Lesson 5: Trading Strategy Part 2 - Signal Generation

The Signal Generation tab in OmniTrader

Signal Generation Tab:  The Signal Generation tab defines how the signals will be generated to the Vote Line.  You have the option of using the classic OmniTrader Voting Method or you can use individual systems to generate Vote Line signals.  Refer to Chapter 4 of your OmniTrader guidebook for a detailed explanation of this topic.

In this tip, we want to also define Tolerance, as you will see this this term referred to quite often in the Signal Generation window (Note: Tol. stands for tolerance in OmniTrader).

Tolerance:  The Tolerance setting controls how far OmniTrader will 'look back' to consider a system signal for a vote.  For example, let's say you have 6 daily systems that passed the filters in the System Testing process (refer to last weeks email for more on System Testing).  3 of the systems fired a short 6 bars earlier.  However, three other systems fired longs within the tolerated period of 5 bars.  Since the shorts were fired outside of the tolerated period, they are ignored by OmniTrader and only the long signals are considered for the vote.

Signal Confirmation Tab: Once a signal has been generated, you can also automate confirmation based on the systems in OmniTrader before it is passed to the vote line.

The Signal Confirmation Window in OmniTrader

Timeframe Confirmation: OmniTrader gives you the ability to confirm signals that were generated in one data period with the signals generated in another data period. We will discuss confirming daily signals with weekly signals, but this feature also applies to real time periods as well (5 minute signals with 15 minute signals, for example).

• Ignore Daily Sigs w/ Conflicting Weekly Sigs: When selected, OmniTrader will check and see if any of the weekly systems below the vote line fired a signal that is in conflict with a generated daily signal. If so, the signal will be filtered out of the vote line.
• Confirm Daily Sigs w/ Weekly Sigs: This option will only allow daily signals to make it to the vote line if they are confirmed with a signal from one of the weekly systems.
• Ignore Daily Sigs w/ Conflicting Voted Weekly Sigs: With this option, OmniTrader will not allow daily signals to make it to the vote line if there is a conflicting weekly signal. This is a more stringent filter than the first option, as it requires an actual voted signal while the other option only requires that one of the weekly systems be in conflict.
• Confirm Daily Sigs w/ Voted Weekly Sigs: When selected, OmniTrader will check for a weekly voted signal to confirm a daily voted signal. This is more stringent than the second option since it is requiring a voted signal as opposed to Confirm Daily Sigs w/ Weekly Sigs requiring only a weekly system to confirm a daily signal.
  
  If you use any of the timeframe confirmation options discussed, you will see more accurate signals. However, since there is additional filtering taking place, you will see less signals than if you were to not use this feature.
  
  RECOMMENDATION: For very large focus lists (over 1000 symbols) this feature is recommended to save time in your prospecting. However, if you are using a smaller list of stocks, this filter will probably limit too many signals and leave with only a few prospects.

          Important:  The Timeframe Confirmation we have just discussed will use the active systems in The System Testing Window.

OmniTrader also provides you with the ability to use systems to confirm signals generated to the vote line.  For example, you could choose to confirm a generated signal with the MV2-C (Two Moving Average Crossover) system.  This means that every time OmniTrader fires a signal to the vote line, it will check to see if the selected system is in agreement with that signal.

Important:  The Signal Confirmation we have just discussed can only be used with systems of same periodicity.   For information on confirmation across periodicity, see below.

System Exit Confirmation: As we mentioned before, the Trading Model is used to exit trades on the vote line.  With this feature in OmniTrader, you can have exits confirmed with systems.  For example, if you have selected MV2-C to confirm your exits, OmniTrader will use the Trading Model tool for exits, but only the exit on the vote line if MV2-C fires a signal in the opposite direction.

The Advisor Tab in OmniTrader

Min. Advisor: Every time a signal is generated to the vote line, it is assigned an Advisor Rating.  You can read about more about Advisor Ratings and how they are calculated in your Guidebook, but it is basically a shortcut to determine the strength of a signal.  The Minimum Advisor setting allows you to set a cut off value so that only the signals with an advisor above that value are allowed to make it to the vote line.

Optimize for Each Symbol:  The Optimize for Each Symbol box refers to the Advisor Rating.  This tells OmniTrader to find the best Minimum Advisor Rating for each symbol in your profile.  If you select this option (it is selected by default), it overrides the Minimum Advisor cutoff mentioned earlier.

The final tab in the Signal Generation window is the Profit Calculation tab.  This is similar to the Profit Calculation feature in the system Testing area, where OmniTrader will apply a trade penalty to compensate for commissions.  However, this refers to trades generated to the vote line, where as the Profit Calculation in System Testing refers to the trades generated for each individual system.

This concludes our discussion on the Signal Generation portion of Trade Strategies.  Next week, we will cover the final step of how OmniTrader generates signals - the Trading Model.

Best of luck with your trading,

Regards,
Jeff Drake
Director of Education
Nirvana Systems