Part
II: Automated Confirmation
The
focus list provides us with quite a few statistics
to see OmniTrader's test results.
Backtest Hit Rate (BTHR), Backtest Annualized
Percentage Rate (BTAPR), and Backtest Net Trades
(BTNT) are a few of the categories that give us
some idea as to how well OT was able to match
systems with the personality of the security.
You can sort the focus list by these categories,
but an easier way to bring the symbols with the
best test results to your attention is to sort
by the Advisor Rating.
The
Advisor Rating is a number from 1-100 that basically
represents the "strength" of a signal.
In other words, A high Advisor Rating means that
the systems that OmniTrader chose for that symbol
were accurate, profitable and in a good number
of trades in the backtest period. I like
to say that the Advisor Rating should be used
as a shortcut to see which symbols had the best
test results. However, I want to warn against
reading too much into the exact value of the Advisor.
For example, if one symbol has an Advisor of 92
and another one has an Advisor of 94, that does
not mean that the symbol with the 94 is more likely
to be a better trade. Both of these should
be viewed as good candidates.
The Advisor Rating for this signal shows good
test results.
Filtering
the Focus List on Statistics
If
you have a large number of securities in
your focus list, you can use the filter
to only show the securities that meet a
specific criteria. For example, many
users will want to see candidates that have
at least an 80 Advisor Rating and 80% Backtest
Hit Rate. By clicking on the filter
icon  at the top of your focus list, you can select to see only the symbols
with test results that meet this criteria.
An example of this type of filtering is
shown to the right.
If
you use this filter, you know that any symbol
you look at had at least an Advisor
Rating of 80 and an 80% Backtest Hit Rate.
Obviously, better test results in the backtest
period increases the likelihood of the current
signal being correct.
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Periodicity
Confirmation
In
one of our earlier lessons, we talked about using
weekly confirmation. In real time, you can
also use a higher periodicity to confirm signals
as well. For example, you can confirm 5
minute signals with 15 minutes signals.
Periodicity confirmation will increase the accuracy
of your signals, but realize that it will also
filter out signals as well so you will see less
trade candidates. This is the reason that
we only recommend using this confirmation with
profiles that have a large number of symbols.
The Signal Confirmation Tab
For
more information on periodicity confirmation,
please refer to lesson 5 from our earlier emails,
entitled Signal Generation.
Creating
Filters with Indicators
One
of the most commonly used methods of confirmation
is to use an indicator. We talked about
using an indicator in last weeks tip to help you
visually confirm a trade, but OmniTrader gives
you the ability use an indicator as a filter as
well.
If
you wish to create a filter with an indicator
to confirm trades, you must follow ths rule: Know
what that indicator is trying to indicate!
By this I mean that certain indicators are looking
for one type of behavior, while others are looking
for a different type of behavior. If you
are looking for trending candidates, indicators
like the Aroon Oscillator, Moving Averages and
MAC-D are useful. However, if you are looking
for early reversal candidates, a volume based
indicator like On Balance Volume or another indicator
like Balance of Power would be more helpful.
If you are unsure or unfamiliar with an indicator,
check the Systems Manual under the Help Menu.
This manual includes a brief description of all
the indicators in OmniTrader as well as a short
overview on how they are meant to be used.
In
conclusion, I want to stress that the types of
confirmation that we have covered in this lesson
will also filter out candidates. If you
choose to apply one or a combination of any of
these techniques, realize that your list of candidates
will be reduced. If you are using a small
list of securities, I would refer to last weeks
lesson on visual confirmation techniques.
Best
of luck with your trading, and look for our final
email tip next week.
Jeff
Drake
Director of Education
Nirvana Systems
jdrake@nirvsys.com
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