The major new features in this version include the addition of several new indicators on the Dashboard screen, correction of price and volume data in the event of stock splits and minor bug fixes related to manually choosing start points or end points.

New indicators:

Aroon - Shows whether a stock is trending or oscillating. Also gives an indication of how strong an existing trend may be.
DMI - Directional Movement Index. An indicator developed by J. Welles Wilder for identifying when a definable trend is present.
Chaikin Money Flow - Combines price and volume to show how money may be flowing into or out of a stock.

As you can see, all the new indicators are most useful for determining trend. Since identifying trend reversals is what TradeRadar is all about, these new indicators will help us decide if the trend reversal is valid.

In addition, the following financial information is included on the Dashboard screen: market capitalization, Price/Earnings ratio, Price/Sales ratio and PEG ratio. The name of the stock or ETF will also be display on the Dashboard now.

Improved indicators:

In the last version of the software, we removed two indicators, Variance and Slope, and replaced them with Angle of Attack (AOA) and Trend Diff. These two new indicators display the angles associated with the trend lines. AOA shows the angle the first trend line makes with the horizontal. The Trend Diff indicator shows the angle the second trend line makes versus the first trend line; i.e., it measures how steep the reversal is.

On the Dashboard, the Trend Diff test has been modified to take into account whether you are looking for a BUY signal or a SELL signal. If you are looking for a BUY, the second trend line must be pointing up or the indicator goes Red. If you are looking for a SELL, the second trend line must be pointing down or the indicator goes to Red.

Bug Fixes:

Price and Volume correction in the event of stock splits – the software now uses the adjusted price data from Yahoo Finance for plotting the closing price on the Chart screen. Some of the new indicators use high and low price data as well as volume. The software ensures this data is also adjusted to reflect stock splits before using it in its calculations.
In some cases, when right-clicking on the chart to select a Start or End point, the actual point used by the software was off by one. This has been fixed so the software always uses the exact point you have selected when setting up the data window for analysis.

1. TradeRadar Overview

This system may be of most benefit to those traders who are interested in “hitting singles and doubles”. In other words, 15% to 30% gains over the course of several weeks to several months. This application will not support day trading or swing trading as the system proposed here does not lend itself to those methodologies.

This system will support analysis of stocks, mutual funds, exchange traded funds, indexes, etc. Essentially anything with a closing price that moves in a manner that allows it to be displayed on a chart.

The basic function of the system is to identify reversals in price movements. The trick is to determine if the reversal is significant enough to enter a trade with confidence.

2. How to set up TradeRadar and maintain the database

About the INI file

The initialization file (TradeRadar.ini) contains the name of the ODBC database connection. By default, the installation includes a Microsoft Access database and the name of the connection is expected to be the same as the database. The default name is “TradeRadar” which corresponds to the traderadar.mdb database file.

TIP: You can use any database name you choose as long as it is the same in both the INI file and in the ODBC connection Data Source Name (see next section).

Setting up the database ODBC connection

1. Open the Control Panel

2. Click on Administrative Tools

3. Click on Data Sources (ODBC). The ODBC Microsoft Access Setup screen will be displayed.

· Click on “System DSN” Tab and click the “Add” button.

· Select “Microsoft Access Driver (*.mdb)” and click “Finish”

· On the ODBC Microsoft Access Setup screen, enter in the “Data Source Name” field the single word: TradeRadar

· Click the “Select” button and navigate to the folder where you installed the TradeRadar application. Select the TradeRadar.mdb file and click the “OK” button

· When you return to the ODBC Microsoft Access Setup screen, click the “OK” button. That completes the setup of the database.

Installing the WebCab Technical Analysis component

There is a new component required to enable some of the new indicators on the Dashboard screen. Included in the TradeRadar download package there is a file named WebCabTA.msi

Double click the file and follow the install wizard prompts to install the component.

Installing the Microsoft .NET Framework

The WebCabTA component requires a code library provided by Microsoft that is called the .NET Framework. It is probably already installed on your PC. If it is not, the TradeRadar software will detect that fact and give you a warning.

If you need to install the Microsoft .NET Framework, go to the following URL to download it from the Microsoft site:

http://msdn.microsoft.com/en-us/netframework/aa569263.aspx

3. How to load data into TradeRadar

Loading data directly from the Internet

Tip: This is the easiest and best way to get historical price data into the TradeRadar system.

The program has a feature that allows the user to download CSV (comma separated values) format files directly from Yahoo from within the TradeRadar program. The volume and high, low and closing prices of the period are captured and written to a file. The files are stored in a folder named “data” directly below the folder where the TradeRadar software is installed.

Tip: These CSV files can be loaded into Excel or any other spreadsheet so you can do your own analysis on the price-volume data.

On the main screen, click the button labeled Load data from Yahoo.

Alternatively, you can find this function in the menu system. Under the File menu, click on File Import ->Load File Direct from Yahoo

You will need to choose a date range. The default is two years of daily data from the current date back. The period can be daily, weekly or monthly; use the radio buttons to choose.

You will need to choose a symbol name. If you have already selected a symbol on the main screen of the TradeRadar program, that symbol will pre-fill for you. You may change it to another symbol. In either case, that is the symbol that will be searched for on the Yahoo site in order to download the data.

If you are choosing a weekly or monthly time period, the symbol must be the actual stock symbol and the program will automatically name the file to show the symbol with a suffix indicating weekly or monthly.

Tip: for stocks you track on a weekly or monthly basis, TradeRadar adds a –W or –M suffix to the symbol so you can distinguish it from the daily data for the same symbol. When refreshing the weekly or monthly data, TradeRadar automatically strips off the suffix, configures itself for the weekly or monthly data download and tacks the suffix back on when it is finished.

The program will automatically write the file and read the data into the program’s database so you may go directly to the charting functions. There is no need to load files directly.

The program will overwrite data from previous downloads if the date ranges overlap. This means you do not have to delete data before loading new data. An added benefit is that you will always have two years of fresh data that takes into accounts dividends and stock splits.

Loading data files

File format and data required.

The program will handle the CSV (comma separated values) format. The volume and high, low and closing prices of the period are required. The period can be daily, weekly or monthly. Strictly speaking, only closing prices are needed but the other data is captured because it is easily available and may be used to help refine the TradeRadar indicator in the future.

Obtain file of historical prices.

The program is set up to process data from three different sources:

· Yahoo: go to the Stock Research Center page, currently at the following URL:

http://biz.yahoo.com/r/

Click on the Historical Quotes link under the Research Tools heading.

Enter the symbol in the “Get Historical Prices” text box. Select the date range. Click “Go”. Use the “Download file to Excel” link at the bottom of the page to save the data to your PC.

· My Trader: export the data as a CSV file for one stock at a time.

· MSN : currently at the following URL:

http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=

Display chart for the stock in question by entering symbol in text box and clocking “Go”. Chart page will display. Use custom date range settings at bottom of chart to adjust your date range as desired. Click “Redraw Chart”. Go to bottom of chart and click the “Price History Table” button. This will allow you to save the data in CSV format (which Excel can also read).

TIP: Use the stock symbol in the filename. For example, if you are downloading data for General Electric, use the following file name: GE.csv

Load the file of historical prices

· Under the File menu, click on File Import -> Single Stock – Data Series. Find the file on your hard drive. Click “OK”.

· On the next screen, if you got the file from Yahoo, ensure you have Yahoo selected in the drop down. If you extracted the data from My Trader, select My Trader.

· Whatever you used as a filename will populate the text box. If you used the stock symbol for a file name as described in the TIP in the previous section, that’s what you will see in the text box. If you used a dummy filename, enter the equity symbol in the text box. Click “OK”.

· The file will be loaded to the TradeRadar database and the data will be available on the main screen. The program will overwrite data from previous downloads if the date ranges overlap. This means you do not have to delete data before loading new data.

4. How to use TradeRadar for stock analysis

Analyzing data

Executing the Analysis Process

After loading data for an equity, click on Charts->Buy/Sell. It will automatically bring up a chart with two graphs.

The top graph displays the closing price over time and the 20-day and 50-day exponential moving averages (EMA).

The bottom graph displays the normalized prices that will be the input to the signal generator.

Select the type of signal you are interested in: Buy or Sell.

Click Update Chart to run the signal generator. If there is a tradable signal, it will take the form of a sharp peak on the lower graph.

If there is too much data to allow the tool to focus on the time period where you think there is a potential trade, use the Window Start and Window End buttons to narrow the period of interest. Note that the X-axis of the lower graph displays the numerical position of the data points within the window and the X-axis of the upper graph displays the corresponding dates.

Important: TradeRadar is very dependent on having the right datapoints within the window for its calculations. If you can’t line up the date with the number, use the following procedure:

Find information for a specific point on a graph by clicking on the line. When the line is properly selected, each data point is highlighted. Put the cursor on the point of interest and press and hold the left or right button until a form pops up containing the data for the specific point. Price, volume, date and number of the data point will be provided on the upper graph. On the lower graph the signal value, data point numerical position and corresponding date will be displayed. There are two buttons that allow you to pick the point as either the START of the window or the END of the window.

You can experiment with the Smoothing and Sensitivity controls to adjust the size and position of the signal peak. (see below)

Evaluating a Signal

A “signal” is a peak on the lower graph. Ideally, the graph should be nearly flat across the period of interest with the exception of a tall, skinny peak at the point where prices are exhibiting a potential reversal.

The key piece of information on the lower graph is the intersection of the horizontal green line with the trailing edge of the red signal (the rightmost side of the signal peak). The more well-defined the signal (tall and skinny), the more valid it will tend to be.

There is a set of indicators to help you decide on the usability of the signal.

Indicators:

· Signal Strength – strength of the signal is based on potential full scale value. In other words, The calculated signal peak is compared to the highest possible signal peak. The higher the number, the stronger the validity of the indicator.

· Signal-to-Noise (S/N) – the Signal-to-Noise ratio is based on comparing the peak value of the signal to the average value of the signal. The higher the number, the stronger the validity of the indicator.

· Angle of Attack (AOA) – slope or angle of the initial trend. A simple linear regression is used to calculate a rough slope. If the slope is very flat (a small number), resulting signals may be noisy and difficult to use.

· Kurtosis – another statistical measure, kurtosis provides an indication of how “peaked” the signal is. It is evaluated by comparing the calculated kurtosis to the Standard Deviation of the Expected Kurtosis (see next indicator). The narrower and taller the signal peak, the more validity it has. If the calculated kurtosis is more that ten times the Standard Deviation of the Expected Kurtosis, we have a green light and a valid signal.

· SEK – this is the Standard Deviation of the Expected Kurtosis. It is based on the number of points in the sample (the sample is the number of points between WindowStart and WindowEnd) and the assumption that the data points have a normal distribution (a bell curve shape).

Using the Chart Screen

(See the screen shot of the Chart Screen below)

Controls

· Window Start – select the beginning point in the time series to be analyzed

· Window End – select the end point in the time series to be analyzed

· Signal Selection – allows you to display Buy or Sell (raw or filtered) signals or normalized prices (raw or filtered)

Tip: Raw signals tell you where the highest or lowest points on a chart are. Always use the filtered signal when performing your analysis and making buy or sell decisions.

· Smoothing – allows you to select how heavily you want to filter the signal: the larger the number, the more smoothing is applied. If the prices are moving very abruptly, you may need to reduce the filtering to keep up with it.

Tip: if you are evaluating only a few months or weeks of data, you should reduce the smoothing to a smaller number.

· Sensitivity – modifies the transfer function of the signal generator. The higher the number, the higher the potential peak might be.

· Update Chart – runs the signal generator and redraws both graphs. The signal indicators are recalculated and displayed. The indicators provide a method of determining how useful the signal is. Is it weak, is it “sloppy”.

· Dashboard – launches the Dashboard screen which displays each of the signal indicators and provides an explanation.

Tip: the two trend lines should clearly change direction around the area where the TradeRadar signal is generated. Otherwise, the signal is not usable. The Dashboard will tell you if the angles are large enough to confirm an actionable signal.

Using the Dashboard

Important: New indicators have been added to TradeRadar that are only visible on the Dashboard. Be sure to check the Dashboard regularly as part of your normal analysis technique.

The Dashboard screen is intended to help you determine whether you have a strong signal and whether you should initiate a trade. A numeric value is displayed as it is on the chart. In addition, a simple system is used that provides an opinion of how usable each indicator is: Red indicates the indicator is weak, Yellow implies caution (use your own judgment but be careful) and Green indicates that the indicator is strong and usable.

Tip: Signal strength can be deceiving when looking at the charts. It is a good idea to check the dashboard for a decision.

· Signal Strength – strength of the signal is based on potential full scale value. In other words, the calculated signal peak is compared to the highest possible signal peak. The higher the number, the stronger the validity of the indicator. Any reading 60 or above is considered to be pretty strong and the indicator will light up Green.

· Trend Diff – angular difference between the initial trend line and the secondary trend line. A simple linear regression is used to calculate a rough slope from the inflection point (where the trend lines change direction if a reversal is taking place) to the end of the data window. If the difference is small, resulting signals may be not be strong enough to use. In this version of the software, the Trend Diff test has been modified to take into account whether you are looking for a BUY signal or a SELL signal. If you are looking for a BUY, the second trend line must be pointing up or the indicator goes Red. If you are looking for a SELL, the second trend line must be pointing down or the indicator goes to Red.

· Kurtosis – another statistical measure, kurtosis provides an indication of how “peaked” or narrow the signal is. It is evaluated by comparing the calculated kurtosis to the Standard Deviation of the Expected Kurtosis (see next indicator). The narrower and taller the signal peak, the more validity it has. If the calculated kurtosis is more that ten times the Standard Deviation of the Expected Kurtosis, we have a Green light and a valid signal.

Tip: If the shape of the signal peak is wide (Kurtosis indicator is Yellow), you can accept a lower Signal Strength value in the mid-50’s to 60 range.

There are three new indicators that have been added to the Dashboard. The following describes what they are and how they should be used:

· Aroon - Shows whether a stock is trending or oscillating. Developed by Tushar Chande in 1995, Aroon is an indicator system that can be used to determine whether a stock is trending or not and how strong the trend is. "Aroon" means "Dawn's Early Light" in Sanskrit and Chande choose that name for this indicator since it is designed to reveal the beginning of a new trend.

The Aroon indicator system consists of two lines, 'Aroon(up)' and 'Aroon(down)'. It takes a single parameter which is the number of time periods to use in the calculation. Aroon(up) is the amount of time (on a percentage basis) that has elapsed between the start of the time period and the point at which the highest price during that time period occurred. If the stock closes at a new high for the given period, Aroon(up) will be +100. For each subsequent period that passes without another new high, Aroon(up) moves down by an amount equal to (1 / # of periods) x 100.

A separate indicator called the Aroon Oscillator can be constructed by subtracting Aroon(down) from Aroon(up). Since Aroon(up) and Aroon(down) oscillate between 0 and +100, the Aroon Oscillator will oscillate between -100 and +100 with zero as the center crossover line.

When Aroon(up) and Aroon(down) are moving lower in close proximity, it signals that a consolidation phase is under way and no strong trend is evident. When Aroon(up) dips below 50, it indicates that the current trend has lost its upward momentum. Similarly, when Aroon(down) dips below 50, the current downtrend has lost its momentum. Values above 70 indicate a strong trend in the same direction as the Aroon (up or down) is under way.

The Aroon Oscillator signals an upward trend is underway when it is above zero and a downward trend is underway when it falls below zero. The farther away the oscillator is from the zero line, the stronger the trend.

TradeRadar calculates these three values, adjusts filtering based on amount of data in the area of the trend line inflection and determines whether no trend is apparent, whether a moderate trend is in place or whether a strong trend is in place. The three values are also provided for you to review. If you are looking for a BUY signal and a strong up-trend has been identified, the indicator will light up Green. If you are looking for a BUY signal and either no trend or a down-trend has been identified, the indicator will light up Red.

· DMI – Directional Movement Index, developed by J. Welles Wilder for identifying when a definable trend is present. This indicator consists of three parts:

o ADX – average directional index. It is used to determine the strength of a prevailing trend. The ADX is measured on a scale between zero and 100. Readings below 20 are used to indicate a weak trend, while readings over 40 indicate a strong trend. ADX is not used to determine the direction of a particular trend, but only to gauge its strength. Traders use a move above 20 to suggest the start of a new trend (either up or down) and a move below 40 to suggest that the current trend may be coming to an end.

o +DI – Positive Directional Index. A component of the average directional index that is used to measure the presence of an uptrend. When the +DI is sloping upward, it is a signal that the uptrend is getting stronger. This indicator is nearly always plotted along with the negative directional indicator (-DI). Many technical traders will watch for the positive directional indicator to cross above the negative directional indicator to signal the beginning of an uptrend. The +DI is a key factor in the calculation of the popular average directional index.

o –DI – Negative Directional Index. A component of the average directional index (ADX) that is used to measure the presence of a downtrend. When the -DI is sloping upward, it is a signal that the strength of the downtrend is increasing. This indicator is almost always plotted with the positive directional indicator (+DI). Many traders will watch for the negative directional indicator (-DI) to cross above the positive directional indicator (+DI), which signals the beginning of a new downtrend. The -DI is a key factor used in the calculation of the popular average directional index (ADX).

TradeRadar combines the outcome of these three aspects of the DMI to generate a simple message indicating whether a strong trend has been detected, a weak trend has been detected or no trend has been detected at all. Due to the amount of filtering (traditionally 14 days) applied to DMI, it may lag the TradeRadar BUY or SELL signal. When DMI confirms the TradeRadar signal it is certainly a positive. If it doesn’t confirm the TradeRadar signal, you should take it as a warning but not necessarily a signal to avoid the trade.

· Chaikin Money Flow (CMF) – Combines price and volume to show how money may be flowing into or out of a stock. Alternative to Accumulation/Distribution Line.

This oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation Distribution Line is that the degree of buying or selling pressure can be determined by the location of the Close relative to the High and Low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. The Closing Location Value multiplied by volume forms the Accumulation/Distribution Value for each period.

The Chaikin Money Flow indicator generates bullish signals by indicating that a security is under accumulation and generates bearish signals by indicating that a security is under distribution. There are three factors that determine if a security is under accumulation or distribution. They also determine the strength.

1. The first and most obvious factor is whether the Chaikin Money Flow value is above or below zero. If above zero, it is an indication of buying pressure and accumulation. If below zero, it is an indication of selling pressure and distribution.

2. The second factor is the duration of the reading, how long the oscillator has been positive or negative. TradeRadar does not use this aspect of CMF.

3. The third factor is the intensity of the oscillator. Not only should the oscillator remain above zero, but it should also be able to increase and attain a certain level. The more positive the reading is, the more evidence of buying pressure and accumulation. The more negative the reading is, the more evidence of selling pressure and distribution. This is usually a judgment call, based on prior levels for the oscillator, but a move above .10 would be significant enough to warrant a bullish signal. A reading above .25 would be an indication of strong buying pressure.

TradeRadar uses slightly relaxed criteria for the CMF test. If you are looking for a BUY signal and the CMF value is above 0.22 then a strong confirmation of the up-trend is assumed. If you are looking for a SELL signal and the CMF value is below -0.22 then a strong confirmation of the down-trend is assumed.

Once again, if CMF agrees with and confirms the TradeRadar signal it is certainly a positive. If it doesn’t confirm the TradeRadar signal, you should take it as a warning but not necessarily a signal to avoid the trade.

To see these three new indicators in action and be able to adjust the filtering values, it is best to visit the stockcharts.com site.

As an added aid in determining which investments may be best for you, we have also added several fundamental data items. We now retrieve and display the Market Capitalization, P/E ratio, PEG ratio and Price/Sales ratio.

o The market cap value will help you quickly determine if the stock is a large cap or small cap. The light is set to Yellow if the market cap is less that $300M. Otherwise, it will be Green.

o Using the P/E ratio, you can see whether it is profitable or not. A PE of 20 or above turns on the Yellow light.

o Using PEG (PE growth ratio) you can quickly determine whether a stock might be characterized as over-priced or not: for example, any stock with a PEG value below 1.1 is considered to be undervalued and the Green light comes on.

o Price/Sales ratio or PSR varies widely across industries. Some investors believe that when PSR is less than 1.0, it is considered to indicate good value. In the TradeRadar dashboard, when PSR is above 1.0, the Yellow light will come on. We don’t see a Red light until PSR gets over 10.

Note: These financial values are not available for ETFs, unfortunately.

5. Other features of TradeRadar

Using the Individual Portfolio

Use this screen to log information about the trade, real or imaginary. You can capture the indicators at the time the1 trade was entered and closed, number of shares, share prices and commissions, etc. The screen will automatically calculate profit or loss. This becomes a record of the success of the analysis as well as the outcome of the trade so it will be a benefit if you list the values of each signal and indicator that caused you to take action, whether buying or selling.

The profit loss information will show up on the Portfolio Summary.

Reviewing the Portfolio Summary

If you have entered trade data in the Individual Portfolio, it will show up as a single line of information in the Portfolio Summary. This screen will display the profit and loss on each equity and provide a summary that indicates the total profit and loss for all the trades listed.

Backup and Restore

The Backup functionality allows you to backup your database file. It copies the file to another folder or location. It is always a good idea to back up your database periodically.

The Restore functionality allows you to copy a previously saved database to the folder where the TradeRadar application runs. This effectively copies over the current version. This may come in handy if you suffer a system crash or the database becomes corrupted.