of those firms on the previous trading day. The percentage
change in the total market value from one day to the next represents the change in the index.
Dow Jones Averages
The most widely cited stock market index is the Dow Jones Industrial Average (DJIA) which
was first published in 1896. The DJIA is a price-weighted index that originally consisted of 20
stocks with a divisor of 20; this means that the value of the index was simply the average price
of the original 20 stocks. In 1928, the DJIA grew to encompass 30 of the largest U.S. industrial
stocks and includes today such companies as Verizon, Dupont, and Merck.
New York Stock Exchange Index
The New York Stock Exchange Index, published since 1966, includes all of the common and
preferred stocks listed on the NYSE. In addition to the composite index, the NYSE stocks
are divided into four sub-indices that track the performance of industrial, utility, finance, and
transportation stocks. All the NYSE indices are market-value weighted.
Standard and Poor’s Indices
The Standard and Poor’s (S&P) 500 Index is a value-weighted index that consists of 500 of
the largest U.S. stocks from various industries. The stocks included in the S&P 500 account for
over 80 percent of all the stocks listed on the NYSE, although a few NASDAQ issues are also
included. The index is computed on a continuous basis during the trading day. It is divided into
two sub-indices that follow the performance of industrial and utilities companies.
The S&P 400 MidCap Index is market-value weighted and consists of 400 stocks with market
values less than those of the stocks in the S&P 500. The S&P 400 MidCap index is useful for
following the performance of medium-sized companies.
Track ‘n Trade High Finance
29
Introduction to Stocks
For example, if the three stocks described in the example above had outstanding shares of 100
million, 200 million, and 10 million, then the total market value for the three stocks on the first
day would be $4.5 billion. The total market value on the second day would be $4.9 billion, for an
increase of 8.8 percent. If the market value-weighted index began with a a base index value of 10
on the first day, then its value on the second day would be 10.88, or 8.8 percent higher.
Chapter 1
The S&P 600 SmallCap Index tracks 600 companies with market values less than those of the
companies in its S&P 600 MidCap index. The S&P 1500 index includes all of the companies in
the S&P 500, the MidCap 400, and the SmallCap 600.
NASDAQ Indices
The NASDAQ Composite has been compiled since 1971. It consists of three categories of
companies: industrial, banks, and insurance. All of the stocks traded through the NASDAQ are
included. In 1984, the NASDAQ introduced two new indices, the NASDAQ/ NMS Composite
index and the NASDAQ/ NMS Industrial Index. Both are weighted by market capitalization.
Mutual Funds
Introduction to Stocks
If you don’t want to actively buy and sell individual securities, you can invest in stocks, bonds, or
other financial assets through a mutual fund. Mutual funds are simply a way of pooling together
money of a large group of investors. The buy and sell decisions for the pool are made by fund
managers who are paid for the service they provide.
Mutual funds provide indirect access to financial markets for individual investors; these funds are
a form of financial intermediary. Mutual funds have a lot of power. They are now the largest type
of financial intermediary in the United States, followed by commercial banks and life insurance
companies.
As of the end of 2001, about 93 million Americans in 55 million households owned mutual funds,
up from 5 million households in 1980. Investors contributed $505 billion to mutual funds in 2001,
and total mutual fund assets totaled $7 trillion.
Open-End Versus Closed-End Mutual Funds
There are two type of mutual funds, open-end and closed-end. Whenever you invest in a mutual
fund, you do so by buying shares in the fund. However, how your shares are bought and sold
depends on which type of fund you are considering.
With an open-end fund, the fund itself will sell new shares to anyone wishing to buy and will
buy back shares from anyone who wants to sell. When an investor wants to buy open-end fund
shares the fund simply issues the shares and then the fund manager invests the money received
from the investor. When someone wants to sell open-end fund shares, the fund sells some of its
assets and uses the cash to redeem the shares. As a result, with an open-end fund, the number of
shares outstanding fluctuates over time.
In a closed-end fund, the number of shares is fixed and never changes. If you want to buy shares,
you must buy them from another investor. Similarly, if you wish to sell shares that you own, you
must sell them to another investor.
30
Track ‘n Trade High Finance
Introduction to Stocks
Net Asset Value
A mutual fund’s net asset value (NAV) is calculated by taking the total value of the assets held by
the fund less any liabilities and then dividing by the number of outstanding shares. For example,
suppose a mutual fund has $105 million in assets and $5 million in liabilities based on current
market values and a total of 5 million shares outstanding. Based on the value of net assets held by
the fund, $100 million, each share has a value of $20 ($100 million / 5 million shares).
Shares in an open-end fund are always worth their net asset value. In contrast, because the shares
of closed-end funds are bought and sold in the stock market, the share price is dictated by the
market and may or may not be equal to the NAV.
Mutual Fund Organization and Creation
Most mutual funds are created by investment advisory firms, which are businesses that specialize
in managing mutual funds. Such firms have additional operations as discount brokerages or offer
other financial services.
An investment advisory firm can create multiple funds. Over time, this process leads to a family
of funds all managed by the same advisory firm. Each fund in the family will have its own fund
manager, but the advisory firm will generally handle the record keeping, marketing, and much of
the research that underlies the fund’s investment decisions.
Taxation of Investment Companies
As long as an advisory firm meets certain rules set by the Internal Revenue Service, it is treated
as a “regulated investment company” for tax purposes. This is important because a regulated
investment company does not pay taxes on its investment income. Mutual funds act as a “passthrough entity” in terms of tax law, funneling capital gains and losses to the shareholders in
proportion to their investment.
Types of Stock Mutual Funds
1. Capital appreciation stock funds seek maximum capital appreciation. They generally invest in
companies that have, in the opinion of the fund manager, the best prospects for share price
appreciation without regard to dividends or company size. Often this means investing in
unproven companies or out-of-favor companies.
Track ‘n Trade High Finance
31
Introduction to Stocks
A mutual fund is simply a corporation. Like a corporation, a mutual fund is owned by its
shareholders. The shareholders elect a board of directors, and they are responsible for hiring
managers to oversee the fund’s operations. Every individual fund is a separate company owned
by its shareholders.
Chapter 1
2. Growth stock funds seek capital appreciation, but tend to invest in large, more established
companies. These funds may be somewhat less volatile as a result. Dividends are an
important consideration for the mutual fund manager in purchasing a stock.
3. G
rowth and income funds seek capital appreciation, but at least part of their focus is on
dividend-paying companies.
4. Equity income stock funds focus almost exclusively on stocks with relatively high dividend
yields, thereby maximizing the current income on the stock portfolio. The dividend yield is
the anticipated dividend divided by the present price of a share of stock.
Introduction to Stocks
5. Small company stock funds focus on stocks in small companies. “Small” refers to the total
market value of the stock. Small stocks have historically performed very well, at least
over the long run, hence the demand for funds that specialize in such stocks. With smallcompany mutual funds, what constitutes small covers a wide range from perhaps $10
million up to $1 billion or so in total market value, and some funds specialize in smaller
companies than others. Since most small companies don’t pay dividends, these funds
necessarily emphasize capital appreciation.
6. M
id-cap stock funds specialize in stocks that are too small to be in the S&P 500 index but too
large to be considered small stocks. Hence, the stocks these mutual funds specialize in are
considered to be middle sized stocks or medium sized by market capitalization.
7. G
lobal stock funds have substantial international holdings but also maintain significant
investments in U.S. stocks.
8. International stock funds are similar to global funds, but focus most on foreign securities.
9. I ndex stock funds simply hold the stocks that make up a particular index in the same
proportions as the index. The most important index funds are the S&P 500 indexed stock
mutual funds which are intended to track the performance of the S&P 500. By their nature,
index funds are passively managed and trade only as a necessary to match the index. Such
funds are appealing in part because they are generally characterized as low turnover and
low operating expenses.
10. Social conscience stock funds are a relatively new creation. They invest only in companies
whose products, policies, or politics are viewed as socially desirable. The specific social
objectives range from environmental issues to personnel policies. Of course, general
agreement on what is socially desirable or responsible is hard to find.
11. T
ax-managed stock funds are managed with high regard for the tax liabilities of mutual fund
shareholders. Tax-managed stock mutual funds try to hold down turnover to minimize
realized capital gains, and they try to match realized gains with realized losses. Fund
shareholders have largely escaped taxes as a result.
32
Track ‘n Trade High Finance
Introduction to Stocks
Exchange Traded Funds
Exchange traded funds (ETF) are a recent financial innovation. When you purchase an ETF, you
are buying the same combination of stocks on a given index. For example, the best known ETF is
Standard and Poor’s Depository Receipt (SPDR), pronounced “spider,” which is based on the
S&P 500 index.
Hedge Funds
Hedge funds are a special type of investment company. They are like mutual funds in that a
fund manager invests a pool of money for investors and takes his fee off the top. However,
unlike mutual funds, hedge funds are not required to register with the SEC. They are only lightly
regulated and are generally free to pursue almost any investment style they wish.
Hedge funds are also not required to maintain any degree of diversification or liquidity.
They don’t have to redeem shares on demand, and they have little in the way of disclosure
requirements. The reason that hedge funds avoid many of the restrictions placed on mutual funds
is that they only accept “financially sophisticated” investors. They do not offer their securities for
sale to the public. Some types of hedge funds are limited to no more than 100 investors.
Hedge funds typically have a special fee structure, where, in addition to a general management
fee of one to two percent of fund assets, the manager is paid a special performance fee. A modest
fee structure might be one that charges an annual management fee of one percent of the fund’s
assets plus twenty percent of any profits realized; however, more elaborate fee structures are
common.
Whether large or small, each fund develops its own investment style or niche. For example,
a hedge fund may focus on a particular sector or global region. Alternatively, a hedge fund
may pursue a particular investment strategy, like the market neutral strategy, in which the fund
maintains a portfolio approximately equally split between long and short positions. By being long
in some securities and short in others, the portfolio is hedged against market risk and said to be
market neutral.
Track ‘n Trade High Finance
33
Introduction to Stocks
What makes an ETF different from an index fund is that it can be traded in the open markets,
leaving the possibility for arbitrage. Arbitrage is an activity that involves simultaneously buying
and selling a security to take advantage of a price difference in two markets. In plain language, if
a company’s stock is selling for $12 on the NYSE and $9 on the AMEX, then arbitrageurs will
buy the stock on the AMEX and sell the same stock on the NYSE for as much as they can and as
fast as they can. The increased buying on the AMEX will cause the price to rise on the exchange
while on the other hand the increased selling on the NYSE will cause the price on that exchange
to fall until the price is the same on each exchange. In finance we say that arbitrage keeps prices
in line by forcing price convergence or one-price for the same asset such as a stock. This is also
known as the law of one price.
Chapter 1
Short is a term meaning short selling. This is the sale of a security made by an investor who does
not own the security. The short sale is made in expectation of a decline in the price of a security,
which would allow the investor to then purchase the shares at a lower price in order to deliver the
securities earlier sold short.
Stock Options
Introduction to Stocks
Options are securities that make it possible to invest in stocks without actually owning the shares.
Options on stock are bought to speculate on price movement. Stock options are themselves
securities and can be traded in financial markets. An option to buy a stock is known as a call
option or just a call. Options to sell securities are known as put options or just puts.
Options are the most important example of a class of financial assets known as derivative
securities. A derivative is so named because it derives its value from the price of another
underlying security, in this case the optioned stock.
Investors are interested in stock options because they provide speculative leverage, a term applied
to any technique that amplifies the return on an investment. An option’s leverage comes from the
fact that the return on the investment can be many times larger than the return on the underlying
stock.
Writing an Option
There are two parties to a contract, a buyer and a seller. The first person to sell an option contract
is the person who creates it by agreeing to sell the stock at the strike price. He or she is said to
write an option and is called the option writer.
Once the option is written, the option contract becomes a security and the writer sells it to the first
option buyer, who may sell the contract to someone else later on. No matter how many times the
option is sold, the writer remains bound by the contract to sell or buy the underlying stock to the
current option owner at the specified price.
Options are written either covered or naked. With a covered option, the writer owns the
underlying stock at the time the option is written. Someone who writes a naked option doesn’t
own the underlying stock at the time he or she writes the option and therefore faces more risk.
Intrinsic Value of an Option
If a stock’s current price is below the strike price in the case of a call, or above the strike price in
the case of a put, we say that the option is “out of the money” because the option contract buyer
could not make any money exercising the contract. If the stock’s price is above the strike price
in the case of a call, or below the strike price in the case of a put, we say that the option is “in the
money” because the option contract buyer could make money exercising the contract.
34
Track ‘n Trade High Finance
Introduction to Stocks
In general, the option’s intrinsic value is the difference between the underlying stock’s price and
the option’s strike price. Investors are willing to pay premiums over intrinsic value for stock
options because of the chance that they will earn even more profit. Option premium is the
difference between the intrinsic value of the option and the option’s price. The exact amount of a
particular option’s premium above intrinsic value depends on the stock’s volatility, the time until
expiration, and the attitude of the market about the underlying company.
Option Expiration
It’s important to keep in mind that options are exercisable over only a limited period at the end of
which they expire and become worthless. That makes option investing very risky. For example,
if an option is purchased “out of the money” and the option never gets “in the money,” the option
expires, worthless. The buyer loses the entire price paid for it.
Warrants
It’s important to note that the options discussed up until now are strictly bought and sold in
the secondary market. That is, they’re traded between investors, and the companies don’t get
involved. Specifically, companies don’t get any money when the options are written or exercised.
Warrants are similar to call options but are issued by the underlying companies themselves.
When a warrant is exercised, the company issues new stock in return for the specified price.
Warrants are therefore primary market instruments. Warrants are like call options in that they
give their owners the right to buy stock at a designated price over a specified time period. They
differ from stock options in that the time period is much longer, typically several years.
Warrants are usually issued in conjunction with other financing instruments as “sweeteners” to
make the primary security more attractive. For example, suppose a company wants to borrow,
but isn’t in good financial condition, so lenders have rejected its bonds. They may be induced to
buy the company’s bonds if the firm attaches one or more warrants to each bond giving the holder
the right to buy a share at $50 within the next five years. The warrants provide incentives to buy
the bonds if people think the stock is likely to go over $50 before five years have passed. If bond
holders do exercise the warrants then the company will receive additional cash as they issue new
shares that are sold to fulfill the warrants.
Warrants can generally be detached and sold independently at a market value of their own. This
effectively reduces the price of the bonds and increases their yield to the investor. Alternatively,
Track ‘n Trade High Finance
35
Introduction to Stocks
If an option is purchased at a price that includes a positive intrinsic value and the underlying
stock goes down in value, the option buyer’s loss at expiration is the time premium paid plus the
decrease in intrinsic value. As its expiration date approaches, any option’s time premium shrinks
to virtually nothing. Notice that anyone owning an option with a positive intrinsic value just
before expiration must act quickly to avoid losing value.
Chapter 1
bondholders can keep the warrants and exercise them for a quick gain if the stock’s price rises
above $50. Notice that if the warrants are exercised, the company receives an equity infusion
based on a price of $50 rather than the higher market price. The bonds are unaffected by the
exercise of the warrants.
Introduction to Stocks
Employee Stock Options
For many years, American companies have given certain employees stock options as part of
their compensation. Companies like paying with options because they don’t cost anything
when issued. Since employees who receive options get lower salaries, the practice improves the
company’s financial statements by lowering payroll costs. Beyond that, supporters maintain that
the employees will be more motivated to act in the best interest of the company, since the value
of their options are directly tied to market price.
36
Track ‘n Trade High Finance
Introduction to Forex
Basics of Forex Trading
Track ‘n Trade High Finance
2
37
Introduction to Forex
Chapter 2
Copyright 2006 FXCM.com 38
All Rights Reserved
Track ‘n Trade Forex
Introduction to Forex
Introduction
Traders buy and sell currencies with the hope of making a profit when the value of the currencies
changes in their favor, whether from market news or events that take place in the world. The
forex market is the largest market in the world with daily reported volume of over 1.8 trillion,
making it one of the most exciting markets for trading.
Market Hours
The spot FX market is unique to any other market in the world, as trading is available 24-hours
a day. Somewhere around the world, a financial center is open for business, and banks and other
institutions exchange currencies every hour of the day and night with generally only minor gaps
on the weekend. Essentially, foreign exchange markets follow the sun around the world, giving
traders the flexibility of determining their trading day.
How an FX Trade Works
Example of an FX Trade
Trader’s Action
A trader purchases 10,000 euros in the beginning of
2001 when the EUR/USD rate was .9600.
In May of 2003 the trader exchanges his 10,000 euro
back into US dollar at the market rate of 1.1800.
In this example, the trader earned a gross profit of
$2,200.
Euros
US Dollar
+10,000
-9,600
-10,000
+11,800
0
+2,200
Quoting Conventions
Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known
as the base currency, while the second is called the counter or quote currency. The base currency
is the “basis” for the buy or the sell. For example, if you BUY EUR/USD you have bought euros
(simultaneously sold dollars). You would do so in expectation that the euro will appreciate (go
up) relative to the US dollar.
Copyright 2006 FXCM.com All Rights Reserved
Track ‘n Trade Forex
39
Introduction to Forex
In this market you may buy or sell currencies. The objective is to earn a profit from your position.
Placing a trade in the foreign exchange market is simple: the mechanics of a trade are virtually
identical to those found in other markets, so the transition for many traders is often seamless.
Chapter 2
Currency Abbreviations
Symbol
Definition
EUR
Euro
GBP
Great British pound
USD
US Dollar
CHF
Swiss Franc
Introduction to Forex
AUD
CAD
JPY
Australian Dollar
Canadian Dollar
Japanese Yen
EUR/USD
In this example, euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken and this will hurt the US dollar, you
would execute a BUY EUR/USD order. By doing so, you have bought euros in the expectation
that they will appreciate versus the US dollar. If you believe that the US economy is strong and
the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing
so, you have sold euros in the expectation that they will depreciate versus the US dollar.
USD/JPY
In this example, the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the yen in order to help its export
industry, you would execute a BUY USD/JPY order. By doing so, you have bought US dollars
in the expectation that they will appreciate versus the Japanese yen. If you believe that Japanese
investors are pulling money out of US financial markets and repatriating funds back to Japan, and
this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so, you have
sold US dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USD
In this example, the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to be the leading economy among the G8 nations
in terms of growth, thus buying the pound, you would execute a BUY GBP/USD order. By doing
so, you have bought pounds in the expectation that they will appreciate versus the US dollar. If
you believe the British are going to adopt the euro and this will weaken pounds as they devalue
their currency in anticipation of the merge, you would execute a SELL GBP/USD order. By doing
so, you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHF
In this example, the USD is the base currency and thus the “basis” for the buy/sell.
If you think the US dollar is undervalued, you would execute a BUY USD/CHF order. By doing
Copyright 2006 FXCM.com 40
All Rights Reserved
Track ‘n Trade Forex
Introduction to Forex
so, you have bought US dollars in the expectation that they will appreciate versus the Swiss
Franc. If you believe that due to instability in the Middle East and in U.S. financial markets the
dollar will continue to weaken, you would execute a SELL USD/CHF order. By doing so, you
have sold US dollars in the expectation that they will depreciate against the Swiss franc.
Buying/Selling
First, the trader should determine whether they want to buy or sell. If they want to enter a short
order – whereby they will profit if the exchange rate falls – they simply need to click on the SELL
rate. The opposite holds true for traders who enter buy orders: they can simply click on the BUY
rate, and thus will profit if the exchange rate goes up.
Example of How Buying/Selling Works
Margin
The margin deposit is not a down payment on a purchase of equity, as many perceive margins
to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit. The
margin requirement allows traders to hold a position much larger than the account value.
Example of How Margin Works
Since the trader opened 1 lot of the EUR/USD, his margin requirement or used margin is $1000.
Usable margin is the funds available to open new positions or sustain trading losses. If the equity
(the value of his account) falls below his used margin due to trading losses, his position will
automatically be closed. As a result, the trader can never lose more than he/she deposits.
Rollover
For positions open at 5pm EST, there is a daily rollover interest rate that a trader either pays or
earns, depending on your established margin and position in the market. If you do not want to
earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established
end of the market day. Since every currency trade involves borrowing one currency to buy
another, interest rollover charges are an inherent part of FX trading. Interest is paid on the
currency that is borrowed, and earned on the one that is purchased. If a client is buying a currency
Copyright 2006 FXCM.com All Rights Reserved
Track ‘n Trade Forex
41
Introduction to Forex
Just like in all markets, there are two prices
for every currency pair. The difference between these two prices is the spread, or the
cost of the trade. In this example, the spread
is three pips. On a mini account, a pip on the
EUR/USD currency pair is worth $1.
Chapter 2
with a higher interest rate than the one he/she is borrowing, the net differential will be positive
– and the client will earn funds as a result. Please note that clients must be on 2% margin in order
to earn funds.
Short-Selling Without an Uptick
Unlike the equity market, there is no restriction on short selling in the currency market. Trading
opportunities exist in the currency market regardless of whether a trader is long or short, or which
way the market is moving. Since currency trading always involves buying one currency and
selling another, there is no structural bias to the market. Hence, a trader has an equal access to
trade in a rising or falling market.
Introduction to Forex
Equity Market: Making the Transition to Forex
Equity markets can be used as a key indicator for movement in the Forex market. As technology
has enabled greater ease with respect to transportation of capital, investing in global equity
markets has become far more feasible. Accordingly, a rallying equity market in any part of the
world serves as an ideal opportunity for all, regardless of geographic location. The result of this
has become a strong correlation between a country’s equity markets and its currency: if the equity
market is rising, investment dollars are coming in to seize the opportunity. Alternatively, falling
equity markets will have domestic investors selling their shares of local publicly traded firms only
to seize investment opportunities abroad.
Copyright 2006 FXCM.com 42
All Rights Reserved
Track ‘n Trade Forex
Getting Started
Get the Big Picture
Track ‘n Trade High Finance
3
43
Getting Started
Chapter 3
44
Track ‘n Trade High Finance
Getting Started
Installation
Whether you purchased the Stocks or Forex section of Track ‘n Trade High Finance, installing
the program will be the same. You will either download it from the internet or install by CDROM. Double click the HF icon on your screen and follow the steps.
End User License Agreement
Please read the End User License agreement and if
you agree to the terms of use, select the appropriate
button and click OK. The next screen will appear.
Shortcuts/Location
Read the instructions and select which installation
process you would like to follow, and where to
install it on your computer’s hard drive if that is your
choice. Then select the shortcuts you would also like
to install. Select Install when you are finished.
The start up screen will appear next. This is the
screen you will see when you start up Track ‘n
Trade High Finance. Select the section of Track ‘n
Trade High Finance you want to enter (Forex Live
Trading, Forex Live Demo, Forex Simulator, or
Stocks Charting) and enter in your username and
password:
• If you were already a customer of Gecko
Software when you purchased Track ‘n Trade
High Finance, use the same username and
password from your Account Manager
• If you purchased Track ‘n Trade High Finance
by phone your username and password will be
in your confirmation email
• If you purchased Track ‘n Trade High Finance
online, use the username and password you set
up.
Saving Username and Password
The option to save your username and password
is available in Track ‘n Trade High Finance. Remember, logging in gives you access to your
financial information through Track ‘n Trade High Finance. Be aware that others may use these
saved passwords and access this information.
Track ‘n Trade High Finance
45
Getting Started
Log-in
Chapter 3
Account Manager
The Account Manager was created to give Gecko Software customers a convenient resource
to update their personal information with us, such as your billing, shipping, and payment
information.
Getting Started
To access the Account Manager, log-in to Track ‘n Trade High Finance, click on the Help Menu,
and select Account Manager. The Account Manager will open in your default browser. (You will
not need to enter your email address and password if you are already logged-in to the program.)
Or, access your Account Manager by visiting www.
trackntrade.com or www.geckosoftware.com and
click on Account Manager. To log-in to the Account
Manager, use the same username and password
you use to access the Track ‘n Trade High Finance
software program. There are links below the login to help you in case you forget this information.
If you do not have a password, click on the “Click
Here to Sign-Up” button on the bottom of the screen.
It is helpful to read the information given here.
Once you have logged in, a screen will appear with your information on it. The top of the screen
is a menu with Home, Update Account, Order History, and Available Products tabs.
From the Home page you can view your Account Details at the top left corner, which include
your current address and phone number. You can change this information by clicking Review.
You will also see any Account Notices, such as a notice that one of your subscriptions needs to
be renewed. Below will be a list of your current subscriptions and a list of the software programs
you currently own.
The Update Account page is where you can update your Billing and Contact Information,
Shipping Information, Payment Information, and your Password. It is important to keep this
information up-to-date.
On the Order History page, there will be a chronological list of all your orders. To view them in
detail, click on the Details link on the right side of the screen.
The last page on the menu is Available Products. Here you can view all the Gecko Software
products you do not own. Please browse through and make purchases from this window.
46
Track ‘n Trade High Finance
Getting Started
Getting Started
This section will introduce you to the basic functions and features of Track ‘n Trade High
Finance. First we’ll take a look at your workspace. The screenshot below is what you will see
when you open Track ‘n Trade High Finance. Use this as a reference for the rest of the manual.
The following pages will go into further detail of the functions of each Toolbar and Menu you see
here.
Getting Started
Track ‘n Trade High Finance
47
Chapter 3
Keyboard Shortcuts Quick Reference
F1
Ctrl and N
New Book
Ctrl and O
Open Book
Ctrl and S
Save Book
Ctrl and P
Print
Home
End
Move Chart to Beginning
Move Chart to End
3
Step Chart Back 1 Tick
4
Step Chart Forward 1 Tick
Shift
Getting Started
Help
Highlight Day Under Cursor
Delete
Delete Selected Object orTool
Ctrl
Lock Tool to 45 or 90 Degrees
Ctrl-click Gann Fan
Square Gann Fan Tool
+
Increment Calculator
-
Decrement Calculator
Shift-click Hand
Scale Chart
Alt-click Zoom
Zoom Out
F6
CTRL and F6
Ctrl-click Screen Capture
Ctrl-Alt-click Screen Capture
Alt-click Screen Capture
48
Rotate View
Hide Control Panel
Copy Chart to Clipboard
Copy Chart Control Panel to Clipboard
Save Chart and Control Panel to File
Track ‘n Trade High Finance
Getting Started
File Menu
New: Closes the chartbook that is open and creates a
new blank chartbook.
Open: Opens an already saved chartbook.
Save: Saves the chartbook you have open.
Save As: Saves the chartbook you have open as a new
file, or over an existing file.
Print: Prints the chart window.
Print Setup: Gives options for printing the chart
window.
Recent File: Lists the last eight chartbooks that have
been opened.
Manage Local Cache: Edit Cache history.
Manage Pip Spreads (Forex only): Modifies pip
spreads.
Exit: Closes the program
View Menu
Hide Closed Orders: Hides any orders that have been
closed.
Cursor Price: Shows statistics of where the cursor is on
a chart in the Status Bar.
Last Price: Shows the last price information in the
Status Bar.
Chart Window: Makes charts viewable in the chart
window.
Web Window: Opens the Track ‘n Trade High Finance
web site in the chart window.
Status Bar: Makes the Status Bar appear at the bottom
of the program screen.
Toolbars: Choose which toolbars to display.
Track ‘n Trade High Finance
49
Getting Started
Work Offline: Disconnects from the data feed.
Chapter 3
Help Menu
About TNT HF: Shows the version of Track ‘n Trade High
Finance installed. Also shows what account you are
currently signed-on to.
Online Manual: Opens the online manual in your chart
window.
View EULA: View the End User License Agreement.
Reset Questions: Reset notification warnings of deletions.
Report a Problem: Shortcut to reporting a bug or problem
with the software.
Account Manager: Log on to the Account Manager to
change your personal information, order a new
product, and monitor your data services.
Getting Started
Traders Forum: Log on to the Traders Forum to talk with
other traders.
Online Tech Support: Opens a window that explains how
to receive technical support.
Toolbars
Each toolbar can be customized to fit your trading needs. To customize a toolbar, place mouse
over the toolbar and right click, then select Customize Toolbar. The following screen will appear.
To add buttons, select desired buttons and
click Add. To delete unwanted buttons,
select and click Remove. To restore default
buttons, click Reset. When you have made
your changes, select Close to save your
changes and return to the program.
50
Track ‘n Trade High Finance
Getting Started
Main Toolbar
New: Closes your current Chartbook and opens a new Chartbook.
Open: Closes your current Chartbook and opens a window for you to choose a previously saved
Chartbook.
Save: Saves your open charts as a Chartbook.
Print: Prints the Chart Window.
Help: Click on this button, then click anywhere in the software to learn more about that feature.
Navigations Tools
Pointer: Default tool used for selecting tools and features in the software.
Hand: Scrolling tool used in chart window. Click and drag a chart to scroll.
Technical Tools
Crosshair Tool: Used to draw a line vertically and horizontally on a chart.
Line Tool: Used to draw support/resistance lines.
Multi-Line Tool: Used to draw an alternating support/resistance line.
Arc Tool: Used to illustrate a Rounded Top/Bottom Formation.
Day Offset Tool:Measures the number of trading days vs. actual days that are between two
points.
123 Tool: Used to chart a 123 Top/Bottom formation.
Head & Shoulders Tool: Used to identify either a Head & Shoulders Top or Bottom Formation.
Dart/Blip Tool: Used to chart a Dart (Blip) Up or Down Formation.
Wedge Tool: Used to identify any type of Wedge or Triangle.
Trend Fan Tool: Used to identify a Trend Fan.
Trend Channel Tool: Used to identify an Inclining or Declining Channel.
Horizontal Channel Tool: Used to identify a Horizontal Channel.
N% Ruler: Used to measure a retracement. Default is 50%.
Track ‘n Trade High Finance
51
Getting Started
Magnifier: Used to zoom in on a section of your chart. You can click and drag to select an area to
zoom in on or simply click on the center of the chart to zoom in. To zoom out, hold down
the Alt key and click on the chart.
Chapter 3
Notation Tools
Arrow Tool: Used to draw arrows to help point out areas of interest.
Flag Tool: Used to place a flag or a graphic.
Text Tool: Used to type text.
Box Tool: Used to draw a box.
Circle Tool: Used to draw a circle.
Calculators
Dollar Calculator: Used to find the dollar value between two points on the chart.
Getting Started
Risk/Reward Calculator: Used to find the difference between two points of the risk and reward
zone.
Advanced Technical Tools
The Advanced Technical Tools only appear if you have the Advanced Technical Tools Expansion
Pack, which includes the Elliott Wave Tool, the Gann Fan Tool, the Andrews Pitchfork Tool, the
Fibonacci Ruler, the Fibonacci Arc Tool, and the Fibonacci Time Zones.
Time Interval Buttons
Daily Chart - Each chart price bar represents a day.
Weekly Chart - Each chart price bar represents a week.
Monthly Chart - Each chart price bar represents a month.
The following buttons are integrated with the Time Interval Tabs found on the bottom of a chart
at full screen. They can be customized to play the chart at minute intervals from 1 to 60.
Screen Capture Button
Saves your open chart as an image. Ctrl-click on this button to copy the screenshot to your
clipboard (making it ready to paste).
52
Track ‘n Trade High Finance
Getting Started
Control Panel
The control panel is on the left side of your screen. It includes seven tabs: Charts, Account,
Reports, News, Preferences, Data, and Notes.
Charts Tab
In the Charts Window you will see all the symbols
you have opened, the name of the chart, and the
change in price of that chart since it opened.
To view a specific chart at full screen, double click
on the symbol in your Charts Window, or right-click
on the symbol and select Open Chart.
To delete a chart select it in your Charts Window
and hit the delete button on your keyboard, or rightclick on the symbol and select Delete Chart.
Track ‘n Trade High Finance
53
Getting Started
The more charts you open, the slower your computer
will run.
Note: If you find your computer running slow, you
may need to break your charts into two or more
chartbooks.
Chapter 3
Account Tab
The Chart Quote Window shows a history of quotes.
Customize this window by adjusting the Show
Change Form to show the change from the Previous
Price Bar, Previous Day, or Previous Quote.
Order Placement: Displays details of the order you
are placing. The time, date, and market you are buying are determined by the date your chart is played
to and what market you have open. Once your order
is placed, it will not show in your Accounting Simulator until the order is filled.
Getting Started
Locally Held Order: This type of order is temporarily held locally at your computer. It is only sent as an
actual order when the markets meet the proper conditions of your order. Locally held orders are only
available in the Forex version of Track ‘n Trade.
Trailing Stop: You can only select this option on
a Stop Order. It will follow an open position and
protect profits by trailing a market rise or decline.
You can choose to set your Trailing Stop by Dollar
amount, Price Bars Back, or by following the PSAR
or Zig Zag indicators.
Account Overview: View a detailed overview of your current symbol. Includes the ticker symbol, exchange, open/close data, and much more.
The account Statement button will give you access to a detailed tabulation of your account history.
54
Track ‘n Trade High Finance
Getting Started
Reports
*Stocks Only
Under Report Type, select the Exchange you would
like to get a statistical report from. Then select the
statistical report you are interested in under Specific
Report. There are 10 reports available that highlight
different statistical findings. For example, you can
select to see the most actively traded market that is
trading higher or lower, or bring up the market that
is creating the most news. The information is based
on the current day’s trading information.
The News Tab is a wonderful resource for gathering
outside information. Under the Providers section
will be a list of the news providers Track ‘n Trade
High Finance is downloading information from.
You can add or delete providers from this list by
right-clicking on the provider and selecting add or
delete. Under the Articles section is a list of articles
on the markets. Simply click on them and the article
will show in your chart window.
Track ‘n Trade High Finance
55
Getting Started
News Tab
Chapter 3
Preferences Tab
The Preferences Tab will help you customize how
your chart, and information on it, looks. It will also
show the options for customizing Technical Tools
and Indicators. There are many different features
found on the Preferences Tab.
Data Tab
Getting Started
The Data Tab will give you the historical data for
each day a specific symbol has traded. It will give
you the open price, close price, highest price, and
lowest price on the day. It will also show the volume
traded. You have the option to print the data for your
records, or export the data for use another way. Also,
values for indicators are added when the indicator is
open.
Notes Tab
The Notes Tab is for your convenience to use as a
note pad for your research and trading strategy. A
separate note pad is provided for each chart.
56
Track ‘n Trade High Finance
Getting Started
Chartbooks
Just like a novel is made up of many single pages, a chartbook contains many individual charts.
Each chartbook can contain several charts, each individual chart becoming the “pages” of your
chartbook. Every time you open Track ‘n Trade High Finance, a blank chartbook named Book1
will open. You can either continue with this new chartbook or open a chartbook that has already
been created and saved.
Opening a Chart
To open a chart, type in the symbol in the Symbol Entry Bar or click on the arrow to the right of
the box and select from the dropdown menu. If you do not know the symbol of the market you
want to see, select Look Up Keyword for stocks or type in the Forex Market and click Open for
Forex.
Symbol Lookup Window
Symbol Entry Bar
Getting Started
Opening Multiple Charts
You can open multiple charts and view them at the same time. The charts will automatically
adjust to fit into your Chart Window. Opening too many charts can slow down your computer. If
you notice slow downs in your system you may want to break up your charts into two chartbooks
or more.
To maximize a chart, double-click on the name of the chart in the Control Panel, or select
the maximize button on the top right hand corner of the chart.
To restore the chart to full screen view in your chart window with multiple charts open,
click on the restore down button on the top right hand corner of the chart.
Track ‘n Trade High Finance
57
Chapter 3
To minimize a chart, select the minimize button on the top right hand corner of the chart.
This will not delete your chart or any notations or tools you have placed on it. It will only
eliminate it from your chart window.
To restore your chart, double-click on the name of the chart in the Control Panel charts
list.
To close a chart and remove it from your list of charts, click the X on the top right hand
corner of your chart. This will delete any notation or technical tool you have drawn on the
chart.
Saving Chartbooks
Once you have opened all the charts you would like to save in a Chartbook there are two ways to
save it. (1) You can click on the Save button found in the Main Tools, or (2) you can choose File
from the Menu Bar and select Save.
Getting Started
To save over or replace a Chartbook that has already been saved, select Save As from the File
Menu, and select the chartbook you want to save over.
Printing
To print your Chart Window, select the Print button in your Main Tools, or select Print from the
File Menu. To print only one chart, maximize it in your Chart Window, then select print.
58
Track ‘n Trade High Finance
Getting Started
Charting Preferences
The Chart Preferences Tab is used to control how your chart looks. You can change your price
bar style and color, background color, scaling, and even control time intervals. You can also
choose to have different styles for each chart, or apply your favorite chart style to all your charts.
The Charting Preferences Tab is located on the Control Panel. To view the Charting Preferences
Tab, right-click on the chart and select Chart Preferences, or click on the Preferences Tab in the
Control Panel. The Charting Preferences Tab includes Chart Scaling, Ruler Options, Charting
Colors, Price Bars, and Onscreen Indicators.
Getting Started
Restore Settings
TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings.
Apply To All Charts will apply your selected settings on all open charts.
Save As My Default will save your current personal settings.
Track ‘n Trade High Finance
59
Chapter 3
Chart Scaling
Chart Type: Sets the time interval each
price bar will represent. You will have
different grid options depending on what
chart type you choose.
*Forex section will have a drop-down
menu next to the Chart Type to set the
price bar according to the sell (bid), buy
(ask), or average of the two on a Forex
Chart.
Getting Started
Price Bar Type: Choose what
information you want your price bar to
include.
• OHLC: Open, high, low, and
close
• HLC: High, low, and close
• Close: Close price only
• Open: Open price only
• Candlestick: open, high, low, and
close in a Japanese Candlestick
style
• None: No price bars will be
displayed on the chart
Visible Periods: Scaling tool to make
the chart wider or narrower to view
different sections of time periods.
Grid Period: Sets vertical grid lines at specific intervals. For example, if you have selected a 5,
10, 15, 30, or 60 minute chart type your grid period settings will be limited to hourly, daily, or
periodically.
60
Track ‘n Trade High Finance
Getting Started
However, if you select a daily, weekly, or monthly chart type your grid period settings will be
open to selecting any day of the week or month. You can also set your grid line to show daily, or
at the beginning of each month, as well as selecting to show them periodically, as shown on the
previous page.
Price Scale: Sets the amount of horizontal price grid lines you see on your chart.
Grid Scale: Linear will keep your grid lines evenly distributed. Logarithmic will continually
decrease the amount of space between horizontal grid lines as the price goes up.
Auto Vertical Scale keeps the price bars vertically centered on your chart. Proportional Width
changes price bar thickness according to scale
The Show Tab section below the settings is integrated with the Time Interval Tabs on the bottom
left corner of your chart. You can hide/show each tab on your chart by checking the box next to
it. You can then set the time interval you want your price bars shown in the box next to each tab
number.
Getting Started
Ruler Options
Font: Change the font and size of the text on the ruler.
Ruler/Text Color: Change the background and text color of the ruler.
Location Lines: Change the line style and thickness of your ruler lines.
Cursor, Last Price, Buy/Sell: Select if you would like to see location lines, a last price line, or
buy or sell prices on your chart and what color.
Track ‘n Trade High Finance
61
Chapter 3
Charting Colors
The Charting Colors section changes the
look of your chart by allowing you to change
the background color of the chart and letting
you change the color of the horizontal and
vertical grid lines.
Price Bars
The price bars, or tics, on your chart can be colored in
two different ways.
Getting Started
You can select Close to shade them according to their
close price, or you can select Alt Days (alternating
days) to shade them by odd and even days.
In the Highlight section, you have the choice
of highlighting the price bar you are over, or
highlighting the entire day you are over.
Onscreen Indicators
In the Onscreen Indicators section, you
have the ability to change the font, size, and
style of the text displayed onscreen.
Click on the Overlay Text checkbox to
display text for an indicator on your chart,
then choose whether you would like the
text to appear at the top or bottom of the
chart. Also, check the Split Marks box if you would like those points displayed on the chart.
Split Marks show when a market is split into two markets. Choose your desired color for the split
marks as well.
Scaling
On your ruler you will see a dotted line splitting it in half. If
you want to move your chart horizontally or vertically, click
and drag the section of the ruler bar closest to the chart. To
scale your chart horizontally or vertically, click and drag the
section of the ruler bar farthest from the chart.
62
Track ‘n Trade High Finance
Getting Started
Margin Arrows
On the Ruler Bar you will notice four Margin
Arrows, two on the right ruler, and two on the
bottom ruler. These arrows are used to center
your chart within these “margins.” To move the
margin click on the arrow, continue holding
down the mouse button, and drag to the new
location. Then click on the center chart button to
resize the chart.
Chart Right-Click Menu
The right-click menu is a shortcut to customize your chart, add overlay indicators, add indicator
windows below your chart, and change other features. Make sure your pointer is selected on your
navigation menu, then select the chart and right-click. The following menu will appear.
hoose what Price Bar Type you would like to
C
view. Chart Type will change the time intervals.
Proportional Width will make your price bar width
proportional to the scale of your chart. Autoscale
Chart will center your price bars within the height
of your chart. Hide Buy/Sell Arrows will show or
hide your arrows for the indicator selected. Choose
to show your On Screen Text and where you want it
to appear.
Select which Chart Overlays you would like to
appear on the chart. Or if you would like to Add
Indicator Window at the bottom of your chart
window.
Apply Settings to all Charts will apply your selected settings on all open charts. Save Settings
As My Default will save your current personal settings. Restore Defaults will change your
settings back to the original software settings or to your personal saved settings.
Chart Preferences: Select to display the Chart Preferences Tab to the left of your chart.
Track ‘n Trade High Finance
63
Getting Started
Play to: Date: Your cursor should be in line
horizontally with the date you want the chart to play
to. Select this option and the chart will either erase
price bars to the date or play price bars up to the date
you have selected.
Getting Started
Chapter 3
64
Track ‘n Trade High Finance
Charting Tools
Let’s Get Technical
Track ‘n Trade High Finance
4
65
Charting Tools
Chapter 4
66
Track ‘n Trade High Finance
Charting Tools
Introduction
Track ‘n Trade High Finance has a complete set of charting tools that enable the futures trader
to apply concepts from technical analysis to their charting. Take a look at some of the technical
analysis formations and trends in this chapter and see how to apply these concepts in trading with
Track ‘n Trade High Finance charting tools.
Crosshair Tool
The first tool in the Charting toolbar is the Crosshair tool. This tool is helpful when lining up
your technical indicators and recurring price patterns. Click the Crosshair button and position
the crosshair on your chart and click your mouse. The crosshair draws a line vertically and
horizontally on the chart. To help place the crosshair line on a specific value, the cursor price is
displayed on the vertical line of the crosshair.
Moving a Crosshair
Deleting a Crosshair Drawing
There are two ways to delete the Crosshair tool. If your crosshair is selected (you’ve clicked on
it and the box appears at the center point), you can press the Del (Delete) key on your keyboard.
You can also place your mouse cursor over the crosshair and right-click. In the drop-down menu,
select “Delete.”
If you only want to delete the horizontal or vertical line of the crosshair, select the crosshair by
clicking on it and view the preferences in the control panel. Select or deselect “Show Horizontal
(Vertical) Line.” A check will appear in front of the item when it is selected.
Preferences
Select the crosshair by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
67
Charting Tools
To select the drawing, click on the center point of the crosshair and drag to the new location.
Release your mouse button to place. The tool is selected when a box appears at the center point.
Chapter 4
Crosshair Tool: You can choose the
color, line style, and line thickness of your
crosshair. Deselect Show Horizontal Line
or Show Vertical Line to hide your lines.
Font: Select the font, size, and color of the
text. You can also choose to bold or italicize
your text. Select the checkbox next to Show
Text to hide or show your text on the chart.
Charting Tools
Select Snap if you want your crosshair
to snap to price bars when moved. Select
Extend if you would like your line to extend
into the Indicator window.
Example of the Crosshair Tool
68
Track ‘n Trade High Finance
Charting Tools
The remaining technical tools are used to identify technical analysis formations and trends. Take
a look at the different patterns available then read about how to use each of the technical tools
and apply the technical concepts learned.
Support and Resistance - Technical Analysis
Markets have a tendency to move in troughs and peaks or, more appropriately, “Support
and Resistance.”
Support
Resistance
These troughs are called support, indicating that support is
level. This shows that buying interest is strong enough to
overcome selling pressure. A decrease in price is reversed
and prices rise once again. Typically, a support level is
identified by a previous set of lows.
Charting Tools
Resistance is essentially the opposite of support. Resistance
is defined as a horizontal ceiling where the pressure to sell
is greater than the pressure to buy. An increase in price is
reversed and prices revert downward. Typically, support can
be located on a chart by a previous set of highs.
Line Tool
To draw a support or resistance line, also referred to as a trend, use the Line tool. Select the Line
tool from your Charting toolbar. Click on your chart where you want the line to begin. Hold down
the mouse button and move to the position you want your line to end. Release mouse button to
place.
Resizing the Line
Select the line drawing by clicking on it. The line is selected when boxes appear at the ends of
the line. Click on one of the boxes and drag it to the desired length. Release the mouse button to
place the end point of the line.
Moving the Line
Select the line drawing by clicking on it. Click on the line, not an end box, and drag the line to the
new location. Release the mouse button to place.
Track ‘n Trade High Finance
69
Chapter 4
Deleting the Line
Select the line drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the line drawing and select “Delete” from the dropdown menu.
Preferences
Select the line drawing by clicking on it. The properties will appear in the preferences section of
your control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Line Tool: You can choose the color, line
style, and line thickness of your line.
Charting Tools
Parallel Extensions: Select from the
dropdown menu how many lines you would
like to add. Deselect Lock if you want to be
able to move them independently.
Select Snap if you want your crosshair
to snap to price bars when moved. Select
Linear Extensions to extend your line to
the edge of your chart window.
70
Track ‘n Trade High Finance
Charting Tools
Example of the Line Tool
Charting Tools
Track ‘n Trade High Finance
71
Chapter 4
Multi-Line Tool
Some contracts will have a continuous line, or trend, of alternating support and resistance. To
illustrate these multi-lines, select the Multi-Line tool from your Charting toolbar. Click on the
chart where you want your line to start. Move your mouse to the next point on your multi-line and
click to place. Repeat this until the last point. When placing the last point on the multi-line, rightclick to finish.
Resizing the Multi-Line
Select the multi-line drawing by clicking on it. You will know the multi-line is selected when
boxes appear at the ends of the multi-line. Click on a box and drag it to your desired length.
Release the mouse button to place.
Charting Tools
Moving the Multi-Line
Select the multi-line drawing by clicking on it. Click on the multi-line, not a box, and drag it to
the new location. Release mouse button to place.
Deleting the Multi-Line
Select the multi-line drawing by clicking on it. Press the Del (Delete) key on your keyboard. You
can also right-click the multi-line drawing and select “Delete” from the dropdown menu.
Preferences
Select the line drawing by clicking on it. The properties will appear in the preferences section of
your control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
72
Track ‘n Trade High Finance
Charting Tools
Multi Line Tool: You can choose the color,
line style, and line thickness of your lines.
Font: Select the font, size, and color of the
text. You can also choose to see numbers or
letters. Select Text to hide or show your text
on the chart.
Select to Show Arcs on points of the multiline. Select Snap to have your lines snap to
price bars when moved. Use Always Show
Lines to keep lines on the chart even when
the multi-line is deselected.
Charting Tools
Example of Multi-Line Tool
Track ‘n Trade High Finance
73
Chapter 4
Rounded Top & Bottom Formations
The Rounded Top & Bottom formation is a very gradual change in trend.
Rounded Top
The Rounded Top formation consists of a gradual change in
trend from up to down.
Rounded Bottom
The Rounded Bottom formation consists of a gradual
change in trend from down to up. This formation is the
exact opposited of a Rounded Top Formation.
Charting Tools
Double Top
This formation includes two distinct “tops” and anticipates
a change in trend from up to down.
Double Bottom
This formation includes two distinct “bottoms” and
anticipates a change in trend from down to up. This
formation is the exact opposite of a Double Top.
Triple Top
This formation includes three distinct “tops” and anticipates
a change in trend from up to down.
Triple Bottom
This formation includes three distinct “bottoms” and
anticipates a change in trend from down to up. This
formation is the exact opposite of a Triple Top.
74
Track ‘n Trade High Finance
Charting Tools
Arc Tool
To illustrate a Rounded top or bottom formation on your futures chart, select the Arc tool in your
Advanced Charting toolbar. Move the mouse pointer to the point on the chart that will be the
corner of your arc. Hold the mouse button and drag to your end point. Release the mouse button
to place.
Resizing the Arc
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Arc
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Arc Tool: You can choose the color, line
style, and line thickness of your line.
Select Snap to have your lines snap to price
bars when moved.
Track ‘n Trade High Finance
75
Charting Tools
Deleting the Arc
Chapter 4
Charting Tools
Example of the Arc Tool
76
Track ‘n Trade High Finance
Charting Tools
Day Offset Tool
The Day Offset tool enables you to measure the number of trading days versus actual days that
are between two points on the chart. Also calculated on this tool is the number of days that the
market closed high or lower in comparison with the previous day. Select the Day Offset tool from
your Advanced Charting toolbar. Click where you would like to start and drag the horizonal line
to where you would like it to end. Release the mouse button to place.
Resizing the Day Offset
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Day Offset
Deleting the Day Offset
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
77
Charting Tools
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Chapter 4
Day Offset Tool: You can choose the color,
line style, and line thickness of your line.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Charting Tools
Select Snap to have your lines snap to price
bars when moved.
Example of the Day Offset Tool
78
Track ‘n Trade High Finance
Charting Tools
123 Formations - Technical Analysis
The 123 formation anticipates a change in trend. There are both top and bottom
formations.
123 Top Formation
The 123 top formation anticipates a change in trend, from up to
down, on a break below the number two point. This formation is
easily identified because the number 1 point is the annual price
high for the contract.
To trade a 123 top formation, place a sell order on a break down
past the 2 point. Then place a stop loss order just above the 1
point (an industry standard) or just above the 3 point (a more
conservative stop loss placement).
123 Bottom Formation
Charting Tools
The 123 bottom formation anticipates a change in trend from
down to up on a break above the number 2 point. A
123 bottom formation is easily identified because the number 1
point is the annual price low.
To trade a 123 bottom formation, place a buy order just above the
2 point. Then place a stop loss order just below the 1 point (an
industry standard) or just below the 3 point (a more conservative
placement).
Track ‘n Trade High Finance
79
Chapter 4
123 Tool
Use the 123 tool to chart both top and bottom formations. To draw a 123 formation, select the 123
tool from your Charting toolbar. Position the mouse pointer over the spot you would like to place
the 1 point and click to place. Move to the 2 point and click to place. Move to the 3 point and
click to place.
Resizing the 123 Drawing
Select the 123 drawing by clicking on it. You will know the 123 drawing is selected when boxes
appear on the corners. Click on a box and drag it to your desired length. Release the mouse button
to place.
Moving the 123 Drawing
Charting Tools
Select the 123 drawing by clicking on it. The drawing is selected when boxes appear at the 1, 2,
and 3 end points. Drag to the new location and release the mouse button to place.
Deleting the 123 Drawing
Select the 123 drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the 123 drawing and select “Delete” from the drop-down menu.
Preferences
Select the 123 drawing by clicking on it. The properties will show up in the preferences section of
your control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
80
Track ‘n Trade High Finance
Charting Tools
123 / ABC Tool: You can choose the color,
line style, and line thickness of your lines.
Font: Select the font, size, and color of the
text. You can also choose to see numbers or
letters. Select Text to hide or show your text
on the chart.
Select Snap to have your lines snap to price
bars when moved. Select if you would like
to Show Arcs or Always Show Lines on
your drawing.
3-4/C-D: Select if you would like to see a
third prediction line after point C. You can
view Fibonacci Retracements on this line
or type in your own values in User Defined.
Choose from the Labels dropdown menu
to view the marks as price, percent, or both.
Select Reverse to change the direction of
your values.
Select Projections to view a projected line
extended from the C-D line. You can view
Fibonacci Retracements on this line or type
in your own values in User Defined.
Track ‘n Trade High Finance
81
Charting Tools
1-2/A-B, 2-3/B-C: Select if you would like
to see Fibonacci Retracements on either line
or type in your own values in User Defined.
Choose from the Labels dropdown menu
to view the marks as price, percent, or both.
Select Reverse to change the direction of
your values.
Chapter 4
Charting Tools
Example of the 123 Top and Bottom
82
Track ‘n Trade High Finance
Charting Tools
Head & Shoulders Formations - Technical Analysis
This formation can appear anywhere in the chart and is made up of the Head, Left
Shoulder, and Right Shoulder. There are both top and bottom formations.
Head & Shoulders Top Formation
In this formation, the middle peak, the Head (H), is higher than
either shoulder (LS, RS). This formation anticipates a drop in
price below the Neckline (shown by the red arrow).
To trade a Head & Shoulders top formation, place a sell order on
the break of the Neckline. Your stop loss order should then be
placed just above the Head. The stop loss order can also be placed
above the Right Shoulder as a more conservative point.
Head & Shoulders Bottom Formation
Charting Tools
This formation is an inverted version of the Head & Shoulders top
formation. A Head & Shoulders bottom anticipates a rise in price
above the Neckline.
To trade a Head & Shoulders bottom formation, place a buy order
on the break up from the Neckline. Then place a stop loss order
just below the Head. The stop loss order can also be placed below
the Right Shoulder as a more conservative point.
Head & Shoulders Tool
To identify a H&S top or bottom formation, use the Head & Shoulder tool. Select the Head &
Shoulders tool from your Charting toolbar. Position the mouse pointer where you would like to
place the Left Shoulder (LS) point and click to place. Move to the valley point between the LS
and the Head (H) and click to place. Move to the H point and click to place. Move to the valley
point between the H and Right Shoulder (RS) and click to place. Move to the RS point and click
to place.
Resizing the Head & Shoulders Drawing
Select the H&S drawing by clicking on it. You will know the drawing is selected when boxes
appear on the corners. Click on a box and drag it to your desired length. Release the mouse button
to place.
Track ‘n Trade High Finance
83
Chapter 4
Moving the Head & Shoulders Drawing
Select the H&S drawing by clicking on it. The tool is selected when boxes appear at the LS, H,
and RS end points. Drag to the new location and release the mouse button to place.
Deleting the Head & Shoulders Drawing
Select the H&S drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the H&S drawing by clicking on it. The properties will appear in the preferences section of
your control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Charting Tools
Head & Shoulders Tool: You can choose
the color, line style, and line thickness of
your lines.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select to Show Arcs on points of the
drawing. Select Snap to have your lines
snap to price bars when moved. Select
Always Show Lines to keep lines on your
chart even when the drawing is deselected.
84
Track ‘n Trade High Finance
Charting Tools
Example of Head & Shoulders Top and Bottom
Charting Tools
Track ‘n Trade High Finance
85
Chapter 4
Dart/Blip Tool
To chart a Dart Up or Down formation, select the Dart/Blip tool from your Advanced Charting
toolbar. Click your mouse on the Left Feather (LF). Move to the Tip of the dart and click your
mouse again. Click on the Right Feather to finish your dart.
Resizing the Dart/Blip
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Dart/Blip
Charting Tools
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Dart/Blip Formations - Technical Analysis
The Dart/Blip formation occurs when there is a dramatic price change which is followed
by an equally dramatic price change.
Dart Up
This formation is a sudden dramatic price increase followed by
an equally dramatic drop in price. A dart formation can appear
anywhere in a chart.
To trade a dart up, place a sell order on the break down of the Right
Feather (RF) along with a stop loss order just above the Tip.
Dart Down
This formation is where a sudden dramatic price decrease occurs
followed by an equally dramatic increase in price. A dart formation
can appear anywhere in a chart
Place a buy order on the break up of the Right Feather, and place a
stop loss order right below the Tip.
Trading on a Dart Formation is extremely risky.
86
Track ‘n Trade High Finance
Charting Tools
Deleting the Dart/Blip
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Dart Tool: You can choose the color, line
style, and line thickness of your lines.
Track ‘n Trade High Finance
Charting Tools
Select Always Show Lines to keep lines
on your chart even when the drawing is
deselected. Select Snap to have your lines
snap to price bars when moved.
87
Chapter 4
Charting Tools
Example of a Dart Up and Down
88
Track ‘n Trade High Finance
Charting Tools
Wedges and Triangles - Technical Analysis
The wedge formation occurs when the slope of price bar highs and lows consolidate to a
point. The triangle formation occurs when there is a pause in the current trend.
Inclining Wedge
The Inclining Wedge formation occurs when the slope of both
lines is up with the lower line being steeper then the higher one.
To trade the Inclining Wedge, place a buy on a break up and out
of the wedge or a sell order on a break down and out of the wedge.
Inclining Wedges with a prior downtrend are anticipated to break
down and out, rather than up and out.
Declining Wedge
The Declining Wedge formation occurs when the slope of both
lines is down, the top line being steeper then the lower one. This
formation is opposite the Inclining Wedge.
Charting Tools
Trade the Declining Wedge the same as the Inclining Wedge.
Declining Wedges with a prior uptrend are anticipated to break up
and out, rather than down and out.
Symmetrical Triangle
A Symmetrical Triangle is likely to resume the previous trend after
the pause forming the triangle. Notice the price bars form a perfect
symmetrical triangle shape.
To trade a Symmetrical Triangle, place a buy order on a break up
and out of the triangle or a sell order on a break down and out of
the triangle.
Non-Symmetrical Triangle
A Non-Symmetrical Triangle is exactly the same as the
Symmetrical Triangle, except lacking symmetry. The formation
resumes the previous trend when a break occurs.
Trade a Non-Symmetrical Triangle just as you would a
Symmetrical Triangle.
Track ‘n Trade High Finance
89
Chapter 4
Wedge and Triangle Tool
Identify any type of wedge or triangle by selecting the Wedge tool from your Charting toolbar.
Position the mouse pointer where you would like to place the top point of the triangle and click.
Move to the bottom point of the triangle and click again. Position the mouse pointer where you
would like to place the final point of the triangle and click to place.
Resizing the Wedge/Triangle
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Wedge/Triangle
Charting Tools
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Deleting the Wedge/Triangle
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Wedge Tool: You can choose the color, line
style, and line thickness of your lines, as
well as the background color.
Select Snap to have your lines snap to price
bars when moved.
90
Track ‘n Trade High Finance
Charting Tools
Example of an Inclining and Declining Wedge
Charting Tools
Track ‘n Trade High Finance
91
Chapter 4
Trend Fan - Technical Analysis
Trend Fans are an extension of the regular trend line. They accent simple trend line
trading concepts by extending the single trend line to multiple fan lines that give a better
look at a trend, its retracements, and market reversals.
Trend Fan
As a trend moves up in scale, a chartist will draw a line
across price bar lows or, when a market is moving down,
across the price bar highs.
As the market continues to make its retracement, we can
draw another trend line across the next level of support or
resistance. The line is support if the market is moving up and
resistance if it is moving down.
Charting Tools
The last move of the trend was resistance for the first trend
line, and is now support for the second trend line. The
third trend line shows that the market has made a solid
retracement down past this third fan line.
When the market crosses the third fan line, it is considered to be confirmation of market
retracement. A market that was once considered bullish is now bearish, or if bearish,
would now be considered bullish. When the markets price bars cross above or below the
third trend fan line, this is your signal and confirmation that the market has shifted from
bullish to bearish, or bearish to bullish.
To trade a Trend Fan, place an order to enter the market on the break out past the third
Trend Fan line.
Trend Fan Tool
Identify a trend fan within a chart by selecting the Trend Fan tool from your Charting toolbar.
Position the mouse pointer where you would like to place the main point of your trend fan. Move
the mouse pointer to the end of the first line and click. Add as many lines of your trend fan as you
would like. To place the last trend, position the mouse pointer at the end of the last line and rightclick to place.
92
Track ‘n Trade High Finance
Charting Tools
Resizing the Trend Fan
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the ends of the lines. Click on a box and drag it to your desired location. Release the mouse
button to place.
Moving the Trend Fan
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Deleting the Trend Fan
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Trend Fan Tool: You can choose the color,
line style, and line thickness of your lines.
Font: Select the font, size, and color of the
text. Select Text to hide or show your text
on the chart.
Select Snap to have your lines snap to price
bars when moved.
Track ‘n Trade High Finance
93
Charting Tools
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Chapter 4
Charting Tools
Example of a Trend Fan
94
Track ‘n Trade High Finance
Charting Tools
Channels - Technical Analysis
A trend channel consists of a section of price bars that are between parallel support and
resistance lines. There are three types of channels: the Narrow Sideways Channel, the
Inclining Channel, and the Declining Channel.
Narrow Sideways Channel
A Narrow Sideways channel is a formation that features both
resistance and support with a sideways movement. Support
forms the low price bar, while resistance provides the price
ceiling.
To trade a Narrow Sideways channel, place an order to buy on
a break up and out of the channel, or sell on a break down and
out of the channel.
Charting Tools
Inclining Channel
The Inclining channel is a formation with parallel price
barriers along both the price ceiling and floor. Unlike the
Narrow Sideways channel, the Inclining channel has an
increase in both the price ceiling and price floor. The breaking
of the bottom trend line on this formation shows a change in
trend from bullish to bearish.
To trade an Inclining channel, place an order to sell on the
break down and out of the channel.
Declining Channel
The Declining channel is the exact opposite of the Inclining
channel formation. The Declining channel has a decrease in
both the price ceiling and price floor. The breaking of the top
trend line on this formation shows a change in trend from
bearish to bullish.
To trade a Declining channel, place an order to buy on the
break up and out of the channel.
Track ‘n Trade High Finance
95
Chapter 4
Trend Channel Tool
Identify an Inclining or Declining Channel by selecting the Trend Channel tool from your
Charting toolbar. Position the mouse pointer where you would like to place the top-left point of
the channel and click. Move to the bottom-left point and click again. Move to the bottom-right
point and click again. Position the mouse pointer where you would like to place the top-right final
point of your channel and click to place.
Resizing the Trend Channel
Select the channel by clicking on it. You will know the channel is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Charting Tools
Moving the Trend Channel
Select the channel by clicking on it. Drag to the new location and release the mouse button to
place.
Deleting the Trend Channel
Select the channel by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the channel and select “Delete” from the dropdown menu.
Preferences
Select the channel by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Trend Channel Tool: You can choose the
color, line style, and line thickness of your
lines, as well as the background color.
Select Snap to have your lines snap to price
bars when moved.
96
Track ‘n Trade High Finance
Charting Tools
Example of Trend Channels
Charting Tools
Track ‘n Trade High Finance
97
Chapter 4
Horizontal Channel Tool
Illustrate a Horizontal channel in a chart by selecting the Horizontal Channel tool from your
Charting toolbar. Position the mouse pointer where you would like to place the to top-left point of
the channel and click. Continue to hold down the mouse and drag it to the bottom-right point of
your channel. Release the mouse button to place.
Resizing the Horizontal Channel
Select the Horizontal channel by clicking on it. You will know the channel is selected when boxes
appear on the corners. Click on a box and drag it to your desired location. Release the mouse
button to place.
Moving the Horizontal Channel
Charting Tools
Select the Horizontal channel by clicking on it. Drag to the new location and release the mouse
button to place.
Deleting the Horizontal Channel
Select the Horizontal channel by clicking on it. Press the Del (Delete) key on your keyboard. You
can also right-click the channel and select “Delete” from the dropdown menu.
Preferences
Select the Horizontal channel by clicking on it. The properties will appear in the preferences
section of your control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
98
Track ‘n Trade High Finance
Charting Tools
Horizontal Channel Tool: You can choose
the color, line style, and line thickness of
your lines, as well as the background color.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select Snap to have your lines snap to price
bars when moved.
Charting Tools
Track ‘n Trade High Finance
99
Chapter 4
N% Tool
You can measure a retracement by selecting the N% tool from your Charting toolbar. Position the
mouse pointer where you would like to place the top-left point of the channel and click. Continue
to hold down the mouse button and drag to the bottom-right point of the channel. Release mouse
button to place. The default on this charting tool is 50%. (For more information on retracements,
see Fibonacci Time Zone and Fan tools in the Advanced Charting Tools section.)
Resizing the N% Channel
Select the channel by clicking on it. You will know the channel is selected when boxes appear
on the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Charting Tools
Moving the N% Channel
Select the channel by clicking on it. Drag to the new location and release the mouse button to
place.
Moving the % Line in the N% Channel
Select the channel by clicking on it. Notice the box in the center of the middle line. Click and
drag the box to move the line. As you change the position of the percentage line, the percentage
value to the left will change as well.
Deleting the N% Channel
Select the channel by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the channel and select “Delete” from the dropdown menu.
Preferences
Select the channel by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
100
Track ‘n Trade High Finance
Charting Tools
N% Ruler Tool: You can choose the color,
line style, and line thickness of your lines, as
well as the background color.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select Snap to have your lines snap to price
bars when moved.
Example of the N% in the chart window
Charting Tools
Track ‘n Trade High Finance
101
Charting Tools
Chapter 4
102
Track ‘n Trade High Finance
Advanced
Charting Tools
Fibonacci, Elliott, Gann, and More
*Expansion Pack - Purchase Required
Track ‘n Trade High Finance
5
103
Advanced Charting Tools
Chapter 5
104
Track ‘n Trade High Finance
Advanced Charting Tools
Introduction
Track ‘n Trade High Finance has incorporated concepts and theories from leading technical and
fundamental educators in the industry allowing you as a trader to apply their studies easily to
your trading. In this section you will learn basics about their theory and how to apply it in Track
‘n Trade High Finance using the Advanced Technicals Expansion Pack. If you do not have these
features in the software, you can purchase them online at www.trackntrade.com
Elliott Wave Theory
The Elliott Wave theory was developed by Ralph Nelson Elliott. He suggested that market
behavior is based on waves rather than random timing. He believed that market prices
rose and fell in a series of waves based on the same Golden Ratio or Golden Mean that
Fibonacci proved.
The basic idea of the Elliott Wave theory
is that a market rises in a series of five
“waves” (as he called them), and a market
declines in a series of three declines.
Elliott’s said the market rises on the first
wave, declines on the second, begins to
rise again on wave three, has a period of
decline again on wave four, and finally
completes the rise on wave five. The
period of correction is referred to as a
three-wave correction where the market
declines for wave A, begins to rise for
wave B, and falls again for wave C.
Five Wave Advance
Elliott went on to further explain that a
complete market cycle consisted of a 144
wave cycle, broken down into an 89 wave
bull cycle, and a 55 wave bear cycle. This
is based on his observation of Fibonacci’s
Golden Ratio. The series of numbers
Fibonacci describes shows a relationship
of 1:0.618. Elliott further showed that a
market usually rises or falls based on this
wave cycle. Each wave in the cycle has its
own characteristics.
Three Wave Decline
Advanced Charting Tools
Interpretation
• One: Normally very short and easy to
miss.
• Two: A retracement wave. Gives back
all or most of what the first one gained.
• Three: Usually very prominent.
Follows a period of what appears as a
consolidation, most people trade this
wave.
• Four: Noted to be very intricate, yet
still a consolidation. One of Elliott’s
main rules is that in a five-wave advance
cycle, wave four can’t overlap wave one.
• Five: Often very active. At some point
declines and lead to the three wave
corrective cycle.
• A: Normally seen as a minor pullback of
wave five of the advance cycle.
• B: Follows A of the downtrend and is
often hard to spot. Should result in a
third wave continuing down.
• C: Usually quite significant and many
traders see this as a selling opportunity.
The price bars form a perfect
symmetrical triangle shape.
Track ‘n Trade High Finance
105
Chapter 5
Elliott Wave Tool
To identify an Elliott Wave on a chart, select the Elliott Wave tool from your Advanced Charting
toolbar. Click on the first point to place. Continue throughout the wave by clicking on each point
1-5 and ABC to place. When you get to the last point, C, the drawing is complete.
Resizing the Elliott Wave
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Advanced Charting Tools
Moving the Elliott Wave
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Deleting the Elliott Wave
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
106
Track ‘n Trade High Finance
Advanced Charting Tools
Elliott Wave: You can choose the color,
line style, and line thickness of your lines.
Font: Select the font, size, and color of the
text. Select Text to hide or show your text
on the chart.
Select to Show Arcs on points of the
drawing. Select Snap to have your lines
snap to price bars when moved. Select
Always Show Lines to keep lines on your
chart even when the drawing is deselected.
Advanced Charting Tools
Example of an Elliott Wave
Track ‘n Trade High Finance
107
Chapter 5
Gann Fan Theory
W. D. Gann designed several techniques for studying price charts. One of these included
the use of geometric angles in conjunction with time and price. Gann believed that
specific geometric patterns and angles had unique characteristics that could be used to
predict price action.
Gann’s techniques require that charts be drawn with equal time and price intervals, so
that a rise/run of one price unit for each time unit (called a 1 x 1 trend or angle) will
equal a 45 degree angle anywhere on the chart. Gann believed that the ideal balance
between time and price exists when prices rise or fall at a 45 degree angle relative to the
time axis.
Advanced Charting Tools
Interpretation
A Gann Fan is used to define a market direction or a new trend. For example, a bull
market exists if prices are maintaining strength between the 1x2 lower line and 1x2
higher line. A bear market would be the exact opposite of the previous scenario. The
Gann Fan is made up of nine angles based on this concept. These trend lines are used to
indicate support and resistance levels. When one line is broken (by the entire days price
range) prices should move to the next line. The drawing of these lines should start from
either a market top or bottom.
It is important to note that this theory is based on a squared 45 degree angle on the chart.
Obviously, a 45 degree angle drawn on a chart is no longer 45 degrees when the scale is
changed without a change to the opposite scale as well. To “square” the Gann Fan to the
current chart’s scaled settings, hold down the CTRL key on your keyboard while clicking and rescaling with the mouse pointer. Some Gann experts have reported that to get a
truly “squared” chart, one must set the scaling to 8 price bars per inch for the width and 4
price bars per inch for the height.
Gann Fan Tool
You can apply this theory to your charts by selecting the Gann Fan tool from your Advanced
Charting toolbar. Click where you want the Fan to start and continue to hold down the mouse
button until reaching the top-right position of the fan. Release the mouse button to place.
108
Track ‘n Trade High Finance
Advanced Charting Tools
Resizing the Gann Fan
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Gann Fan
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Deleting the Gann Fan
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Gann Fan Tool: You can choose the color,
line style, and line thickness of your lines.
Select what color you want the background
to be.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select Snap to have your lines snap to price
bars when moved.
Track ‘n Trade High Finance
109
Advanced Charting Tools
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Chapter 5
Advanced Charting Tools
Example of the Gann Fan
110
Track ‘n Trade High Finance
Advanced Charting Tools
Andrews Pitchfork Theory
Dr. Alan Andrews developed a channel technique to show areas of support and
resistance from a baseline. This use of a median line is the key to using the Andrews
Pitchfork. Buying near lows and selling near highs that are identified by the “tines”
of the pitchfork. The basic premise is to trade the channel from one level of support or
resistance to the next.
Interpretation
Advanced Charting Tools
The first element to draw the Andrews Pitchfork is the centerline. The middle tine, or
median line, begins at the most recent contract low or high. To plot the direction of this
point we must attain the other two points. The top tine is determined by looking at the
highest move made from the origin of the contract low or high. The next point is found
by looking at the retracement of that move. For example, a contract begins at point A,
rallies to point B, and sells off from point B to point C. A line is drawn from point B to
point C, and the line originating at point A splits those two lines equally.
This pitchfork shows continuing points of support
and resistance. The general use of this tool is to
sell when the market rises to line B, take profits
once prices reach line A, and buy when prices
dip to line C. This series of movements within the
pitchfork affords traders the opportunity to trade a
channel system within a trending market.
Andrews Pitchfork Tool
You can apply this theory to your charts by selecting the Andrews Pitchfork tool from your
Advanced Charting toolbar. Click where you want the handle of the pitchfork to be (at the end
of the previous trend). Your next two clicks will form the base of the fork, or the tops of the next
two trends. You can elongate the pitchfork to the length desired. Click to place.
Resizing the Andrews Pitchfork
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear at
the corners. Click on a box and drag it to your desired location. Release mouse button to place.
Moving the Andrews Pitchfork
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Track ‘n Trade High Finance
111
Chapter 5
Deleting the Andrews Pitchfork
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the channel and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Advanced Charting Tools
Andrews: You can choose the color, line
style, and line thickness of your lines.
Show Extensions: Select the boxes next
to the extensions you want to add to your
pitchfork drawing. The odd numbers are
placed below the main line, and the even
numbers are placed above.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select Snap to have your lines snap to price
bars when moved.
112
Track ‘n Trade High Finance
Advanced Charting Tools
Example of Andrews Pitchfork
Advanced Charting Tools
Track ‘n Trade High Finance
113
Chapter 5
Fibonacci Retracements
Fibonacci Retracement levels correspond with percentage retracements that occur in the
ebb and flow of a market trend. According to the Elliott Wave Theory, market trends tend
to occur in five distinct waves. See the Elliott Wave section for more information. Elliott
asserted that these counter-trend waves will usually retrace against the trending waves
by 38.2, 50, and 61.8 percent. These retracement percentages correspond to natural
ratios discovered by the Greeks called the Golden Ratio and rediscovered by Fibonacci,
a medieval Italian Mathematician.
Advanced Charting Tools
Interpretation
Commodity prices will frequently consist of an initial
wave, a second wave (often retracing 61.8% of the
initial move), a third wave (usually the largest), another
retracement, and finally a 5th wave (the last gap), which
would exhaust the movement.
In Track ‘n Trade 5.0, you have three tools that you can use
to apply these concepts: Fibonacci Retracement, Fibonacci
Time Zones, and Fibonacci Arc.
Fibonacci Ruler Tool
To measure the different retracement levels within a market, select the Fibonacci Ruler tool from
your Advanced Charting toolbar. Click on the chart where you would like the ruler to begin. Hold
the mouse button down and move to the lower right position of the rule. Release the mouse button
to place.
Resizing the Fibonacci Ruler
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear at
the corners. Click on a box and drag it to your desired location. Release mouse button to place.
Moving the Fibonacci Ruler
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
114
Track ‘n Trade High Finance
Advanced Charting Tools
Deleting the Fibonacci Ruler
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Select Show Retracements or Show Projections to view default extensions. You
can also choose to show Predictions, Time
Zones, and 23.6% and 76.4%.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Select Snap to have your lines snap to price
bars when moved.
Track ‘n Trade High Finance
115
Advanced Charting Tools
Fib Ruler Tool: You can choose the color,
line style, and line thickness of your lines, as
well as the color of your background.
Chapter 5
Advanced Charting Tools
Example of a Fibonacci Retracement
116
Track ‘n Trade High Finance
Advanced Charting Tools
Fibonacci Arc Tool
To measure the different retracement levels within a market, select the Fibonacci Arc tool from
your Advanced Charting toolbar. Move the mouse pointer to the point on the chart that will be the
corner of your arc. Hold the mouse button and drag to your end point. Release the mouse button
to place.
Resizing the Fibonacci Arc
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Fibonacci Arc
Deleting the Fibonacci Arc
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
117
Advanced Charting Tools
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Chapter 5
Fib Arc Tool: You can choose the color,
line style, and line thickness of your lines.
Select Show 76.4% and 23.6% to view
these two additional arc lines.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Advanced Charting Tools
Select Snap to have your lines snap to price
bars when moved.
Example of a Fibonacci Arc
118
Track ‘n Trade High Finance
Advanced Charting Tools
Fibonacci Time Zones
The Fibonacci Time Zone uses Fibonacci numbers rather than the percentages used in the Ruler
and Arc tools. Select the Fibonacci Time Zones from your Advanced Charting toolbar. Click
where you want the upper left point. Hold the mouse button and drag to the bottom right position.
Release the mouse button to place.
Resizing the Fibonacci Time Zones
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Fibonacci Time Zones
Deleting the Fibonacci Time Zones
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
119
Advanced Charting Tools
Select the drawing by clicking on it. Drag to the new location and release the mouse button to
place.
Chapter 5
Fib Time Zone Tool: You can choose the
color, line style, and line thickness of your
lines.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart.
Advanced Charting Tools
Select Snap to have your lines snap to price
bars when moved.
Example of a Fibonacci Time Zone
120
Track ‘n Trade High Finance
Notation Tools
Document Everything
Track ‘n Trade High Finance
6
121
Notation Tools
Chapter 6
122
Track ‘n Trade High Finance
Notation Tools
Introduction
In Track ‘n Trade High Finance, you have a variety of tools available to help you personalize,
notate, and analyze your charts. You can type text, make drawings, import flags, and keep notes
on each chart. The Notation tools, as well as the Notes tab in the Control Panel, enable you to
record and remember what you learn for others’ tips and tricks. In this section, you will learn how
to use these features.
Notes Window
The Notes window is the last tab in the Control Panel, after the Data tab. The Notes tab is for
you to keep notes on the charts that are saved within your chartbook. Each chart has a new Notes
section available to keep notes for that particular chart.
Notes Tab in Track ‘n Trade High Finance:
Notation Tools
Arrow Tool
The Arrow tool is located in the Notation toolbar. This tool enables you to draw arrows to help
point out areas of interest on your chart. Position the mouse pointer where you want to place the
point of the arrow and click the mouse button. Drag the mouse pointer to the location you would
like to end the arrow. Release the mouse button to place.
Track ‘n Trade High Finance
123
Chapter 6
Resizing the Arrow
Select the arrow drawing by clicking on it. The arrow is selected when boxes appear at the ends
of the line. Click on one of the boxes and drag it to the desired length. Release the mouse button
to place the end point of the line.
Moving the Arrow
Select the arrow drawing by clicking on it. Click on the arrow, not an end box, and drag it to the
new location. Release the mouse button to place.
Deleting the Arrow
Select the arrow drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Notation Tools
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Arrow Tool: You can choose the color, line
style, and line thickness of your arrow.
Arrow Fill: Select what color you want
the point of your arrow to be. You can also
choose which end you want the Arrow
Point or if you want it on both ends.
Select Snap to have your line snap to price
bars when moved.
124
Track ‘n Trade High Finance
Notation Tools
Flag Tool
The Flag tool enables you to place a flag or a graphic on your chart. There is a basic set of flags
available to choose from or you can import custom flags. Select the Flag tool from the Notation
toolbar. Click on the chart where you would like the top of the Flag. The default flag will be
placed in this location.
Resizing the Flag
Select the flag drawing by clicking on it. The flag is selected when boxes appear at the corners of
the graphic. Click on one of the boxes and drag it to the desired length. Release the mouse button
to place.
Moving the Flag
Select the flag drawing by clicking on it. Click on the flag, not an end box, and drag it to the new
location. Release the mouse button to place.
Select the flag drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the flag drawing by clicking on it. The properties will appear in the preferences section of
your control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Flag Tool: You can select a different flag
and change or import a custom flag (Importable formats: . wmf, .jpeg, and .gif.
Track ‘n Trade High Finance
125
Notation Tools
Deleting the Flag
Chapter 6
Text Tool
The Text tool enables you to type text on the Chart. Select the Text toll in the Notation toolbar.
Click on the chart where you would like to place the upper left corner of the text box. Drag the
text box to the lower right corner of your desired text box. Release the mouse button to place.
Once the box is drawn, the Text Tool Options window will open. Enter the text, set the font, size,
position, color, and style of the text. Select a border and background if you would like. Click
“OK” when finished and text will be place on your chart.
Moving the Text
Select the text box by clicking on it. Continue holding down the mouse button to drag text to the
new location. Release mouse button to place.
Notation Tools
Deleting the Text
Select the text box by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the text box and select “Delete” from the dropdown menu.
Preferences
Select the text box by clicking on it. The properties will appear in the preferences section of your
control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Text Tool: Select the font, size, and color of
the text.
Outline: Choose the color of the text box
and change the justification.
126
Track ‘n Trade High Finance
Notation Tools
Rectangle Tool
The Box tool enables you to draw square or rectangle shaped drawings on the chart. Select the
Box tool in the Notation toolbar. Click where you would like to place the top-left corner of the
box, hold down the mouse button and drag to the location of the bottom-right corner of the box.
Release the mouse button to place.
Resizing the Rectangle
Select the rectangle drawing by clicking on it. The drawing is selected when boxes appear at the
corners of the graphic. Click on one of the boxes and drag it to the desired length. Release the
mouse button to place.
Moving the Rectangle
Select the rectangle drawing by clicking on it. Click on the drawing, not an end box, and drag it to
the new location. Release the mouse button to place.
Select the rectangle drawing by clicking on it. Press the Del (Delete) key on your keyboard. You
can also right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Rectangle Tool: You can choose the color,
line style, and line thickness of your box
frame. You can also determine the color of
your background.
Select Snap to have your lines snap to price
bars when moved.
Track ‘n Trade High Finance
127
Notation Tools
Deleting the Rectangle
Chapter 6
Circle Tool
The Circle tool enables you to draw circle shaped drawings on the chart. Select the Circle tool in
the Notation toolbar. Click on the chart where you would like the circle to start. Continue holding
down the mouse button and drag the tool until it has formed a circle. Release the mouse button to
place.
Resizing the Circle
Select the circle drawing by clicking on it. The circle is selected when boxes appear at the corners
of the graphic. Click on one of the boxes and drag it to the desired length. Release the mouse
button to place.
Moving the Circle
Notation Tools
Select the circle drawing by clicking on it. Click on the box, not an end box, and drag it to the
new location. Release the mouse button to place.
Deleting the Circle
Select the circle drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can
also right-click the drawing and select “Delete” from the dropdown menu.
Preferences
Select the circle drawing by clicking on it. The properties will appear in the preferences section of
your control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Circle Tool: You can choose the color,
line style, and line thickness of your circle
outline. You can also determine the color of
the background.
Select Snap to have your lines snap to price
bars when moved.
128
Track ‘n Trade High Finance
Calculator Tools
Calculators Made Easy
Track ‘n Trade High Finance
7
129
Calculator Tools
Chapter 7
130
Track ‘n Trade High Finance
Calculator Tools
Introduction
Track ‘n Trade High Finance has included the Dollar calculator and the Risk/Reward calculator to
help simplify the trading process. With both the Dollar calculator and the Risk/Reward calculator,
simply click and drag between two locations on the chart to instantly know the dollar value
between the two points.
Dollar Calculator
Use the Dollar calculator to find the dollar value between two points on the chart. Select the
Dollar calculator tool from your Calculators toolbar. Click on your chart where you want the
calculator to start and drag to where you want the calculation to be completed. Release the mouse
button to place. The dollar amount of the chart movement will be calculated from the beginning
and end point values and will be displayed in the center of the line.
Resizing the Dollar Calculator
Moving the Dollar Calculator
Select the drawing by clicking on it. Hold down the mouse button and drag to the new location.
Release the mouse button to place.
Deleting the Dollar Calculator
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the drop-down menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
131
Calculator Tools
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Chapter 7
Dollar Calculator Tool: Choose the color,
line style, and line thickness of your line.
Quantity: Default is set to 100, with the
calculation between the two prices standing
for 100 contracts. By changing the number
next to Quantity in your preferences, the
middle price will be calculated to show the
value of multiple contracts.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart. Select Snap to have your
lines snap to price bars when moved.
Calculator Tools
Enter the Point 1 and Point 2 that you want
your tool to calculate.
132
Track ‘n Trade High Finance
Calculator Tools
Risk/Reward Calculator
The Risk/Reward calculator is used to find the difference between two points of the risk and
reward zone. Select the Risk/Reward tool on your Calculators Toolbar. Click on your chart where
you want your technical formation to begin and drag to cover the area between your initial order
and your risking stop loss order.
The calculator will create an equal-sized reward area that can be stretched to the proper distance
you expect the graph to retrace. The numbers in the tool indicate the dollar amount of risk and
reward.
When the chart is trading within the risk area (negative number), you are risking your own
money. When the chart is trading within the reward area (positive number), you are risking OPM
or “Other People’s Money.” Use the Risk/Reward calculator on all trades to calculate where your
order entries and exits should be placed.
Select the drawing by clicking on it. You will know the drawing is selected when boxes appear
at the corners. Click on a box and drag it to your desired location. Release the mouse button to
place.
Moving the Risk/Reward Calculator
Select the drawing by clicking on it. Hold down the mouse button and drag to the new location.
Release the mouse button to place.
Deleting the Risk/Reward Calculator
Select the drawing by clicking on it. Press the Del (Delete) key on your keyboard. You can also
right-click the drawing and select “Delete” from the drop-down menu.
Preferences
Select the drawing by clicking on it. The properties will appear in the preferences section of your
control panel. Or, right-click on the drawing and select properties from the dropdown menu.
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
133
Calculator Tools
Resizing the Risk/Reward Calculator
Chapter 7
Risk Reward Tool: Choose the color, line
style, and line thickness of your line.
Quantity: Select how many contracts you
would like to be calculated.
Price Difference: Select whether you want
the tool to calculate between price or points.
Font: Select the font, size, and color of the
text. Select Show Text to hide or show your
text on the chart. Select Snap to have your
lines snap to price bars when moved.
Calculator Tools
Enter the points that you want your tool to
calculate.
134
Track ‘n Trade High Finance
Using Indicators
Read the Signs and Signals
Track ‘n Trade High Finance
8
135
Using Indicators
Chapter 8
136
Track ‘n Trade High Finance
Using Indicators
Introduction
Track ‘n Trade High Finance includes a total of thirteen indicators in the base application. Eleven
of them are displayed in a window below the Chart Window, referred to as the Indicator Window.
The other two Overlay Indicators are displayed directly on the chart in the Chart Window.
Chart Right-Click Menu
When you open an indicator, an overlay indicator or an indicator in the indicator window, you
will see text appear on your chart in the upper left hand corner. You can choose whether to show
this text, and choose where it appears by right-clicking on your chart. The screenshot above will
appear. Mouse over On Screen Text to view your options.
Track ‘n Trade High Finance
137
Using Indicators
Displaying Indicators
To display an Indicator, right-click in the Chart Window or Indicator Window then choose the
indicator from the menu. Mouse over Add Indicator Window and a list of indicators will appear,
as you see in the screenshot above. Select the indicator you want opened. You can open six
Indicator Windows at once on one chart, and you can have up to four indicators in each window.
When you open a fifth indicator the first indicator opened will automatically be closed.
Chapter 8
Indicator QuickLinks
Once you have deselected an indicator, to select it again click on the Indicator QuickLink
located on the bottom right hand side of the Indicator Window or Chart Window, as shown in the
screenshot below. Once the indicator is selected, you can change settings for that indicator in the
Preferences Tab of the Control Panel.
Using Indicators
Indicator Window Quick Link
Right-click on the Indicator QuickLink in
the Indicator Window to view the menu seen
in the screenshot below. Indicators that are
already selected will have a dot by them. To
switch to another indicator simply click on
it. Select Remove to delete that indicator
Window. To add an additional indicator to
your Indicator Window, right-click inside the
Indicator Window and select another indicator.
Chart Window QuickLink
Right-click on the Indicator QuickLink in
the Chart Window to view the menu seen in
the screenshot below. To open an additional indicator, right-click and choose the indicator from
the menu. The indicators that are currently open will have a check mark by them. To remove an
indicator from your chart, simply click on the indicator again. (A list of all indicators and their
abbreviations are available at the end of this section).
Indicator Window QuickLink Right-Click Menu
Chart Window
QuickLink Right-Click Menu
138
Track ‘n Trade High Finance
Using Indicators
Williams Accumulation/Distribution (AD)
Larry Williams created this indicator in an attempt to measure market pressures. It specifically
looks for a difference in price and measures it through market sentiment and strength. The key is
to look for strong differences between what the market does and what the indicator does. Looking
for substantial divergence from the AD index versus the underlying chart is the key to future price
direction.
The main thing to look for is a difference between the AD and the market trend. If a market were
to make a matching or lower low, or a matching or higher high and the AD fails to follow the
market trend, this is divergence. Divergence implies that a reversal in the dominant trend may be
near.
Calculation
The AD index is computed several different ways. Some computations normalize the index, while
others add extra smoothing factors through the use of moving averages.
The first comparison checks for accumulation. (Is the current close higher than the previous
close?) If the market is accumulating, subtract the difference between current close and low. Add
the difference to the Accumulation/Distribution Index. Traders perceive an undervalued market
and they buy.
If Closet > Closet-1 then ADt = ADt-1 + (Closet - Lowt)
The second comparison checks for no change in price. If correct, the AD index does not change.
If Closet = Closet-1 then ADt = ADt-1
The last and final comparison checks for a down market. It looks for the current close below
previous close. If it’s correct, the market is distributing. The software first computes the
difference between current high and close. Then it subtracts that difference from the AD index.
This measures market distribution. Traders perceive an overvalued market and are selling.
If Closet < Closet-1 then ADt = ADt-1 - (Hight - Closet)
Track ‘n Trade High Finance
139
Using Indicators
A series of lower lows would read as a decreasing AD. The pattern created by the AD and the
differences in the chart are what the trader looks for. Divergence, or a difference from the pattern,
is what you want to see. For example, if the market continues to march to higher territory and the
AD follows by doing the same, then there is no divergence. However, if the market makes several
new highs but the AD fails to make new highs, it is a warning signal of a market about to reverse
direction.
Chapter 8
ADt: The accumulation/distribution index for the current period.
ADt-1: The accumulation/distribution index for the previous period.
Closet: The closing price for the current interval.
Closet-1: The closing price for the previous interval.
Hight: The true high price for the current interval (current high or previous close).
Lowt: The true low price for the current interval (current low or previous close).
Using Indicators
Example of the Williams AD in the Indicator Window
Preferences
Open the Preferences Tab in your Control Panel. Select the AD quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change
your settings back to the original software
settings. My Default will change current
settings to your personalized default
settings. Apply To All Charts will apply
your selected settings on all open charts.
Save As My Default will save your current
personal settings.
Line: Choose the color, line style, and line
thickness of your AD and ADMA line. You
can also choose to show/hide the ADMA.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
140
Track ‘n Trade High Finance
Using Indicators
Commodity Channel Index (CCI)
The Commodity Channel Index (CCI) is designed to detect beginning and ending market trends.
The formula standardizes market prices to help spot market trend deviations.
Donald Lambert, the creator of this indicator, says that 70% to 80% of all price fluctuations fall
within +100 and -100 as measured by the index. The calculation for CCI measures the average
daily price’s distance from a moving average of average daily prices.
There are basic trading rules for the CCI: buy when the CCI exceeds -100 and sell when the
CCI drops below +100. In other words, a buy signal is generated when the indicator enters
the channel, or exceeds -100, coming up from the bottom. A sell signal is generated when the
indicator enters the channel from the top, or drops below +100.
Followers of the CCI generally look to establish long positions when the CCI exceeds the
-100 level, indicating that prices are in a strong up trend. Most users of this indicator also try to
look for patterns within the indicator, such as higher highs, and look for CCI movements to be
confirmed by general price readings as well.
When CCI is viewed in the Indicator window of Track ‘n Trade 5.0, -100 is 33% of the window
and +100 is 66% of the window. Guides could be set at these two points for ease in tracking
CCI. You could also say that -85 would be roughly 36% and +85 would be roughly 64% of the
window.
Calculation
The proper calculation of the CCI requires several steps in the proper sequence. You must first
compute the typical price using the high, low, and close for the interval. Simply, take the average
of the three values.
TP = (Hight + Lowt + Closet) / 3
TPt: Represents the typical price.
Hight: The highest price for this interval.
Lowt: The lowest price for this interval.
Closet: The closing price for this interval.
Next, calculate a simple moving average of the typical price for the number of periods specified.
Track ‘n Trade High Finance
141
Using Indicators
The purpose of the CCI index is to keep you out of the market during consolidation, or weak
trending periods. By measuring the difference between average prices and mean average prices,
this indicator attempts to isolate only strongly trending markets, similar to momentum and
MACD.
Chapter 8
TPAVGt = (TP1 + TP2 +... + TPn) / n
TPAVGt: The moving average of the typical price.
TPn: The typical price for the nth interval.
N: Number of intervals for the average.
Compute the mean deviation.
MDt = (|TPAVG1 - TP1| + ... + |TPAVG1 - TPn |) / n
MDT: The mean deviation for this interval.
TPn: The typical price for the nth interval.
N: Number of intervals.
Using Indicators
Note: The symbol | | designates absolute value. Negative differences as well as positive
differences are treated as positive values.
Final Computation:
CCIt = (TPt - TPAVGt) / (.015 x MDT)
CCIt: The Commodity Channel Index for the current period.
TPt: The typical price for the current period.
TPAVGt: The moving average of the typical price.
.015: A constant.
MDT: The mean deviation for this period.
Buy/Sell Signals
For a line drawing, a buy signal occurs when the CCI line crosses from below the lower threshold
to above the lower threshold. A sell signal occurs when the CCI line crosses from above the upper
threshold to below the upper threshold.
For a histogram drawing, a buy signal occurs when the CCI value crosses from below the 0 line
to above the 0 line. A sell signal occurs when the CCI value crosses from above the 0 line to
below the 0 line.
142
Track ‘n Trade High Finance
Using Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the CCI quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
CC Period: The number of bars, or interval,
used to calculate the study. Default is 20.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 100
and -100).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
143
Using Indicators
CC: Choose the color, line style, and line
thickness of your line. Select Standard
and choose between a line or a histogram
from the dropdown menu. Select W-CCI to
display a histogram divided in the middle
and choose two colors from the dropdown
menu.
Chapter 8
Directional Movement Index (DMI)
Wilder’s DMI is similar to the historic volatility indicator because it shows market tendencies.
The main use of this tool is to show the strength of a trend. This could direct the trader to use a
trend following system or a counter trend system in their trading. It also indicates possible price
reversals.
Using Indicators
Directional Moving Index is plotted as three lines on a scale of 0 to 100. This scale is a measure
of market trend. The two lines of DMI show the amount of positive and negative movement.
The positive line is called D+ and the negative D-. The direction of these lines and the use of
crossovers can show the changes in the current market. The key to this indicator is the ADX, or
average of the difference of these two lines. The ADX is the main factor in using this indicator.
During periods of extreme price variation the two lines can become very volatile, and the ADX is
used to compensate for this.
The best application of DMI is present when used with another indicator. DMI should either
confirm or contradict the indicator being used. It is also best to use DMI in long-term trade
situations. Because the study is not as sensitive as other indicators it is appropriate to use it as a
confirmation tool. When the DMI is advancing, the average is higher on the 0 to 100 scale, trend
following systems are best employed. Likewise, with a decreasing DMI average, the line is lower
on the scale, closer to 0, so a counter trend system might be best. These traits represent the fact
that as the average line goes higher in the scale the strength of the trend is gaining, and as the
ADX goes lower the trend is losing strength. It is also important to look at the individual lines for
changes in price movement.
The other application for DMI is to look at the D+ and D- lines themselves. When the D+ line
crosses above the D- line a buy signal is initiated. This indicates that the positive price direction is
greater than the negative. Conversely, once the D+ line crosses below the D- line, a sell trigger is
present. The negative price movement is overtaking the positive.
Welles Wilder himself said that he was not comfortable using these two lines by themselves.
When looking at reversals, the ADX should be above both lines, and once it turns lower we
should see a change in market direction. You should also look to ADX for confirmation.
This application is much the same as momentum, showing a change in the market sentiment.
Wilder also says that a trend following system should not be used when the ADX line is below
both D lines, as this means that the market has no discernible direction.
When using the D+ and D- crossover method, Wilder stresses the use of an extreme point. On
the day the crossover occurs, the extreme point is the high or low of the day (high for a buy, and
low for a sell). The market should be able to take out that price and stay beyond it for several
days before the trade is initiated or exited. This use of extreme points should keep the trader from
getting into whipsaws or false breakouts.
144
Track ‘n Trade High Finance
Using Indicators
Calculation
The computations needed to generate the final figures for the DMI are not complex but are
numerous and lengthy. The following discussion attempts to unravel the computational mysteries
of the DMI. If you need further explanation, please refer to the author’s original work. The book
titled New Concepts in Technical Trading Systems by J. Welles Wilder, Jr., explains this indicator
and several others.
You must first compute the directional movement, DM, for the current trading interval.
Directional movement can be up, down, or zero. If directional movement is up, it is labeled as
+DM, and -DM refers to downward directional movement. Wilder defines directional movement
as the largest part of the current trading range that is outside the previous trading range. From a
mathematical view, it is the largest value between two equations:
Hight - Hight-1 or Lowt - Lowt-1
It is possible for the directional movement to be zero. This occurs when the current trading range
is inside the previous trading range, or when the trading ranges, current versus previous, are
equal.
Directional movement is up, or positive, when the difference between the highs is the greatest. It
is down, or negative, when the difference between the lows is the largest value. The up directional
movement is +DM and down directional movement is -DM. Do not let the plus and minus sign
designation mislead you. They only indicate upward or downward movement, not values. The
directional movement value is always a positive number, or absolute value, regardless of upward
or downward movement. This concept is crucial to understanding the computations for the
indicator. If you are confused, draw some illustrations or work with actual price data to determine
the directional movement values.
The next step in determining the DMI is to compute the true range. The true range (TR) is always
a positive number. According to the Wilder, the true range is the largest value of three equations:
Hight - Lowt
Hight - Closet-1
Lowt - Closet-1
Track ‘n Trade High Finance
145
Using Indicators
This is only true when the current low is less than the previous low, or the current high exceeds
the previous high. Both of these conditions do not have to be met, only one. It is the largest
portion of the trading range outside of the previous trading range.
Chapter 8
Continue this process for the specified trading interval. In this example, use a value of 14. This
is the same value Wilder used on daily data. His logic for using this value is that it represents an
average half-cycle period. When this task is accomplished for the specified interval, you compute
the average value of the +DM, -DM, and TR. Wilder prefers to use an accumulation technique
rather than computing a pure moving average. It is a short cut designed to save computational
time and effort:
Averaget = (Averaget-1 - (Averaget-1 / n)) + Valuet
When you substitute the above symbols, you these equations:
Using Indicators
+DMt = (+DMt-1 - (+DMt-1 / n)) + (+DMt)
-DMt = (-DMt-1 - (-DMt-1 / n)) + (-DMt)
TRt = (TRt-1 - (TRt-1 / n)) + (TRt)
It is a timesaving convention. This indicator was developed before microcomputers were
invented. The only tool available was the desktop calculator or adding machine. You could spend
a great deal of time and effort calculating averages.
You now have the average values. The next step is to compute the directional indicator. It
can be either up or down, depending upon the directional movement. On up intervals use this
calculation:
+DI = (+DM / TR) x 100
On a down interval use this formula:
-DI = (-DM / TR) x 100
The plus and minus directional indicator values are computed as percentage figures. You are
expressing the percentage of the average true range for both up and down trading intervals.
If you have followed this process so far, the last few steps are relatively simple. You compute the
difference between the +DI and the -DI. Remember to use the absolute value of this difference
(Convert any negative value into a positive number).
DIdiff = | ((+DI) - (-DI)) |
Compute the sum of the directional indicator values using this formula:
DIsum = ((+DI) + (-DI))
146
Track ‘n Trade High Finance
Using Indicators
Once you compute the DIdiff and the DIsum, you can calculate the DX or directional movement
index. This value is always a percentage:
DX = (DIdiff / DIsum) x 100
The DX is always a value between 0 and 100. If your calculations exceed this range, you have
made an error. Wilder was not comfortable using just the directional movement index. It could
become very volatile during periods of extreme price movement, especially markets that rise and
fall quickly. He implements his accumulated moving average technique to smooth the DX. The
result is the ADX or average directional movement index. This is the computational procedure:
ADXt = ( (ADXt-1 x (n - 1) ) + DXt) / n
Buy/Sell Signals
A buy signal occurs when the DMI+ line crosses from below the DMI- line to above the DMIline. A sell signal occurs when the DMI+ line crosses from above the DMI- line to below the
DMI- line.
Using Indicators
Filters to Adjust Buy/Sell Signals
Extreme Point Validation: This filter delays the buy/sell arrows at least a day by requiring
that the market move higher or lower than the high or low on the day the DM+,DM- crossover
happened. If a new high or low is not obtained before the next DM+,- crossover, the buy/sell
arrow is suppressed completely for that previous period. The filter does not require the use of
DX/ADX, although it does stack with the other filers if they are used.
Trend Strength: The DX or ADX line must be above the target number before a DM+,- cross
will give a buy/sell arrow. The theory is the DX/ADX lines indicate trend strength (not direction)
and if it is below 20 there is practically no trend. Values above 40 indicate a strong trend.
Different articles would use values between 20 and 40 as targets to look for. This box must be
selected for this rule to be available.
Track ‘n Trade High Finance
147
Chapter 8
Turning Point Validation: The directional index line (DX or ADX) must be above the point
where DM+,- crossed. This is like a variable trend strength filter. The directional index can
indicate any trend strengths as long as the trend strength is greater than the value of the DM+,crossing point. This indicator also requires that the directional index line be on.
Preferences
Open the Preferences Tab in your Control Panel. Select the DMI quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Using Indicators
DMI Period: The number of bars, or
interval, used to calculate the study. Default
is 14.
ADX Period: Specify the number of price
bars used in calculating ADX.
DMI+, DMI-, DM: Choose the color, line
style, and line thickness of your line. Select
Use Relative Scaling to change the 100%
location to the highest point value in the
DMI indicator.
View up to four Thresholds at values and
colors of your choice. Threshold 1 is used
for Trend Strength (default value set at 40).
Choose when you want Buy/Sell Arrows
to show and what color. Select if you would
like to view Trend Strength, Extreme
Point Validation, or Turning Point
Validation filters.
148
Track ‘n Trade High Finance
Using Indicators
Fast Stochastics (FSTO)
The Stochastic Process was invented by Dr. George C. Lane under the basic premise that
during periods of decrease, daily closes tend to accumulate near the extreme low of the day and,
conversely, during periods of increase, daily closes tend to accumulate near the extreme highs of
the day.
This indicator is designed to show conditions of overbought and oversold markets. Stochastics
are divided into two types: Regular Stochastics, often referred to as Fast Stochastics, and Slow
Stochastics. Fast Stochastics are more sensitive to price changes and can give a lot in the shortterm, hence the need for Slow Stochastics.
When both lines move to an area below 20 on this scale they are said to be in an oversold zone.
Conversely, when both %K and %D move to above 80 on this same scale they are indicating an
overbought zone. It is this indication of market sentiment that makes this counter trend indicator
useful.
George Lane emphasized that the most important signal generated by this method was the
difference or divergence between %D and the underlying market price. He said that the
divergence is where %D line makes a group of lower highs while the market makes a series of
higher highs. This would indicate an overbought condition. The reverse would be true of an
oversold market, with %D making higher lows and prices making lower lows.
As with a dual moving average system, when the faster reacting indicator crosses the slower
moving indicator, a buy or sell is signaled. Because Stochastics give an indication of either
overbought or oversold, you would first want to see both lines in the above 80 or below 20 range,
and sloping out of that range back to the middle before looking for these trade triggers.
Track ‘n Trade High Finance
149
Using Indicators
Stochastics display two lines that move in a vertical scale between 0 and 100, representing
percentiles from 0% to 100%. Think of the level of Stochastics as where the most current close
is within a specific range. If Stochastics are reading 50%, the current close is in the middle of
the price range for a specified period of time. If Stochastics are reading 100%, the close is at the
high of the range, and 0% represents the current close price being at the low of the range. This
will help you to understand why Stochastics are a counter trend indicator, in that the underlying
principle behind Stochastics is that prices will move back to the center of the trading range, or the
opposite extreme.
Chapter 8
Calculation
The first step in computing the stochastic indicator is to determine the n period high and low.
Suppose you specified twenty periods for the stochastic. Determine the highest high and lowest
low during the last twenty trading intervals. It determines the trading range for that time period.
The trading range changes on a continuous basis. The calculations for the %K is here:
%Kt = ( (Closet - Lown) / (Highn - Lown) ) x 100
Using Indicators
%Kt: The value for the first %K for the current time period.
Closet: The closing price for the current period.
Lown: The lowest low during the n periods.
Highn: The highest high during the n time periods.
n: The value you specify.
Once you obtain the %K value, you start computing the %D value which is an accumulative
moving average. Since the %D is a moving average of a moving average, it requires several
trading intervals before the values are calculated properly. If you specify a 20 period stochastic,
the software system requires 26 trading intervals before it can calculate valid %K and %D values.
The formula for the %D is here:
%DT = ( (%DT-1 x 2) + %Kt) / 3
%DT: The value for %D in the current period.
%DT-1: The value for %D in the previous period.
%Kt: The value for %K in the current period.
The values 2 and 3 are constants. You specify the constants and the length of the time period to
examine for the trading range.
Buy/Sell Signals
A buy signal occurs when both lines are below the lower threshold and the %K line crosses from
below the %D line to above the %D line. A sell signal occurs when both lines are above the upper
threshold and the %K line crosses from above the %D line to below the %D line.
150
Track ‘n Trade High Finance
Using Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the FSTO quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
FSTO Period: The number of periods to
be used to determine the highest high and
lowest low. Default is 14.
FSTO Smoothing: The number of periods
to be used to determine the moving average
for the %D value.
Calculation: Choose between Exponential,
Simple, and Wilder’s Smoothing
calculations.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 80
and 20).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
151
Using Indicators
%K/%D: Choose the color, line style, and
line thickness of your %K and %D lines.
Chapter 8
Historic Volatility (HVOL)
The Historic Volatility indicator is used mainly as an option evaluation tool. It does not give
trading signals like those given with other technical indicators. It gives the trader an idea of how
volatile the market has been for a previous period of time.
Changing the period of time the study observes allows the trader to finetune options prices. If a
market has been extremely volatile for the past 3 months, for example, near term options should
be more expensive. If the market has been calm for an extended period of time, longer term
options should be reasonable. In futures, we use it for observation. It tells us if prices are calming
down or becoming more erratic.
Using Indicators
The key to using historic volatility is determining the correct period of time for each market. The
market you are looking at may show a history of volatility years ago, but has been relatively calm
the last few months. Getting an idea of the markets behavior recently may be of no use to the
trader that is looking at distant options.
For the futures trader, this tool is useful as a guide for order placement. Changing market
volatility may indicate that it is time to move stops closer or farther away. If the trader is
profitable with the trend and volatility is changing, it might be a time to move stops closer to
protect profits. If a trader is trading against the trend, he might want to move stops further away to
avoid getting bumped out prematurely.
Options traders could use this study to help them purchase profitable options. The basic idea is
to buy options when volatility is decreasing to take advantage of a change in that volatility. Any
rise in volatility will translate to an increase in option values. Look at options strategies that take
advantage of low volatility, such as straddles or ratio spreads. When volatility is high, selling
options would be better because any decrease in volatility will translate to a loss of option value.
Option strategies that take advantage of a decrease in volatility are strangles and regular short
option positions.
Obviously, historic volatility is only one component of option pricing. Any changes in the
underlying futures market could negate the changes in option prices due to volatility. For
example, if you were to buy a low volatility Put option and prices go higher, that option will lose
value but not as quickly as a higher volatility option.
For the futures trader, the basic concept is to expect market changes during periods of increased
volatility. George Soros, the trading legend, said “Short term volatility is greatest at a turn around
and diminishes as a trend becomes established.”
152
Track ‘n Trade High Finance
Using Indicators
This indicator is commonly viewed as very mean regressive. What this term means is that the
historic volatility indicator tends to return to the opposite end of the spectrum and therefore return
to an average. If volatility is great it will eventually cool off and return to that place. If volatility
is low it will not stay quiet forever. What this means to traders is that a market that is erratic will
sooner or later calm down and a market that is quiet will eventually get loud again.
Calculation
The calculation for the historical volatility is rather involved. The number of periods per year
vary depending on the type of price chart used for the study. The following table lists the number
of periods for each type of chart:
Trading Periods Per Year
262
262
52
12
Based on chart period (see below)
Not available for this study
When using variable charts, you must first calculate the number of trading periods per year. To do
this, you must determine the trading time of the selected commodity. The formula is as follows:
TP = (Tt / Pn) x 262
TP: The total number of trading periods per year.
Tt: The total trading time in a day.
Pn: The length of the period.
262: The number of weekdays per year.
Example: The S&P 500 trades from 8:30 a.m. to 3:15 p.m. That is a total trading time of 6 hours
and 45 minutes. On a variable chart using 5 minute bars, the number of periods for the day is 81:
6 hours x 60 minutes = 360 minutes + 45 minutes
Total minutes of trading = 405 minutes
405 / 5 minute bars = 81 trading periods per day
Track ‘n Trade High Finance
153
Using Indicators
Chart Type
Perpetual
Daily
Weekly
Monthly
Variable
Tick
Chapter 8
Now that you have calculated the trading periods per day, you now must calculate the number
of periods for the year. Since historical volatility considers every weekday of the year when
calculating total periods for the year, the multiplier is 262:
TP = (405/5) x 262
TP = 81 x 262
TP = 21,222
Note: This formula applies only to historical volatility on a variable chart. It does not apply to
other chart types.
Now that you have the total number of periods per year, continue with the calculation of the
historical volatility, by calculating the logarithm of the price change for each price in the specified
time span of n periods:
Using Indicators
LOGSi = LOG(Pi / Pi-1)
LOG: The logarithm function.
Pi: The current price.
Pi-1: The previous price.
Now that you have the logarithms of the price changes, calculate the total logarithms for the time
span you are reviewing:
Tlogs: The total of the logarithm price ratio for the time span.
S: Indicates to sum all n logarithms.
LOGSi: The logarithm of the price change for period i.
N: The number of periods for the specified time span.
The next step is to calculate the average of the logs by dividing the total logarithm by the number
of periods:
ALOGS = Tlogs / n
ALOGS: The average of the logarithms.
Tlogs: The total of the logarithm for the time span.
N: The number of periods for the specified time span.
154
Track ‘n Trade High Finance
Using Indicators
The last calculation is to sum the squares of the difference between the individual logarithms for
each period and the average logarithm:
SSD: The sum of the squared differences.
S: Indicates to total the squares of all n differences.
LOGSi: The logarithm of the price change for period i.
ALOGS: The average of the logarithms.
Now that the elements of the final formula are complete, the following formula calculates the
historical volatility for a given period over a specified time span:
Using Indicators
SSD: The sum of the squared differences.
n: The number of periods for the specified time span.
TP: The total number of trading periods for the year.
Due to the complexity of the formula, it is preferable to use a scientific calculator when
attempting to manually calculate the historical volatility of a futures instrument.
Example of Historical Velocity in the Indicator Window
Track ‘n Trade High Finance
155
Chapter 8
Preferences
Open the Preferences Tab in your Control Panel. Select the HVOL quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
HVOL Period: The number of bars, or period,
used to calculate the study. Default is 20. You
may use any number greater than 1 for the
close.
Using Indicators
HVOL: Choose the color, line style, and line
thickness of your line. Click to Use Relative
Scale if you want the 100% location to be
changed to the highest point value in the
indicator.
View up to four Thresholds at values and
colors of your choice.
156
Track ‘n Trade High Finance
Using Indicators
Moving Average Convergence/Divergence (MACD)
MACD was created in an attempt to determine the strength of a trend along with the direction of
that trend. Gerald Appel created a system that looked at two exponential moving averages and the
difference between those two averages. Looking at these moving averages of the market we are
able to see clear buy and sell signals. We are also able to get a more accurate signal by averaging
the difference in the two moving averages.
Computing this indicator requires the use of exponential moving averages. Exponential moving
averages are different than simple moving averages; instead of looking at only the last few days
and averaging them, the exponential averages look at all the prices and puts more weight on
the most recent data. This type of weighted average gives a smoother average price that reacts
quickly to market moves. The two averages of MACD move above and below a base line,
which gives indication of the strength of the current move. This placement of the two averages
in relationship to the base line is calculated by looking at the exponential moving average of the
difference between the two averages. Even though the two averages may cross, the divergence, or
true indication of the signal, is not shown until both averages cross the base line.
The histogram method of MACD is read as a straight line above or below the zero base line. This
line represents the difference between the Moving Averages. When the moving averages move
above the base line they are indicating a buy, and as the difference between the averages increases
the lines will get taller.
The opposite is true of a sell signal. Track ‘n Trade High Finance’s ability to display MACD in
this fashion is vital because it allows you to read the strength of the current trend along with the
signal to buy or sell.
When MACD is plotted as a histogram, the values used to plot the histogram are the differences
between the two moving averages on each day. The “trigger” line that appears on this chart is an
average of the histogram data, or a smoothed view of the histogram.
Using the MACD as a histogram will allow the trader to spot divergences between the indicator
and the market price. A divergence is present when the market makes a higher high than the
previous high, but the MACD histogram fails to make a corresponding higher high. This is
considered to be a sign of weakness and a sell signal when the MACD breaks below the lowest
point in between the divergent highs.
Track ‘n Trade High Finance
157
Using Indicators
Keeping this in mind, an ideal buy signal is seen on a move where the shorter-term average
moves above the other average and both averages cross above the base line of zero. A sell signal
would be the opposite of this.
Chapter 8
Bullish divergence is seen in an exact opposite fashion. Assume a market has been trending
downward. The market has been consistently making lower lows, as has been the MACD
histogram indicator. However, eventually the MACD fails to make a lower low, corresponding
to the lower low in price. If the MACD histogram line crosses above the highest high in between
the divergent lows, then technical lore says higher prices should follow. You also have the choice
to view the MACD indicator in a simple line style, instead of the histogram. In this view there is
no trigger line. The line style MACD gives buy and sell signals based off of the crossing of the
two moving averages.
Calculation
In this study, the oscillator is the simple difference between the first two exponential moving
averages:
Using Indicators
OSCt = (EMA1 - EMA2)
OSCt: The oscillator for the current period.
EMA1: The first exponential moving average.
EMA2: The second exponential moving average.
The second part of the study computes an exponential moving average of the oscillator:
EMAosct = EMAosct-1+ (k x (OSCt - EMAosct-1))
EMAosct: The exponential moving average of the oscillator.
OSCt: The oscillator for the current interval.
EMAosct-1: The exponential moving average of the oscillator for the previous interval.
k: The exponential smoothing constant.
Since the second value, EMAosct, is an exponential moving average, it rises and falls slower than
the oscillator, and the two lines generate crossover points. These crossover points are the buy/sell
signals.
If the study is displayed as a histogram, each value for the lines is calculated:
DIFFt = OSCt - EMAosct
DIFFt: The difference between the oscillator for the current interval and the exponential moving
average of the oscillator.
OSCt: The oscillator for the current interval.
EMAosct: The exponential moving average of the oscillator.
158
Track ‘n Trade High Finance
Using Indicators
Buy/Sell Signals
For a line drawing, a buy signal occurs when the MACD crosses from below the trigger line to
above the trigger line, and the trigger line is less than 0. A sell signal occurs when the MACD line
crosses from above the trigger line to below the trigger line, and the trigger line is greater than 0.
(A histogram drawing with the trigger line works similarly.)
For a histogram drawing, a buy signal occurs when the MACD value crosses from below the 0
line to above the 0 line. A sell signal occurs when the MACD value crosses from above the 0 line
to below the 0 line.
Open the Preferences Tab in your Control Panel. Select the MACD quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
159
Using Indicators
Preferences
Chapter 8
EMA Periods: The first box is used to
specify the first EMA with a default of 12.
The second box is for the second EMA with
a default of 26.
Bear/Bull: Choose the color, line style, and
line thickness of your line.
Trigger Period: Specify the number of
days.
Using Indicators
Trigger: Check this box to hide the Trigger
line. You can also change the color and line
style of the Trigger.
Display as: The MACD indicator can be
displayed differently. From the dropdown
menu, choose either to view it as a line or as
a histogram.
Calculation: Select “Standard” or “Extra
Smoothing” to choose how you would like
your chart to be calculated. Extra Smoothing
is a proprietary formula developed by Lan
H. Turner, President and CEO of Gecko
Software, Inc. This method increases the
movement in the MACD indicator and has
shown to be more accurate (in Gecko Software’s market testing) than the standard calculation. Its
relationship to the MACD is similar to the relationship between the Fast and Slow Stochastics,
think of this indicator as the “Fast MACD.”
View up to four Thresholds at values and colors of your choice. Choose when you want Buy/Sell
Arrows to show and what color.
160
Track ‘n Trade High Finance
Using Indicators
Momentum (MOM)
The momentum indicator describes how price changes occur. It is a measure of the price change
and shows if prices are increasing or decreasing at a continuous rate. Momentum can help gauge
the current market trend. This indicator will sometimes shift ahead of a price change. It is both
an indicator of trend as well as an indicator of a changing trend. The main thing to look for when
using it is a divergence or difference between price behavior and the indicators behavior.
Momentum measures the rate of change in prices rather than actual price levels themselves.
By measuring this rate of incline or decline, momentum tells whether the current trend is
strengthening or weakening. If prices are rising and the momentum indicator is above the zero
line, then the trend is gaining strength. If prices were rising but the indicator was sagging or went
below the zero line, then we would interpret this as a sign of a coming change in trend. This is
true because, although prices were still increasing, they are doing so at a decreasing rate.
Typically, the trade signals are to buy when the momentum indicator crosses from below the zero
line to above it. This indicates that a new upward trend has begun, as the market is able to violate
resistance levels and continue higher with increasing speed.
The sell signal would be to sell when the line crosses from above the zero line to below it. This
indicates that the market is picking up speed to the downside and should be able to violate support
areas. It is in this way that this unique indicator is a trend following tool.
Another way to use momentum is to establish regions of overbought or oversold. For example,
in a declining market, the prices continue downward and the momentum indicator moves toward
more negative but begins to level out. We would be looking for a buy signal when the indicator
turned upward and out of that oversold region. It is in this way that momentum can sometimes
shift ahead of the price movement. This use of the momentum indicator is a counter trend usage.
In either implementation of this indicator, the key is divergence. Seeing momentum make lower
highs while prices are making higher highs, or momentum making higher lows while prices are
making lower lows. Being aware of a difference in price movement and the momentum level can
help the trader make informed trading decisions.
Track ‘n Trade High Finance
161
Using Indicators
The reverse would be true during a declining market. For example, think of a race car gaining 20
miles an hour each lap, until it starts to only gain 15 miles an hour, then 10 mph, then 5 mph until
eventually it reaches its top speed. Like a race car, a market can not sustain growing momentum
forever, and in many occurrences momentum slows before prices change direction.
Chapter 8
Calculation
The general formula to calculate momentum is here:
MOMt = Pi - Pi-n
MOMt: The momentum indicator for the current period.
Pi: The price of the i interval.
Pin: The price n intervals ago.
n: The number of intervals or length specified.
Example: Assume the current price is 7470. This example examines a momentum study using a
length of ten trading intervals. The price ten intervals ago is 7400:
Using Indicators
MOM = 7470 - 7400 = +70
The momentum value can have a very broad range. It is a function of the length you select for the
momentum and the volatility of the underlying futures contract. Thus, it could swing very wide
and wildly about the zero line.
Buy/Sell Signals
If we draw MOM with the MOMMA line, a buy signal occurs when the MOM value crosses from
below the MOMMA line to above the MOMMA line, and the MOMMA line is greater than 0.
A sell signal occurs when the MOM value crosses from above the MOMMA line to below the
MOMMA line, and the MOMMA line is greater than 0.
If we draw MOM without the MOMMA line, a buy signal occurs when the MOM value crosses
from below the 0 line to above the 0 line. A sell signal occurs when the MOM value crosses from
above the 0 line to below the 0 line.
162
Track ‘n Trade High Finance
Using Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the MOM quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
MOM/MA: Choose the color, line style,
and line thickness of your line. Uncheck the
Show MOMMA box if you would like to
hide the Momentum Moving Average line.
You can also specify the number of days
used in calculating the MOMMA line.
Display as: The MOM indicator can be
displayed differently. From the dropdown
menu, choose either to view it as a line or as
a histogram.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
Track ‘n Trade High Finance
163
Using Indicators
MOM Period: The number of bars, or
period, to be used to calculate the study.
You must determine a value suitable to
your trading needs and methods. Some
technicians argue that the length of the
momentum indicator should equal the
normal price cycle. The best method is
to experiment with different lengths until
you find the length that works best for that
particular commodity you are trading.
Chapter 8
Williams Percent R (%R)
Larry Williams used a ten-day period and plotted where the current price was compared to that
period. He used it to measure conditions of overbought and oversold; the overbought region being
the area below 20% and the oversold region the area above 80%. With the ability to invert the
values, it can be looked at in the same manner as other overbought/oversold indicators. Note:
We will use the traditional method, not the inverted, in our discussions. Choosing the time period
which the indicator looks at the interval is crucial to finding the optimal sensitivity.
Using Indicators
Williams’s basic rule is simple: when the %R is lower than 20% and becomes greater than 20%,
it is interpreted as a buy signal. Conversely, when the %R is higher than 80% and becomes lower
than 80%, a sell signal is activated.
Changing the sensitivity of the indicator to work for you is essential to making the study a better
tool. The longer the period for the %R, the less sensitive it will be. The indicator will move less
but will be more smoothed. A number of technical traders use a value that is less volatile, or in
other words, a larger value. Many traders find it better to use a strategy where the market leaves
the areas of overbought/ oversold before entering a trade position. In either case, using solid exit
strategies is important with this indicator.
Calculation
You must first determine the highest high and lowest low for the length of the interval. This is the
trading range for the specified interval:
%Rt = ( (Highn - Closet) / (Highn - Lown) ) x -100
%Rt: The percent of the range for the current period.
Highn: The highest price during the past n trading periods.
Closet: The closing price for the current period.
Lown: The lowest price during the past n trading periods.
n: The length of the interval.
Example: Assume the market is Treasury Bills. The high for the past ten trading intervals is
9275, and the low is 9125. The closing price in the current period is 9267.
This is what you get if you substitute those values in the equation:
%R = ( (9275 - 9267) / (9275 - 9125) ) x 100
= (8 / 150) x 100
= 5.33
%Rt = ( (Closet - Lown) / (Highn - Lown) ) x -100
164
Track ‘n Trade High Finance
Using Indicators
Buy/Sell Signal
A buy signal occurs when the %R line crosses from below the lower threshold to above the lower
threshold. A sell signal occurs when the %R line crosses from below the upper threshold to below
the upper threshold.
Preferences
Open the Preferences Tab in your Control Panel. Select the %R quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
%R: Choose the color, line style, and line
thickness of your line.
Calculation: Choose between common or
updated calculations.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 80
and 20).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
165
Using Indicators
%R Period: The number of price bars, or
the interval, used to calculate the study.
Default is 10
Chapter 8
Relative Strength Index (RSI)
The RSI was developed by J. Welles Wilder, Jr., as a measure of the market’s strength or
weakness. The principle idea of this study is that it will indicate a general zone that the market
is in, either the buy zone or the sell zone. This indicator is similar to Stochastics in that it shows
regions of overbought and oversold. This indicator should be incorporated into a system rather
than using it by itself. Wilder’s popular indicator is known for its accuracy and its ability to
compensate for erratic price movement.
Using Indicators
RSI computes the difference in recent prices as a solid line and plots this line on a scale similar
to the scale used by Stochastics. The area above 70 is generally considered to be the overbought
region, and the region below 30 is referred to as the oversold region. Simply selling in the
overbought region and buying when the RSI is in the oversold region is not a consistent method
of trade. Trade signals are not generated until the RSI leaves these regions. A sell signal would
not be present until the RSI has begun sloping down and leaves the 70 region.
A buy signal, in the simple methodology associated with this pattern, is derived when RSI leaves
the oversold region, crosses from below 30 to above it. Just like sell signals, RSI buy signals are
present when the market begins to turn and the indicator leaves the oversold region.
Another use of the RSI is to look for a divergence in prices, in the case of a market making
higher highs or lower lows and the RSI failing to follow suit. This difference in the indicator and
the market could be a signal that the market lacks the momentum to continue its current price
direction. So, you may be able to take a position sooner using this strategy, than you would with
the previous way. Wilder says that this divergence is “the single most indicative characteristic of
the RSI.”
In its calculation the RSI indicator uses a moving average of price changes over the period. You
can select which type of moving average is used to produce the desired amount of smoothing on
the RSI indicator.
Calculation
The RSI computations are not difficult, but they are tedious. You first calculate the difference
between the current closing price and the previous closing price:
DIFt = Closet - Closet-1
If that difference is a positive value, then it is an up period, which means the current close is
higher than the previous close. If the difference is negative, then it is a down period, which means
the current close is below the previous close. The DOWN value is always a positive number
for all computations. It is the absolute value of a negative DIF. The worksheet on the next page
shows the calculations needed to create a 9 period RSI.
166
Track ‘n Trade High Finance
Using Indicators
Day
1
2
3
4
5
6
7
8
9
Current
Close
7450
7460
7470
7480
7485
7490
7480
7470
7455
Previous Dif
Close
7430
+20
7450
+10
7460
+10
7470
+10
7480
+5
7485
+5
7490
-10
7480
-10
7470
-15
Totals
Up
20
10
10
10
5
6
0
0
0
60
Down
0
0
0
0
0
0
10
10
15
35
You now compute the up and down averages:
Using Indicators
Ut = (UP1 +... + UPn) / n
Dt = (DOWN1 +... + DOWNn) / n
UT: The up average for the current period.
DT: The down average for the current period.
UPn: The UP value for the nth period.
DOWNn: The DOWN value for the nth period.
n: The number of periods for the RSI.
Use the values from the worksheet to find the up average:
U = 60 / 9
= 6.67
Use the same values to find the down average:
D = 35 / 9
= 3.89
The general formula for the RSI:
RSIt = ( UT / (UT + DT) ) x 100 Track ‘n Trade High Finance
167
Chapter 8
Use the general formula with the above values:
RSI = ( 6.67 / ( 6.67 + 3.89 )) x 100
= 63.16
Assume the market continues the downward trend. The next DIF value is -15, which sets the UP
value to 0 and the DOWN value to 15. Calculate the next up and down average by using Wilder’s
accumulative moving average technique:
UT = ( (UT-1 x (n-1) ) + UPt) / n
= ( (6.67 x (9 -1) ) + 0) / 9
= 5.93
Using Indicators
DT = ( ( DT-1 x (n-1) ) + DOWNt) / n
= ( ( 3.89 * (9 - 1) ) + 15) / 9
= 5.12
The value for the new RSI equals 53.67:
RSI = ( (5.93) / (5.93 + 5.12)) x 100
= 53.67
Buy/Sell Signals
A buy signal occurs when the RSI line crosses from below the lower threshold to above the lower
threshold. A sell signal occurs when the RSI line crosses from above the upper threshold to below
the upper threshold.
168
Track ‘n Trade High Finance
Using Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the RSI quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
RSI Period: The number of bars, or period,
used to calculate the study. Default is 14.
RSI: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 70
and 30).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
169
Using Indicators
Calculation: Choose between Exponential,
Simple, and Wilder’s Smoothing
calculations.
Chapter 8
Slow Stochastics (SSTO)
The slower version of Stochastics is commonly believed to be a more reliable indicator. In this
version of Stochastics, the more sensitive %K line is dropped. The original %D now becomes the
slower line %K. The new %D is a 3-day moving average of the %K. This basically gives you a
smoothed version of the original indictor. This modified counter trend indicator is less reactive
but considered to be more accurate.
Slow Stochastics are interpreted the same as Fast Stochastics. Quite often the faster of the two
indicators moves in and out of the overbought/oversold regions quickly.
Calculation
Using Indicators
The calculations for the slow stochastic are similar to the normal stochastic. The first step in
computing the stochastic indicator is to determine the n period high and low. Suppose you
specified twenty periods for the stochastic. Determine the highest high and lowest low during
the last twenty trading intervals. It determines the trading range for that time period. The trading
range changes on a continuous basis.
The calculations for the %K is here:
%Kt = ( (Closet - Lown) / (Highn - Lown) ) x 100
%Kt: The value for the first %K for the current time period.
Closet: The closing price for the current period.
Lown: The lowest low during the n periods.
Highn: The highest high during the n time periods.
n: The value you specify.
Once you obtain the %K value, you start computing the %D value, which is an accumulative
moving average. Since the %D is a moving average of a moving average, it requires several
trading intervals before the values are calculated properly. If you specify a 20 period stochastic,
the software system requires 26 trading intervals before it can calculate valid %K and %D values.
The formula for the %D is here:
%DT = ( (%DT-1 x 2) + %Kt) / 3
%DT: The value for %D in the current period.
%DT-1: The value for %D in the previous time period.
%Kt: The value for %K in the current period.
The values 2 and 3 are constants. You specify the constants and the length of the time period to
examine for the trading range.
170
Track ‘n Trade High Finance
Using Indicators
Once the %K and %D values for the normal stochastic are derived, the slow stochastic can be
computed. The formula for the slow stochastic is here:
%KSLOW = %DNORMAL
%DSLOWt = ( ( %D SLOWt-1 x 2 ) + %K SLOWt-1 ) ) / 3
%KSLOW: The %D for the normal stochastic.
%DSLOWt: Slow %D value for the current period.
%DSLOWt-1: The slow %D for the previous period.
%KSLOWt-1: The slow %K for the previous period.
The values 2 and 3 are the smoothing constants. You may select different values.
Buy/Sell Signals
A buy signal occurs when the %K line crosses from below %D to above %D and both lines are
less than the lower threshold. A sell signal occurs when the %K line crosses from above the %D
line to below the %D line and both lines are greater than the upper threshold.
Using Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the SSTO quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
171
Chapter 8
SSTO Period: The number of periods used
to determine the highest high and lowest
low. Default is 14.
Smoothing: The number of periods used to
determine the moving average for the %K
and %D values.
%K/%D: Choose the color, line style, and
line thickness of your %K and %D lines.
Calculation: Choose between Exponential,
Simple, and Wilder’s Smoothing
calculations.
Using Indicators
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 80
and 20).
Choose when you want Buy/Sell Arrows to
show and what color.
172
Track ‘n Trade High Finance
Using Indicators
Volume (VOL) (Stocks only)
Volume is a measurement of the number of contracts traded in a day. It is a sign of market
activity. In liquid markets, these numbers will be consistently higher than in a thin or illiquid
market. These numbers are always a day behind, because it takes the exchange that long to
tabulate these figures. When displayed, Track ‘n Trade High Finance offsets these values to put
them beneath their respective data in the chart, consequently there is not a value for volume for
the most recent day of any contract. Volume indicates participation and urgency. This tells the
trader which market is the correct one to be in based on its participation.
Volume measures the number of contracts that changed hands during that trading session. This
indicator of market activity can show whether trade was heavy or light. That will give you an idea
of the possible volatility present in that market. VOL does not give straight buy or sell signals
or have set trading rules. Rather it shows the cyclical tendencies of the market. The flow of the
underlying market can be represented. Looking at VOL shows whether new buyers or sellers are
entering the market or if they are liquidating positions.
In bull markets, volume tends to increase during rallies, and tends to decrease on reactions. In
bear markets, volume tends to increase on declines and decrease during rallies. Trading volume
usually increases dramatically at tops and bottoms. Looking at the volume can help you determine
the liquidity of the market.
Calculation
This study has no computations. The values for volume are transmitted from the exchanges. However, the actual volume figures are always one day behind price information. You will not know
Monday’s volume until Tuesday at approximately noon (for U.S. markets - central time). That is
due to the exchanges and their reporting requirements.
Track ‘n Trade High Finance
173
Using Indicators
There are basic common sense rules for this indicator. If the prices are up and VOL is increasing,
the market is strong. If the prices are up and VOL is declining, the market is getting weaker. If the
prices are down and VOL is rising, the market is getting stronger. If the prices are down and VOL
is declining, the market is getting weaker.
Chapter 8
Preferences
Open the Preferences Tab in your Control Panel. Select the VOL quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Volume: Choose the color, line style, and
line thickness of your Volume line.
Alternate: Select to view the Volume
indicator in two colors. Choose the color,
line style, and line thickness of your
Alternate line.
Using Indicators
Compare with: When the Alternate option
is selected, you can compare the price day
to day based on Previous Period Open (high,
low, and close) or the Current Period Open
(high or low).
Display as: The VOL indicator can be
displayed differently. From the dropdown
menu, choose either to view it as a line or as
a histogram.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 80
and 20).
174
Track ‘n Trade High Finance
Using Indicators
Overlay
Indicators in the Chart Window
There are two Overlay Indicators that can be displayed in the Chart Window, Moving Averages
and Bollinger Bands. To select these Indicators, right-click on the Chart Window and select the
name of the indicator that you would like to display on the chart.
Moving Average Lines
The moving average, or simple moving average, represents the average of the last several closing
prices. The moving average is simple to compute, easy to understand, and reliable under tests.
This simplicity is the strength of the moving average.
The basic moving average is computed the same as any other mathematical average. The most
common way of determining the moving average of a market is to take the closing price over a
certain number of days, add them together, and divide by the select number of days.
The purpose of the simple moving average is to track the progress of the trend. Moving averages
can potentially keep you in the trend for a long time. The moving average gives you an indication
of the trend being up (prices above the moving average) or down (below the moving average).
However, the moving average gives you no indication of the length or duration of the trend.
Double Moving Average
Double moving averages use two different averages in tandem. The first average is generally a
faster reacting average using a shorter period of time, usually 10 days. The second average is a
slower reacting average that will indicate longer-term price movement.
Using these two averages together helps to alleviate whipsaws by giving a basis of comparison.
The faster average breaking above the slower average is a buy signal, the faster average breaking
below the slower average is a sell signal.
When using two different moving averages the trader gets a clearer picture of price indications.
By combining a slower moving 20-day average, with a quicker reacting 10-day average, you can
see where the long-term indications are going.
You would sell once the faster moving average crosses below the slower trend because that’s an
indication of change in trend. Near-term prices should be rising at a greater rate than longer-term
prices in a good upward trending market, and vice versa for a down trend.
Track ‘n Trade High Finance
175
Using Indicators
Moving averages are generally thought to be indicators of trend. For example, conventional
interpretation is that once prices cross from below the moving average to above it, the trend is
considered up. On the other hand, if prices go from above the moving average to below it, the
trend of the market is considered down.
Chapter 8
Triple Moving Average
The system of triple moving averages is employed by plotting three different moving averages
together. The first of these averages is a faster average that only looks at the short-term price
direction. The second average is a medium average that reacts to a longer period of time, but not
as long as the final average. The third average is the slowest to react, because it takes an average
of the longest period of time.
Using Indicators
A 10, 20, and 40 day moving average system would be considered a triple moving average.
The first average, the 10-day, is the quickest to move when prices show a change. The second
average, the 20-day, is the medium average that does not show change until the prices have
moved for a longer period of time. Finally the slowest moving of the averages is the 40-day. This
slow average will not indicate a difference until prices have made a significant move. Shorterterm moving averages, being more sensitive to changes in price, are said to follow the trend
more closely. The middle or medium average would follow less closely and the slowest or least
sensitive average would lag the most.
The use of the triple moving average is to buy when all three averages move to be in an upward
trend or to sell when these averages are in a downtrend. The upward trend appears when the
fastest average is higher than both of the other averages, the medium is above the slowest, and the
longer term moving average is on the bottom.
This look would be reversed for a strong down trend with slow average on top, followed by the
medium average, and the fastest on bottom.
Calculation
The calculation for the moving average is here:
Mat = (P1 +... + Pn) / n
Mat: The moving average for the current period.
Pn: The price for the nth interval.
n: The length of the moving average.
Compute the average of the past n intervals using the price specified for that period. Now use
real values to compute a five interval moving average. If you assume the following prices, the
calculations are here:
MA = (7380 + 7375 + 7385 + 7390 + 7395) / 5
= 36925 / 5
= 7385
176
Track ‘n Trade High Finance
Using Indicators
The calculation for the Linearly Weighted is here:
Mat = [(P1 x (n –1)] + …+ [Pn x (n – n)]
Denom = n + n-1 + n-2 +…+ 1
MA = Mat / Denom
n: The length of the moving average.
Pn: The price for the nth interval.
MA: The moving average for the current period.
The calculation for the Exponential is here:
fPerc = 2 / (n + 1)
MAt = (P x fPerc) + [MA(t-1) x (1 – fPerc)]
Using Indicators
MA: The moving average for the current period.
t: The current time period.
Example of Moving Averages
Track ‘n Trade High Finance
177
Chapter 8
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the moving
average line on your screen. The preferences will appear in the Control Panel. (Once you click on
the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Line: Choose the color, line style, and line
thickness of your indicator line.
Using Indicators
Period: The number of bars, or interval, used
to calculate the moving averages. To add a
displacement, add a second number in the
period box (with only a space between the
two numbers.)
Type: Select Simple, Linear Weight, or Exponential.
Data: Select Open, High, Low, Close, Mean,
Median, or Mode.
178
Track ‘n Trade High Finance
Using Indicators
Bollinger Bands
Bollinger Bands are a type of trading envelope. They are lines at an interval around the moving
average. They consist of a moving average and two different standard deviations represented
as a line above the MA (Moving Average) and a line below the MA. The line above is the MA
plus two standard deviations; the line below is the MA minus two standard deviations. Bollinger
Bands are used to determine overbought and oversold conditions and to project price targets.
John Bollinger created Bollinger Bands in an effort to gauge the volatility and condition of a
market. These bands are used to determine the trading range and give an indication of when to
buy and when to sell. Bollinger Bands are also used to indicate market volatility, the wider the
bands the greater the volatility. Inversely, the narrower the bands, the lesser the volatility. By
plotting two lines at an interval around a moving average, Bollinger bands give a good indication
of market conditions and price relation. The moving average which the band is based on works as
an indicator to confirm trade signals.
Calculation
Subtract the moving average from each of the individual data points used in the moving average
calculation. This gives you a list of deviations from the average. Square each deviation and add
them all together. Divide this sum by the number of periods you selected.
Take the square root of d. This gives you the standard deviation.
Track ‘n Trade High Finance
179
Using Indicators
Calculate the moving average with this formula:
Chapter 8
Compute the bands by using the following formulas:
Pn: The price you pay for the nth interval.
n: The number of periods you select.
Buy/Sell Signals
Using Indicators
A buy signal occurs when a chart bottom is below the lower band followed by a bottom above
the lower band. A sell signal occurs when a chart top is above the uppermost band followed by
another top that is below the upper band.
180
Track ‘n Trade High Finance
Using Indicators
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the Bollinger
Bands line on your screen. The preferences will appear in the Control Panel. (Once you click on
the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period: The number of bars used to calculate
the study. John Bollinger, the creator of this
study, states that those periods of less than ten
days do not seem to work well for Bollinger
Bands. He says the optimal period for most
applications is 20 or 21. Default is 20.
Data: Select Open, High, Low, or Close.
% Deviation: The percent of one standard
deviation. John Bollinger suggests that
if you reduce the number of days used to
calculate the bands, you should also reduce
the number of deviations and vise versa.
For example, 200 percent of a standard
deviation means two deviations above and
two deviations below the moving average. If
you use a period of 50, you may want to use
250 percent of a standard deviation. For a
period of 10, you may want to use 150 or 100
percent.
Upper, Middle, Lower: Choose the color,
line style, and line thickness of your indicator
line.
Track ‘n Trade High Finance
181
Using Indicators
Type: Select Simple, Linear Weight, or
Exponential.
Using Indicators
Chapter 8
182
Track ‘n Trade High Finance
Advanced Indicators
Analyze the Signs and Signals
*Expansion Pack - Purchase Required
Track ‘n Trade High Finance
9
183
Advanced Indicators
Chapter 9
184
Track ‘n Trade High Finance
Advanced Indicators
Introduction
This section covers the basics of using the Advanced Indicator Expansion Pack. Learn about each
advanced indicator, its calculation and interpretation, and how to apply it in Track ‘n Trade High
Finance. The Advanced Overlay Indicators can be displayed in the Chart Window and select the
name of the Advanced Indicator that you would like to display.
Average True Range (ATR)
The Average True Range Indicator was developed by Welles Wilder to work with the commodity
industry. The purpose of the ATR is to recognize the level of volatility in a market.
Volatility is a measurement of the change in price over a given period. It is often expressed as a
percentage and computed as the annualized standard deviation of the percentage change in daily
price.
The ATR’s value is a measurement of the market volatility. When a market is increasing in
volatility the ATR will have a higher value, and when the market is decreasing in volatility the
ATR will have a lower value.
Calculation
The ATR is a moving average of the True Ranges defined below. The default period interval in
Track ‘n Trade High Finance is 5 days. The ATR is calculated based on the largest of the three
distances from the following:
Today’s HIGH to today’s LOW
Yesterday’s CLOSE to today’s HIGH
Yesterday’s CLOSE to today’s LOW
Track ‘n Trade High Finance
185
Advanced Indicators
When a market is going sideways, it typically exhibits low volatility and is difficult to trade. A
market with higher volatility is typically trending better which would produce more opportunities
to get into a trade. If a market’s volatility is too high, traders find that the market is too erratic,
and it becomes difficult to trade. In using the ATR, traders hope to measure the level of volatility
to help them interpret the different markets they are watching. It is important to remember to
consult other indicators or analysis so that you are not relying on only one indicator to determine
market entry or exit.
Chapter 9
Example of the ATR in the Indicator Window
Preferences
Advanced Indicators
Open the Preferences Tab in your Control Panel. Select the ATR quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period: Specify the number of days to be
used in calculating the ATR.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice.
186
Track ‘n Trade High Finance
Advanced Indicators
Percent Bollinger Bands (%B)
Bollinger Bands are calculated as a simple moving average shifted up and down by a number of
standard deviations. Percent Bollinger Bands relate the underlying price of an instrument to the
range of these Bollinger Bands. This gives the user an adaptive measure of volatility which can
be used in the same way as other momentum indicators. Buy when the indicator bottoms below
0.00 and turns up, and sell when the indicator peaks above 100.00 and turns down.
You can also use the indicator by looking for divergence between the indicator and the charts.
Sharp price advances and declines usually accompany market tops and bottoms, and as a market
climbs or falls toward a bottom, the indicator will tend to initially follow the price trend and then
fall off, leading to bullish or bearish divergences with the chart.
Buy Sell Signals
A buy signal occurs when %B value crosses from below the 0 line to above the 0 line. A sell
signal occurs when %B value crosses from above the 0 line to below the 0 line.
Open the Preferences Tab in your Control Panel. Select the %B quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
187
Advanced Indicators
Preferences
Chapter 9
Period: Specify the number of days to be
used in calculating the %B.
% Deviation: Define the displacement
between the bands.
Type: Choose from Simple, Linear Weight,
or Exponential.
Data: Choose from Open, High, Low, or
Close.
Display as: Choose to view as a Histogram
or Line.
Advanced Indicators
B+/B-: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
188
Track ‘n Trade High Finance
Advanced Indicators
Bollinger Bandwidth (BW)
Bollinger Bands measure volatility by placing bands on either side of a moving average. These
bands are charted two standard deviations away from the average. As the average changes, the
values of the two standard deviations also change. The Bollinger Bandwidth, developed by John
Bollinger, represents the expanding and contracting of the bands based on recent volatility.
During a period of rising price volatility, the distance between the two bands will widen (BB
Width will increase). Conversely, during a period of low market volatility, the distance between
the two bands will contract (BW will decrease).
The tendency is for the bands to alternate between expansion and contraction. When the bands
are unusually far apart, it is often a sign that the current trend may be ending. When the distance
between the two bands has narrowed, it is often a sign that a market may be about to begin a new
trend.
Calculation
The calculation of the BW is here:
Bollinger Bandwidth = [Top Bollinger Band (x periods)] - [Bottom Bollinger Band (x periods)] /
Simple Moving Average Close (x periods)
Example of the BW in the Indicator Window
Track ‘n Trade High Finance
189
Advanced Indicators
The BW gives an indication of how wide the Bollinger Bands are as a function of the middle
band. It is used to identify the squeeze at low values and the end of trends at high values.
Chapter 9
Preferences
Open the Preferences Tab in your Control Panel. Select the BW quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period: Specify the number of days to be
used in calculating the BW.
% Deviation: Define the displacement
between the bands.
Advanced Indicators
Type: Choose from Simple, Linear Weight,
or Exponential.
Data: Choose from either Open, High, Low,
or Close.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice.
190
Track ‘n Trade High Finance
Advanced Indicators
Chaikin Money Flow (CMF)
The Chaikin Money Flow Indicator is an oscillator developed by Marc Chaikin. An oscillator
is an indicator that is used as a counter trend showing when the market is overbought or
oversold. These indicators are momentum based. The CMF is based largely on the Accumulation
Distribution Line; it compares the close value with the high and the low for that same day.
By comparing the close to the high and low, the CMF is determining if the market has pressure
to sell or buy. In doing this, the CMF is giving an indication of overbought and oversold by using
these comparisons. If the market is consistently closing in the top region of the price bar and
there is an increase in volume (showing an increase in the number of trades) then CMF exhibits
a positive value. If the market is consistently closing in the bottom region of the price bar and
there’s an increase in volume, CMF exhibits a negative value.
When the CMF indicator crosses the zero line either up or down, this is an indication of a change
in trend. Traders use this indicator to help confirm breakout signals from either support or
resistance trend lines.
Advanced Indicators
Calculation
The calculation of the CMF is here:
CMF = SUM(AD, n) / SUM(VOL, n)
where n = Period
AD = VOL x (CL - OP) / (HI - LO)
AD stands for Accumulation Distribution
Buy/Sell Signals
A buy signal occurs when the CMF value crosses from below the 0 line to above the 0 line. A sell
signal occurs when the CMF value crosses from above the 0 line to below the 0 line.
Track ‘n Trade High Finance
191
Chapter 9
Preferences
Right-click on the CMF button in your Indicator toolbar and select CMF Settings. The
Preferences Tab will open in the Control Panel and the CMF preferences will be displayed. (Once
you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period: Specify the number of days to be
used in calculating the CMF.
CMF+/CMF-: Choose the color, line style,
and line thickness of your lines.
Advanced Indicators
Display as: Choose between displaying
CMF as a histogram or a line.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
192
Track ‘n Trade High Finance
Advanced Indicators
Gator (GTR)
Fractal geometry and nonlinear dynamics is used to create the method of calculations for the
Gator Indicator. Used in combination with the Alligator, an Overlay Indicator, the Gator has
proved to be effective at pinpointing large market trends.
The Gator was created on a relative scale; what seems to be a large move in the market today
may well be just a small move on the historical scale, since the Gator graphically represents itself
only against its own historical price line. As the market trends, the Gator will also trend, causing
historical representations of market momentum and movement to pale in comparison.
Preferences
Open the Preferences Tab in your Control Panel. Select the GTR quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Jaws, Teeth, Lips: Specify your periods and
shift specifications.
Type: Select Simple, Linear Weight, or
Exponential.
Data: Choose the data you would like to be
calculated.
Up/Down: Select the color of the histogram
when the value is up or down.
View up to four Thresholds at values and
colors of your choice.
Track ‘n Trade High Finance
193
Advanced Indicators
Restore Settings: TNT Default will change
your settings back to the original software
settings. My Default will change current
settings to your personalized default
settings. Apply To All Charts will apply
your selected settings on all open charts.
Save As My Default will save your current
personal settings.
Chapter 9
Know Sure Thing (KST)
The Know Sure Thing (KST) Indicator is an oscillator developed by Martin J. Ping that gives
bullish and bearish momentum signals. The difference between this indicator and other oscillators
is that it takes into consideration four time periods instead of only one. Each time period is
smoothed using a moving average. Also, each time period is weighted differently depending on
length, so a longer time period would have greater weight. Because of the consideration of the
various time periods, the KST is able to react quicker to price moves.
Watch for bullish and bearish momentum signals in the KST indicator. When the KST turns
upward, this is a bullish signal, and when the KST turns down, this is a bearish signal. More
confirmation is given when the trigger line crosses the KST line as a result of the change in
direction.
Advanced Indicators
There are two lines: the trigger line and the KST line. The KST line is a result of the four moving
averages smoothed as well as the Rate of Change or ROC. The trigger line is a moving average
of the KST.
Buy/Sell Signals
A buy signal occurs when the KST line is below the 0 line and crosses from below the trigger
line to above the trigger line. A sell signal occurs when the KST line above the 0 line and crosses
from above the trigger line to below the trigger line.
Preferences
Open the Preferences Tab in your Control Panel. Select the KST quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
194
Track ‘n Trade High Finance
Advanced Indicators
MA: Specify the number of days used in
calculating the period and ROC period of
the 1, 2, 3, and 4 moving average lines.
Trigger Period: Specify the number of
days used in calculating the trigger period.
Choose between a histogram or line.
Type: Choose if you would like to see KST
as a histogram or line.
Calculation: Choose between Simple,
Linear Weight, and Exponential.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
Track ‘n Trade High Finance
195
Advanced Indicators
KST/Trigger: Choose the color, line style,
and line thickness of your KST and trigger
lines.
Chapter 9
Money Flow Index (MFI)
The MFI is a momentum based indicator, similar to the RSI, %R, and CCI. The MFI incorporates
a more rigid calculation, giving the tell tale signs of a more rigid line and a better indication of
money flowing in or out of any given security.
The theory says that as money flows into the equity, or volume increases, the MFI will increase
its rate of climb. As money flows out of the equity, volume decreases, and the MFI will decrease
its rate of climb. The MFI is a classic overbought/oversold indicator based on a 0-100 scale.
When the MFI reaches up above the top threshold, which is traditionally set at 75-80%, the equity
is considered overbought and a retracement is anticipated. When the MFI line reaches below the
20-25% threshold, the underlying equity is considered oversold and a reversal is anticipated once
again.
Calculation
Advanced Indicators
The calculation of MFI is here:
Money Flow = (Typical Price) x (Volume)
Buy/Sell Signals
A buy signal occurs when the MFI line crosses from below the lower threshold to above the
lower threshold. A sell signal occurs when the MFI line crosses from above the upper threshold to
below the upper threshold.
Preferences
Open the Preferences Tab in your Control Panel. Select the MFI quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
196
Track ‘n Trade High Finance
Advanced Indicators
Period: Specify the number of days to be
used in calculating the MFI.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used at
the lower threshold (default values set at 75
and 25).
Choose when you want Buy/Sell Arrows to
show and what color.
Advanced Indicators
Track ‘n Trade High Finance
197
Chapter 9
On Balance Volume (OBV)
The OBV indicator adds a period volume when the close is up and then subtracts the period’s
volume when the indicator closes down. An accumulated volume total forms the OBV line.
When comparing this calculated price line, with the underlying security, we look for areas of
convergence and divergence to confirm our market’s directional movement.
The concept behind the OBV is that changes will be reflected in the OBV prior to the markets
change. A rise in volume is meant to indicate a rise in money inflows to the security. Once the
public continues to add money, the price of the equity should continue to rise.
Advanced Indicators
Directional movement in the indicator gives foresight into the market direction. A rise in the
OBV indicator gives the trader the indication that markets are on the rise; a dropping OBV is an
indication of a weakening market and lower prices are soon to follow.
When market divergence is seen within the OBV indicator, one must take heed that the market
is either weakening in a bullish trend, or strengthening in a bearish trend, and a market reversal
is about to occur. The actual calculated value of the line itself is of little use, but the visual
movement of the line is what’s important to the trader. An inclining line is the indication of a
strengthening market, and a declining line is representative of declining market strength.
Example of the OBV in the Indicator Window
Preferences
Right-click on the OBV button in your Indicator toolbar and select OBV Settings. The
Preferences Tab will open in the Control Panel and the OBV preferences will be displayed. (Once
you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
198
Track ‘n Trade High Finance
Advanced Indicators
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice.
Advanced Indicators
Track ‘n Trade High Finance
199
Chapter 9
Percent Price Oscillator (PPO)
The PPO indicator shows the relationship between two moving averages. The PPO indicator is a
modification of the highly regarded and effective MACD indicator. This enhancement provides
us the ability to receive the differences between the two moving averages as a percentage. This
allows the trader to easily compare stocks with different prices. For example, a PPO result of 20
means that the short term average is 20% above the long term average.
Calculation
To calculate the PPO, subtract the 26-day exponential moving average (EMA) from the nine-day
EMA and divide this difference by the 26-day EMA. The end result is a percentage that tells the
trader where the short-term average is relative to the longer-term average.
PPO = (Fast_EMA - Slow_EMA) / Fast_EMA
Advanced Indicators
Additionally, the PPO histogram can be calculated by using the MA of a PPO itself:
PPO_Histogram = PPO - EMA_PPO
Buy/Sell Signals
A buy signal occurs when the PPO line crosses from below the trigger line to above the trigger
line. A sell signal occurs when the PPO line crosses from above the trigger line to below the
trigger line.
Preferences
Open the Preferences Tab in your Control Panel. Select the PPO quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
200
Track ‘n Trade High Finance
Advanced Indicators
PPO Periods: Specify the number of days
to be used in calculating the PPO.
PPO: Choose the color, line style, and line
thickness of your PPO line.
Trigger: Specify the number of days used in
calculating the Trigger.
Line: Choose the color, line style, and line
thickness of your Trigger line.
Build With: Choose either Close, Open,
High, or Low to build with.
Track ‘n Trade High Finance
201
Advanced Indicators
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
Chapter 9
Price Volume Oscillator (PVO)
The PVO is primarily used to identify periods of expanding or contracting volume.
Centerline Crossovers: The PVO oscillates above and below the zero line. A PVO above zero
indicates that volume levels are generally above average and relatively heavy. When the PVO
is below zero, volume levels are generally below average and light. When PVO is positive, the
shorter EMA of volume is greater than the longer EMA of volume. When PVO is negative, the
shorter EMA of volume is less than the longer EMA of volume.
Advanced Indicators
Directional Movement: The general overall direction of the PVO gives the trader a visual of
market momentum and direction. A rising PVO signals volume levels are increasing, and a falling
PVO signals volume levels are decreasing.
Moving Average Crossovers: The last variable in the PVO forms the signal line. For example,
PVO (12,26,9) would include a 9-day EMA of PVO as well as a histogram representing the
difference between the PVO and its 9-day EMA. When PVO moves above its signal line, volume
levels are generally increasing. When PVO moves below its signal line, volume levels are
generally decreasing.
Movements in the PVO are completely separate from price movements. Movements in PVO can
correlate with price movements to assess the degree of buying or selling pressure.
Calculation
The calculation of PVO is here:
Volume Oscillator (%) - PVO = [(Vol 12-day EMA - Vol 26-day EMA)/Vol 12-day EMA] x 100
Increasing and decreasing the exponential moving average variables changes the PVO to reflect
a longer or shorter trading time period. The absolute values of the PVO indicator are not as
important as the crossovers of the moving averages as well as a crossover above or below the
zero line.
There are three additional methods on the next page of acquiring market strength and weakness
information from the PVO.
• When the PVO crosses above the zero line, volume is increasing and an increase in price is
anticipated.
• When the PVO crosses below the zero line, volume is decreasing and a decrease in price
and a weakening market are anticipated.
• Simple directional movement can be one of the greatest strengths of the PVO indicator.
When the line is ascending, volume is increasing, so therefore markets should increase.
When the line is descending, volume is decreasing, therefore the market should weaken and
decrease.
202
Track ‘n Trade High Finance
Advanced Indicators
Buy/Sell Signals
A buy signal occurs when the PVO line crosses from below the trigger line to above the trigger
line. A sell signal occurs when the PVO line crosses from above the trigger line to below the
trigger line.
Preferences
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
PVO Periods: Specify the number of days
to be used in calculating the PVO.
PVO: Choose the color, line style, and line
thickness of your line.
Trigger: Specify the number of days used in
calculating the trigger period.
Line: Choose the color, line style, and line
thickness of your trigger line.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
Track ‘n Trade High Finance
203
Advanced Indicators
Right-click on the PVO button in your Indicator toolbar and select PVO Settings. The Preferences
Tab will open in the Control Panel and the PVO preferences will be displayed. (Once you click
on the chart, the Preference tab will go back to chart settings.)
Chapter 9
Rate of Change (ROC)
The ROC indicator is used to help a trader determine the rate at which a market is either
increasing or decreasing in strength or weakness. A rising rate of change indicates an advancing
market, while a decreasing rate of change indicates a declining market. As the rate of change line
approaches the centerline, the rate of change is considered to be in equilibrium. This is somewhat
of a misnomer, since the ROC is on a relative scale and scales against historical rates. What is
equilibrium today will not be the equilibrium line down the road, and what is not equilibrium
today will appear to be so from a historical point of view.
Advanced Indicators
Comparing the ROC’s of different time-spans improves the accuracy of the analysis. A 12 month
period is usually the most reliable for long-term trends, and a 3 or 6 month period works well for
intermediate trends. A 10 or 12-day ROC is a good short-term indicator, oscillating in a fairly
regular cycle.
The lower the ROC, the more undersold the market and the more likely a recovery. Although
the opposite may hold true in that the higher the ROC, the more overbought the market, both
extremes can indicate the formation of a sideways channel.
Calculations
The calculation for the ROC is here:
ROC = 100 x (Today’s close - Close 10 periods ago) / (Close 10 periods ago)
Preferences
Open the Preferences Tab in your Control Panel. Select the ROC quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
204
Track ‘n Trade High Finance
Advanced Indicators
Period: Specify the number of days to be
used in calculating the SRSI.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice.
Advanced Indicators
Track ‘n Trade High Finance
205
Chapter 9
Stochastic Relative Strength Index (SRSI)
The Stochastics indicator is an oscillator that compares a securities closing price in relationship
to its price range over a given period of time. The RSI indicator is also an oscillator which
represents the internal strength of the equities price. Both these indicators work on an overbought
and oversold formula.
Advanced Indicators
The Stochastics RSI is a combination of these two indicators, where the %K within the
Stochastics formula is replaced by the RSI. The formula is then set on a 0 to 100 scale for both
the Stochastics indicator as well as the RSI is read in much the same manner as the traditional
RSI. When the SRSI reaches up into the upper region above the upper threshold line, the market
is considered overbought and anticipate a reversal of the trend. When the SRSI reaches down into
the lower region below the lower threshold, the market is considered oversold and a reversal is
anticipated. Traditionally, the upper threshold marker is set at 70% and the lower marker is set at
30%.
Calculation
The calculation for the SRSI is here:
StochRSI = (RSI - LowRSIn) / (HighRSIn - LowRSIn)
RSI: The current level of the RSI indicator.
LowRSIn: The lowest level the RSI reached over the last n periods.
HighRSIn: The highest level the RSI reached over the last n periods.
Buy/Sell Signals
A buy signal occurs when the SRSI line crosses from below the lower threshold to above the
lower threshold into the channel. A sell signal occurs when the SRSI line crosses from above the
upper threshold to below the upper threshold into the channel.
206
Track ‘n Trade High Finance
Advanced Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the SRSI quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
SRSI Period: Specify the number of days to
be used in calculating the SRSI.
Underlying RSI Period: Specify the
number of days used in calculating the
Underlying RSI.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 70
and 30).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
207
Advanced Indicators
Calculation: Choose from Exponential,
Simple, or Wilder’s Smoothing.
Chapter 9
Triple Exponential Average (TRIX)
The TRIX indicator is a momentum indicator designed to calculate the percent rate of change of a
triple exponentially smoothed moving average. It is very similar in the way the MACD indicator
works. Both indicators provide basically the same methodology behind generating market
momentum and directional movement.
TRIX was designed to filter out the minor, less significant moves within a market trend. This
is done, just as other traditional indicators have done in the past, by utilizing multiple moving
averages.
Convergence and Divergence are common uses of the TRIX indicator. Adding the trigger line
crossover provides the trader with a Buy/Sell Signal generated from the crossing of the two
moving averages.
Advanced Indicators
Calculation
To calculate TRIX, first pick a period with which to create an exponential moving average of the
closing prices. For a 15-day period the calculations would look like this:
Calculate the 15-day exponential moving average of the closing price.
Calculate the 15-day exponential moving average of the moving average calculated in step #1.
Calculate the 15-day exponential moving average of the moving average calculated in step #2.
The result is triple exponentially smoothing the moving average of closing prices, greatly
reducing volatility.
Finally, calculate the 1-day percent change of the moving average calculated in step #3.
Buy/Sell Signals
A buy signal occurs when the TRIX value crosses from below the trigger line to above the trigger
line. A sell signal occurs when the TRIX value crosses from above the trigger line to below the
trigger line.
208
Track ‘n Trade High Finance
Advanced Indicators
Preferences
Open the Preferences Tab in your Control Panel. Select the TRIX quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period: Specify the number of days to be
used in calculating the SRSI.
Line: Choose the color, line style, and line
thickness of your line.
Line: Choose the color, line style, and line
thickness of your trigger line.
Display as: Choose if you want to see a
histogram or line.
View up to four Thresholds at values and
colors of your choice. Choose when you
want Buy/Sell Arrows to show and what
color.
Track ‘n Trade High Finance
209
Advanced Indicators
Trigger Period: Specify the number of days
used in calculating the Underlying RSI.
Chapter 9
Ultimate
Oscillator (ULT)
This is another indicator introduced by Mr. Larry Williams. It seems to be another modification of
the RSI indicator, as is his %R indicator. If you lay the three indicators on your chart, you’ll see
many similarities. The advantage of the ULT indicator is that the trader is given two additional
variables in the formula to modify and finetune the action and reaction to the market price.
This indicator, as with the RSI indicator, works on an overbought and oversold region. Mr.
Williams states that the upper threshold should start at 70% and the lower threshold at 30%, but
depending on the market, the volatility, and the settings, you may need to adjust the thresholds to
either higher or lower settings to obtain signals.
Advanced Indicators
Once the ULT line crosses above the upper threshold into the overbought region, it is time to
anticipate a reversal in price and lower prices to ensue. When the ULT line crosses below the
lower threshold, it is time to anticipate a reversal in price and anticipate prices to rise once
again. Many traders like to use a 50% line to reconfirm price action. Crossing the 50% line is a
confirmation of the overall trend.
Calculation
The True Low (TL) is the lower of today’s low or yesterday’s close. Calculate today’s Buying
Pressure (BP) like this:
BP = Today’s close - Today’s TL
Calculate today’s True Range (TR) by finding the largest outcome of one of the following
equations:
TR = Today’s High - Today’s Low
Today’s High - Yesterday’s Close
Today’s Close - Today’s Low
Calculate BPSum1, BPSum2, and BPSum3 by adding up all of the BPs for each of the three
specified time frames. Calculate TRSum1, TRSum2, and TRSum3 the same way with the TR’s.
The Raw Ultimate Oscillator (RawUO) is calculated here:
RawUO = 4 x (BPSum1 / TRSum1) + 2 x (BPSum2 / TRSum2) + (BPSum3 / TRSum3)
The Final Ultimate Oscillator is calculated here:
FUO = [ RawUO / (4 + 2 + 1) ] x 100
210
Track ‘n Trade High Finance
Advanced Indicators
Buy/Sell Signals
A buy signal occurs when the ULT line crosses from below the lower threshold to above the
lower threshold. A sell signal occurs when the ULT line crosses from above the upper threshold
to below the upper threshold.
Preferences
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
ULT Periods: Specify the number of days
to be used in calculating the SRSI.
Line: Choose the color, line style, and line
thickness of your line.
View up to four Thresholds at values and
colors of your choice. When calculating
buy/sell signals, Threshold 1 is used as the
upper threshold and Threshold 2 is used as
the lower threshold (default values set at 70
and 30).
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
211
Advanced Indicators
Open the Preferences Tab in your Control Panel. Select the ULT quick link at the right of the
indicator window. (Once you click on the chart, the Preference tab will go back to chart settings.)
Chapter 9
Advanced Overlay Indicators
Advantage Lines
Advantage lines were created in an attempt to help eliminate whipsaw from a short-term moving
average trading system. The main advantage of a short term moving average trading system is
that it provides early entry signals to potential trading opportunities and trend reversals. This is
also the disadvantage to the same system.
Advanced Indicators
Due to the early entry notification, you receive a lot of false signals, better known as whipsaw.
To help eliminate many of these false signals, Mr. Turner created the Advantage Lines, which
significantly help in reducing whipsaw, but also somewhat delayed the early entry signals. To
enhance and help in getting back the early entry signals, the “projection” part of this indicator
actually projects forward where we anticipate tomorrow’s lines to be, and let us know if we are
“anticipating” a crossover or not.
Example of Advantage Lines
212
Track ‘n Trade High Finance
Advanced Indicators
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the Advantage
Line on your screen. The preferences will appear in the Control Panel. (Once you click on the
chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Period 1,2: Specify your periods by
dragging the slider up or down.
Lines: Choose the color, line style, and line
thickness of your lines.
Track ‘n Trade High Finance
213
Advanced Indicators
Choose when you want Buy/Sell Arrows to
show and what color.
Chapter 9
Alligator
A unique use of fractal geometry and nonlinear dynamics is used to create the method of
calculations for the Alligator Indicator. Used in combination with the Gator Indicator, the
Alligator has proved to be effective at pinpointing large market trends.
Components
Alligator’s Jaw (blue line): The Balance Line for the timeframe that was used to build the chart
(13 period Smoothed Moving Average, moved into the future by 8 bars).
Alligator’s Teeth (red line): The Balance Line for the value timeframe of one level lower (8
period Smoothed Moving Average, moved by 5 bars into the future).
Advanced Indicators
Alligator’s Lips (green line): The Balance Line for the value timeframe, one more level lower (5
period Smoothed Moving Average, moved by 3 bars into the future).
The Lips, Teeth, and Jaw of the Alligator show the interaction of different time periods. As clear
trends can be seen only 15 to 30 percent of the time, it is essential to follow them and refrain from
working on markets that fluctuate only within certain price periods.
When the Jaw, Teeth and Lips are closed or intertwined, the Alligator is going to sleep or is
asleep already. As it sleeps, it gets hungrier and hungrier: the longer it sleeps, the hungrier it will
be when it wakes up. The first thing it does after it wakes up is to open its mouth and yawn. Then
the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to
hunt it. Having eaten enough to feel quite full, the Alligator starts to lose interest in the food/price
(Balance Lines join together), and this is the time to fix the profit.
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the Alligator
line on your screen. The preferences will appear in the Control Panel. (Once you click on the
chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
214
Track ‘n Trade High Finance
Advanced Indicators
Jaws, Teeth, Lips: Specify your periods and
shift specifications.
Type: Select Simple, Linear Weight, or
Exponential.
Data: Select Open, High, Low, or Close.
Jaws, Teeth, Lips: Choose the color, line
style, and line thickness of your indicator
line.
Advanced Indicators
Track ‘n Trade High Finance
215
Chapter 9
Donchian Channels (DON)
Donchian Channels were created by Richard Donchian, an expert in trends. The DON is a simple
trend breakout system. The channel works well in trending markets, but not as well in sideways
moving markets.
Donchian Channels measure volatility by placing bands at a specified period deviation. These
bands are charted two standard deviations from the market price. As the market price changes,
the value of two standard deviations also changes. This value is what comprises the Donchian
Channel’s band width, representing the expanding and contracting of the bands based on recent
price volatility.
Calculation
Advanced Indicators
The calculation of the DON is here:
Donchian Channel High = MAX (HI, n)
Donchian Channel Low = MAX (LO, n)
Example of Donchian Channels
216
Track ‘n Trade High Finance
Advanced Indicators
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the Donchian
Channels line on your screen. The preferences will appear in the Control Panel. (Once you click
on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Donchian Period: Specify the number of
days in a period.
Upper, Lower: Choose the color, line style,
and line thickness of your indicator line.
Advanced Indicators
Track ‘n Trade High Finance
217
Chapter 9
Keltner Bands
Kelter Bands were developed by Chester Keltner and Modified by Linda Raschke. They are
traditional moving average envelopes based on Exponential Moving Averages. The probability
is that prices will remain within the channel, as with all band-type indicators. A break above the
channel is an anticipation of higher prices. When prices close below the lower band, we anticipate
lower prices.
The middle line (20 period EMA) in a rising market should provide support. In a falling market,
the middle line should provide resistance. Keltner Bands, as with any moving average indicator,
seem to work great in strongly tending markets, but not so well in sideways markets. Just like all
trend-following systems, the Keltner Bands are not meant to spot tops or bottoms. Use the Keltner
Bands in conjunction with other indicators such as RSI or MACD. Using it in combination with
either of these will help provide verification of the strength of a market.
Advanced Indicators
Example of Keltner Bands
218
Track ‘n Trade High Finance
Advanced Indicators
Calculation
The calculation for the top, or Plus Band, is here:
2 (ATR over 10 periods) + (20 period exponential moving average)
The calculation for the bottom, or Minus Band, is here:
2 (ATR over 10 periods) - (20 period exponential moving average)
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the Keltner
Bands line on your screen. The preferences will appear in the Control Panel. (Once you click on
the chart, the Preference tab will go back to chart settings.)
Period: Specify the number of days used.
Type: Select Simple, Linear Weight, or
Exponential.
Band Calculation: Select Original or ATR
and enter values of your own.
Upper, Middle, Lower: Choose the color,
line style, and line thickness of your indicator line.
Track ‘n Trade High Finance
219
Advanced Indicators
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Chapter 9
Parabolic Stop and Reversal (PSAR)
The Parabolic SAR, developed by Welles Wilder, creator of RSI and DMI, sets trailing price
stops for either long or short positions. Also referred to as the stop-and-reversal indicator,
Parabolic SAR is more popular for setting stops than for establishing direction or trend. Wilder
recommended establishing the trend first, and then trading with Parabolic SAR in the direction
of the trend. If the trend is up, but the underlying price drops back below the trailing PSAR
indicator, then sell or liquidate your long position. If the trend is down, and the underlying price
rises above the trailing PSAR indicator then buy or liquidate your short position.
Calculation
Once the market establishes a direction, the initial SAR becomes the extreme price for the
two intervals. The extreme price is either the lowest price or highest price for the two trading
intervals. The short position uses the high, and the long position uses the low.
Advanced Indicators
The calculation for the PSAR is here:
SARt = SARt-1 + [ a x ( EPtrade - SARt-1) ]
SARt: The stop and reverse price for the current interval.
SARt-1: The stop and reverse price for the previous interval.
a: The acceleration factor.
EPtrade: The extreme price for the trade.
The SAR is always the “stop and reverse” price point. This is the point you would want to
liquidate your current position and establish the opposite position.
The acceleration factor, a, is a weighting factor. In Wilder’s work, the initial value for the
acceleration factor is .02. The acceleration factor increases by a value of .02 each time the
extreme price changes for the trade. You do not increment the acceleration factor if the extreme
price fails to change. The value for a, the acceleration factor, never exceeds .20 in Wilder’s
methodology.
The extreme price (EP) for the trade is the highest or lowest price achieved during the trade. If
you have a long position, use the new highs as the extreme price. When you have a short position,
use the new lows as the extreme price. The extreme price concept allows for normal market
corrections without immediately triggering the SAR price. It keeps the SAR price moving in the
direction of the market.
220
Track ‘n Trade High Finance
Advanced Indicators
Example of PSAR
Advanced Indicators
Track ‘n Trade High Finance
221
Chapter 9
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the PSAR on
your screen. The preferences will appear in the Control Panel. (Once you click on the chart, the
Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Initial, Additional, Limit: Specify the
calculation number you would like each
section of the indicator.
Advanced Indicators
Style: Choose how you would like the
indicator displayed. Select squares, crosses,
dots, or lines.
Color: Select the color of the indicator.
222
Track ‘n Trade High Finance
Advanced Indicators
Pivot Points
Pivot points used to be referred to as “traders numbers” because of the popularity of these points
amongst floor traders. The theory behind them is that markets tend to have overlap from one
period to another. On most days, the daily high or low is within the previous day’s range, as with
the previous week’s extremes, and previous month’s extremes. In this sense, pivot points are a
counter trend indicator.
However, many traders believe that once one point is violated, the next point will be tested,
making a violation of these support and resistance levels a clue in trend following. Though we
cannot vouch for the truth of this statement, the popularity of pivot points amongst floor traders
tends to make these points worth watching.
The popularity of these numbers can be seen on any day when the exchanges are cleaned-up. The
trading floor is literally piled high with folded pieces of paper that contain pivot points calculated
on them.
The opposite is true for support levels. A violation of the daily pivot to the downside indicates
that the daily trend is down, with a downside target being the first support level. If the market
stalls, then traders may wish to take profits on short positions, or initiate long positions in
anticipation of a retracement to the daily pivot. However, if the first support level is violated,
the day is said to be a strongly down trending day, and as such should move down further to test
the second support level. As with the resistance numbers, the support numbers, once violated,
become resistance lines to trade with in the trend.
Though originally used as a means for floor trading, longer-term traders can use pivot points for
longer periods. Try plotting the weekly pivot points on the daily chart and using it for shorter
term positioning on the daily charts. Pivot points can also be calculated using the monthly pivot
points on the daily chart, and used for longer-term positions.
Track ‘n Trade High Finance
223
Advanced Indicators
The uses of pivot points varies greatly by trader. The most common function of the daily pivot
is as a guide. If prices are trading above the pivot point, then the trend is considered up. Traders
may wish to take short-term positions on a violation of the daily pivot to the upside with an initial
upside objective of the first resistance level. If prices stall or slow at the first resistance level, then
aggressive traders may wish to take profits. However, if the first Resistance level is violated to the
upside, then the market should go on to test the second resistance level. If prices have violated the
1st resistance level, then this level should act as support on future pullbacks, as should the pivot
point.
Chapter 9
Advanced Indicators
Example of Pivot Points
Calculation
There are several methods used to determine the Pivot Point. We have included the three different
formulas in Track ‘n Trade 5.0.
Traditional formulas:
Pivot Point = (H + L + C)/3
First Support Line = (2 x Pivot Point) - H
First Resistance Line = (2 x Pivot Point) - L
Second Support Line = Pivot Point - (H - L)
Second Resistance Line = Pivot + (H - L)
224
Track ‘n Trade High Finance
Advanced Indicators
Variation 1:
This method changes the formula used to derive the Pivot Point. The changes include adding the
trading day’s open and calculating the average of the four values. With this variation, one takes
into account both opening gaps and overnight trading. The calculation is here:
Pivot Point = (H* + L* + C* + O**) / 4
*=Yesterday
**=Today
Variation 2:
This method changes the formula used to derive the Pivot Point as well. In this method you
substitute yesterday’s close with today’s open. Variation 2 also takes into account opening gaps
and overnight trading. The calculation is here:
Pivot Point = (H* + L* + O**) / 3
Open the Preference tab from the Control Panel on the left of your screen. Select the Pivot Points
on your screen. The preferences will appear in the Control Panel. (Once you click on the chart,
the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
225
Advanced Indicators
Preferences
Chapter 9
Pivot Points: Check the boxes to view
different support and resistance lines.
Change the color, style, and thickness of the
lines.
Calculation: Select Traditional, Variation 1,
or Variation 2.
Display Settings: Check to display
Historical, Daily, Weekly, or Monthly pivot
points.
Advanced Indicators
Select if you would like to see the Moving
average line and enter the number of price
bars you would like to be used to calculate
it.
Font: Select the font, size, and color of the
text. You can also choose to bold or italicize
your text and change the background color.
226
Track ‘n Trade High Finance
Advanced Indicators
10x8 Moving Average Calculation
Just as it is easier to ride a bike downhill than uphill, it seems prices fall faster than they rise. Due
to this perceived quirk in pricing, the legendary market analyst, author, and seminar speaker, Jake
Bernstein, developed the 10x8 moving average system.
This system uses two simple moving averages, but they are calculated in a slightly different
manner than those traditionally used. The first moving average is a moving average of the daily
highs, as opposed to that of the daily settlement. The second moving average is calculated using
the daily lows.
Though Mr. Bernstein recommends using a 10 period moving average of the daily highs and an
8 period moving average of the daily lows based on his observation that prices tend to fall about
20% faster than they rise, any combination would do the trick. Generally, accepting market lore
that prices fall faster than they rise, the moving average of the lows should be of shorter term
duration than that of the highs.
Example of a 10x8 MAC
Track ‘n Trade High Finance
227
Advanced Indicators
The most basic use of the 10x8 Moving Average is to look for a breakout above the upper moving
average to initiate a buy signal. When the daily settlement price exceeds the average high of the
last 10 days, this indicator flashes a buy signal indicating that the trend of the market should be
up.
Chapter 9
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Select the 10x8 MAC
line on your screen. The preferences will appear in the Control Panel. (Once you click on the
chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Display 10x8 MAC, 3x3 MAC: Check the
boxes to display the lines you would like to
see.
Advanced Indicators
Line: Choose the color, line style, and line
thickness of your indicator line.
Type: Select Simple, Linear Weight, or
Exponential.
Data: Select Open, High, Low, Close,
Mean, Median, or Mode.
228
Track ‘n Trade High Finance
Advanced Indicators
Zig Zag
The Zig Zag Indicator acknowledges minimum price changes and ignores those that do not fit the
criteria.
Calculation
A Zig Zag set at 10% with OHLC bars would yield a line that only reverses after a change from
high to low of 10% or greater. All movements less than 10% would be ignored. If a commodity
traded from a low of 100 to a high of 109, the Zig Zag would not draw a line because the move
was less than 10%. If the stock advanced from a low of 100 to a high of 110, then the Zig Zag
would draw a line from 100 to 110. If the commodity continued on to a high of 112, this line
would be extended to 112 (100 to 112). The Zig Zag would not reverse until the commodity
declined 10% or more from its high. From a high of 112, a commodity would have to decline
11.2 points (or to a low of 100.8) for the Zig Zag to reverse and display another line.
Preferences
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Track ‘n Trade High Finance
229
Advanced Indicators
Open the Preference tab from the Control Panel on the left of your screen. Select the Zig Zag line
on your screen. The preferences will appear in the Control Panel. (Once you click on the chart,
the Preference tab will go back to chart settings.)
Chapter 9
% Change Sensitivity: Change the percent
of calculation.
Line: Choose the color, line style, and line
thickness of your indicator line.
Retracements Line, Alt: Choose the
color, line style, and line thickness of the
retracement lines.
Select Show Retracement Target, Show
as Percent, Show Retracements, or
Show Alternative Retracements to show
percents, retracements, and alternative
retracements.
Advanced Indicators
Number of Alternative Lines: Enter the
amount of alternative retracement lines you
want to show on the chart.
Font: Select the font, size, and color of the
text. You can also choose to bold or italicize
your text. Select the checkbox next to Show
Text to hide or show your text on the chart.
Choose when you want Buy/Sell Arrows to
show and what color.
230
Track ‘n Trade High Finance
Accounting & Simulator
*Expansion Pack - Purchase Required
Track ‘n Trade High Finance
10
231
Accounting & Simulator
Chapter 10
232
Track ‘n Trade High Finance
Accounting & Simulator
Introduction
The Accounting & Simulator Expansion Pack helps you keep track of your profits and losses,
simulate trading, and perfect your trading strategy. You will be able to view your open and closed
orders, your account activity, and keep track of your broker fees and pip spreads. The Accounting
Simulator Window will be on the bottom of your screen, below the Chart Window. The buttons
on the left of the Accounting Simulator Window are referred to as your Accounting Control Panel,
see below.
Control Panel
Open Profit
Closed Profit
Track ‘n Trade High Finance
233
Accounting & Simulator
Once you have open orders that have filled, they will show up under the Open Profit
button. The Closed Profit button will show all closed orders, and the Account Activity
button shows all of your account activity from deposits and withdrawals to open and
closed orders. The Order, Deposit, and Withdrawal buttons below pull up screens
that help you place orders, make deposits, and create withdrawals. Using the
Accounting Control Panel, it is easy to see where you stand as far as your profits and
losses and also view specific information as the screenshots below demonstrate.
Chapter 10
Account Activity
* On Forex the ‘Holdings’ column will be ‘Open Profit’
Simulation Tools
Accounting & Simulator
The following Simulation Tools will help you simulate your trading experience on your chart.
uy/Sell - Select the Buy/Sell button to place an order on a chart. Click on the button and
B
then on your chart and your order screen will open.
Autofollow Mode - (Green) Automatically play your open charts with incoming data.
Simulation Mode - (Red) Activates Play Controls.
Play to Date - Play all charts open to a certain date. Select this button and a window with a
calendar will show. Select the date in history you want the chart to play to and click OK.
Play Controls
Beginning - Chart will go to the first day the stock traded.
Jump Back - Chart skips several intervals back.
Step Back - Chart plays only one interval back.
Rewind - Automatically plays chart back fast at one step intervals.
Reverse Play - Automatically plays chart back slowly at one step intervals.
Stop - Stops any automatic play action on a chart.
Play - Automatically plays chart forward slowly at one step intervals.
Fast Forward - Automatically plays chart forward fast at one step intervals.
Step Forward - Chart plays only one interval forward.
Jump Forward - Chart skips several intervals forward.
Play to End - Chart will go to the last day the stock traded.
Center Chart - Center existing tics on all charts open in your chart widow.
234
Track ‘n Trade High Finance
Accounting & Simulator
Setting Up your Stocks Account
When you click on order or deposit for the first time
the screen to the left will appear. Select the date
and amount of your first deposit, then select which
options you would prefer for your trading account.
These options can not be changed once they are set.
Then click on OK.
Setting Up your Forex Account
When you click on order or deposit for the first time
the screen to the left will appear. Select the date and
amount of your first deposit, then select the Lot Size
and Account Leverage in your Forex Account. These
options can not be changed once they are set. Then
click on OK.
Think of your Accounting Simulator as a bank
account. You need to deposit money before you
can use it. You can also withdraw money when you
would like, or you may need to deposit more money
if you spend what is already in your account. The
first thing you will need to do is make a deposit.
To make a deposit, click on the Deposit button
on the Accounting Control Panel. The following
window will appear. The date on this screen will be
the same date your chart has played to. To change
the date of your deposit, click on the arrows to go
forward or backward by month, then click on the
day of the month. Under amount, enter the dollar
amount you want to deposit.
To make a withdrawal, the screen is the same as
above, and the procedure is the same. The only
difference will be that money will be taken out of
your account instead of adding to it.
Track ‘n Trade High Finance
235
Accounting & Simulator
Deposit and Withdrawals
Chapter 10
Placing an Order
Now that you have money in your account you can start placing orders. There are two ways to
place an order. You can click on the Buy/Sell button
on the Simulation Toolbar then on the
chart where you want to place your order. The Account tab will open in your control panel with
the order placement box filled out with the correct information:
Order Placement: Choose to “Buy” or
“Sell,” then the quantity, the order type
(see the list of definitions for each order
type in this section), and the price which
you want your order to be filled. Once
your order is placed it will not show in
your Accounting Simulator until the order
is filled.
Accounting & Simulator
Locally Held Order: This type of order is
for simulation purposes only.
Trailing Stop: This can only be used
on a Stop Order. Check the box to use a
Trailing Stop on your order. Your Trailing
Stop will follow an open position and
protect profits by trailing a market rise
or decline. You can choose to set your
Trailing Stop by Dollar amount, Price
Bars Back, or by following the PSAR or
Zig Zag Indicators.
*If you have purchased the Bulls’ n Bears
Trading System then you will also have the
option to follow the BNB Blue Light.
* In Forex you will also have the option to
select % Total Balance which will calculate a certain percent of your total balance
as your Trailing Stop.
236
Track ‘n Trade High Finance
Accounting & Simulator
Trailing Stops
A trailing stop is a feature that helps you protect profits. As opposed to a Stop Loss order that
is set to a certain price, a Trailing Stop moves with the market and follows an order, changing
it’s price as it follows the parameters set in the order. Track ‘n Trade will watch each of your
positions. Each time one of your long positions goes up, Track ‘n Trade adjusts your Trailing
Stop according to the setting you set at the time you placed your order. If the prices moves back
down a predetermined amount, you will hit the trailing stop, and the order will automatically sell
your shares. Short positions work the same way, but the direction is reversed.
Stock Order Types
Stop Order - Place a buy stop order above the market price; place a sell stop order below the
market price. A stop order becomes a MARKET ORDER when the specified price is reached.
Track ‘n Trade fills these orders at the specified price if the price is within the trading range of the
fill date, or at the opening price of the fill day.
(MOO) Market On Open - (*Stocks only) This is an order that you wish to be executed during
the opening range of trading at the best possible price obtainable within the opening range. Track
‘n Trade will fill these orders at the opening price of the next day’s trading.
(MOC) Market on Close Order - (*Stocks only) Market On Close orders will be filled during
the final minutes of trading at whatever price is available. Track ‘n Trade will fill these orders at
the closing price of the next day’s trading.
(MIT) Market If Touched - (*Stocks only) Similar to a limit order, orders to buy are placed
below the current price; orders to sell are placed above the current price. MIT orders fill once the
limit price is touched or passed through. Track ‘n Trade will fill limit orders at the limit price on
the day your order fills if that price is in the trading range, or at the opening price of that day.
Limit Order - Limit Orders to buy are placed below the current price; limit orders to sell are
placed above the current price. The market may touch a limit price several times without filling.
In most cases, the market must trade BETTER than the limit for the order to fill. Track ‘n Trade
fills limit orders when the market trades BETTER then the limit price.
Track ‘n Trade High Finance
237
Accounting & Simulator
Market Order - A market order does not specify a price, it is executed at the best possible price
available. A market order can keep you from “chasing” a market. Track ‘n Trade fills these orders
at the opening price of the next day’s trading.
Chapter 10
Placing Attached Stops and Limits
Attached stops and limits are an FXCM feature and can only be used when you are connected to
FXCM and using live orders. The feature is not available for orders that are locally held.
Click on the order that you want attach a stop or a limit. The order must be confirmed to do this.
While still holding your mouse button down, hold the CTRL key on your keyboard as you move
your mouse up or down on your chart. When you release either your mouse button or CTRL, the
stop or limit is placed.
Accounting & Simulator
An order does not need to be filled to attach a limit or stop.
Your attached limits will appear in the Working Orders frame at the bottom of your screen. In
FXCM, they will only appear as one order. By right-clicking on the order in the Working Orders
frame, you can select “Delete Order” to delete the attached order. If you click Delete Order in the
chart window, your entire order will be deleted.
238
Track ‘n Trade High Finance
Accounting & Simulator
Changing an Order
You have the ability to edit an order and change the properties by right-clicking on the order.
The following screen will appear.
To Edit an Order
To Cancel or Delete an Order
The option to cancel an order is only shown when an order is not filled. An order can’t be
canceled until after it is filled, it can only be deleted. Canceled orders will still show on your
chart, but will have an X through them. Deleted orders will completely disappear from the chart.
Track ‘n Trade High Finance
239
Accounting & Simulator
Right-click on the order you want to edit and
the window the left will appear. Enter your
changes in the top portion of the screen, which
is a copy of your original order screen (see
Placing an Order paragraph for details). The
bottom half of the screen is a history of the
order, which can not be changed.
Chapter 10
Order Properties
estore Settings: Click on “TNT Default”
R
if you would like to see or restore original
software settings. Click on “My Default” to
return to your personalized default settings.
Click on “Apply To All Charts” if you would
like to see your selected settings on all open
charts. Click on “Save As My Default” to save
your personal settings. All charts opened from
the time you save your settings will have those
specific settings applied to them.
Accounting & Simulator
ine: Choose the color, style, and thickness of
L
the line.
ot Filled/Filled: Choose the color of the
N
arrow on your order for each status.
Font: From here you have the ability to change
the size, font, and color of the text.
Show Text: Check box if you want the order text to show on your chart.
Position Arrows
240
You can view your orders in the Charts tab of
your control panel. Under the Position label,
you will see an arrow and a number. The
number accounts for how many orders you
have in the market. The arrow will be red or
green and pointing up or down.
• Red: You are losing money
• Green: You are making money
• Up: You are going long
• Down: You are going short
Track ‘n Trade High Finance
Bulls ‘n Bears
Trading System
*Expansion Pack - Purchase Required
Track ‘n Trade High Finance
11
241
Bulls ‘n Bears
Chapter 11
242
Track ‘n Trade High Finance
Bulls ‘n Bears
Introduction
Bulls ‘n Bears is the first trading system designed for Track ‘n Trade High Finance users. This
trading system includes easily usable tools to see if the market is bullish or bearish. Bulls ‘n Bears
allows you to change the sensitivity of the system according to your trading style; whether you
are an aggressive trader, or a more traditional trader.
With the Bulls ‘n Bears Red Light, Green Light, Blue Light trading method/system you have
simple to understand entry and exit signals displayed visually on the chart.
Red Light (Bearish
Trend) Indicates the
beginning of a bearish trend
where the contract has
started to move downward
identifying a possible short
entry point.
Track ‘n Trade High Finance
243
Bulls ‘n Bears
Green Light (Bullish
Trend)
Indicates the trend of a
market has begun to move
upward, identifying a
possible long entry point.
Chapter 11
Yellow Lights (Neutral
or Sideways Trend)
Indicates the trend of
the market has entered a
sideways or neutral time
frame.
Bulls ‘n Bears
Blue Lights (Stop Loss
Placement)
The Parabolic stop is used
within the Bulls ‘n Bears
system as the key point for
managing your stop-loss
risk while trading helping
you to identify exit and
stop-loss placement points
after entering a trade.
244
Track ‘n Trade High Finance
Bulls ‘n Bears
Preferences
Open the Preference tab from the Control Panel on the left of your screen. Right-click on your
chart and highlight “Overlay Properties” from the dropdown menu. Select Bulls ‘n Bears from
the list and the preferences will appear in the Control Panel. (Once you click on the chart, the
Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings.
My Default will change current settings to your personalized default settings. Apply To All
Charts will apply your selected settings on all open charts. Save As My Default will save your
current personal settings.
Sensitivity: Adjust what you would like the
sensitivity level to be.
Style: Select Lines, Dots, Crosses, Squares,
or Price Bars from the dropdown menu.
Bearish, Neutral, Bullish: Select what
color you would like each indicator to be.
Blue Light: Select to display the blue light
on a Bearish or Bullish market and what
color you would like it to appear.
Display History: Check if you would like
to show Full History or specify how many
price bars.
Choose when you want Buy/Sell Arrows to
show and what color.
Track ‘n Trade High Finance
245
Bulls ‘n Bears
Formula: Select Traditional, Progressive, or
Aggressive from the dropdown menu.
Bulls ‘n Bears
Chapter 11
246
Track ‘n Trade High Finance
Was this manual useful for you? yes no
Thank you for your participation!

* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project

Download PDF

advertisement