Table of Contents Introduction ............................................................................................ 1

The Guiding Principles ........................................................................ 1 What Do You Get with PowerStrike?.................................................. 2 Installing and Running PowerStrike .................................................... 6

Putting PowerStrike to Work................................................................ 7 Terms You Need to Know Before Proceeding .................................... 7 Step 1: Collect and Maintain Locally Stored, Optionable Stock Data. 8 Step 2: Filter Optionable Stocks with the PowerStrike Exploration.... 9 Step 3: Sort the Exploration Report ................................................... 12 Step 4: Apply the PowerStrike Template........................................... 14 Step 5: Create Precise, Diverse Entry Rules with Stops ................... 15

Appendix ............................................................................................... 17 The Adaptick Brick Rainbow™......................................................... 17 Private Coaching................................................................................ 18 Indicator Classification and Election System (ICE) .......................... 18 Option Strike Price levels .................................................................. 19 The PowerStrike Scoring System ...................................................... 20

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All Rights Reserved Copyright © 2003

Printed in the USA

Adaptick, Inc.

1082 East 8175 South Sandy, UT 84094

www.adaptick.com

MetaStock is a registered trademark of Equis International (a Reuters company). The DownLoader is a trademark of Equis International (a Reuters company). PowerStrike, ICE, Indicator Classificaton and Election System, and Brick Rainbow are trademarks of Adaptick, Inc.

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Adaptick, Inc. 1082 E. 8175 S.

Sandy, UT 84094

Email: support@adaptick.com www.adaptick.com

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Install Password: ap3m9kh48

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Color Codes and Scores for Pivot Highs and Lows

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Considering A and B above (and all else being equal), which Pivot High (A or B) is more bearish? If you answered B, then you understand part of the logic behind PowerStrike. Increased volume in the direction of the price move substantiates that move. In the example above, 500K shares traded on Bar 3 (B) is more bearish than 100K bars traded on Bar 3 (A).

What do the Colors Mean? If the volume on Bar 3 of a Pivot High or Pivot Low is 50% higher than Bar 1’s volume, then the Pivot High pattern is scored 5 points and colored RED.

If the volume on Bar 3 of a Pivot High or Pivot Low is 0- 49% higher than Bar 1’s volume, then the pattern is scored 3 points and colored GREEN.

If the volume on Bar 3 of a Pivot High or Pivot Low is lower than Bar 1’s volume, then the Pivot High Pivot or Pivot Low is scored 1 point and colored BLUE.

When the Adaptick PowerStrike template is applied to a chart (Action: right-click chart > Apply Template > Adaptick PowerStrike.mwt), the Pivot High and Pivot Low bars that contribute to the UpStrike (resistance) and DownStrike (support) scores are highlighted red, green, or blue as shown below.

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The following graphic shows a Pivot High. Note that bar 2 is the actual Pivot High bar. Bar 3’s body top and Bar 1’s body top are both lower than Bar 2’s body top. Bar 3 is a black (or filled) candlestick (i.e., it closed higher than it opened). This constitutes a Pivot High.

Why does Volume Matter?

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$100 and higher = $10.00 increments

100, 110, 120, etc…

The PowerStrike Scoring System Using body tops and body bottoms as the standard; PowerStrike determines where pivot highs and pivot low patterns occur (see the following illustration). Pivot Highs and Pivot Lows that form near Upstrike and DownStrike levels are cumulated. Each pivot high and pivot low is scored as 1, 3, or 5 points depending on the amount of trading volume immediately surrounding the pattern.

The following illustration shows a Pivot Low. Note that bar 2 is the actual pivot low bar. Bar 3’s body bottom and Bar 1’s body bottom are both higher than Bar 2’s body bottom. Bar 3 is a white (or empty) candlestick (i.e., it closed higher than it opened). This constitutes a Pivot Low.

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Introduction PowerStrike is a utility plug-in to help traders locate and quantify support and resistance. It is designed for use on daily or weekly data with MetaStock 7.21 or higher. This manual provides information on using PowerStrike.

The Guiding Principles Of all the technical analysis tools available to traders, perhaps none other appeals to our since of logic and common sense like support and resistance. Perhaps it is because of its resemblance to what many of us have learned as basic economic “supply and demand”. The methodology for determining PowerStrike’s support and resistance is based on three phenomenons in the stock market:

1. Humans prefer “easily” divisible and memorable numbers (e.g., “20” is preferred over “19”). These values are typical of option strike prices. Hence many traders' attention is drawn to these numbers providing the potential for even more "concentrated" buying and selling.

2. Stock prices are heavily influenced by trading near option strike price levels. Hence, these levels greatly influence where "important" buying and selling occur. And support and resistance is based on the concentrated buying and selling of influential traders. Option Strike Price levels attract more attention by important market participants than other price levels (all else being equal)..

3. Bullish and Bearish pressures at these Option Strike Price levels resolve more quickly than pressures at other levels.

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What Do You Get with PowerStrike? 1 Online Training Video (“PowerStrike Explained”) Access to an online training presentation created with Flash to introduce you to PowerStrike.

Action: Windows Start button > Programs > Adaptick > PowerStrike Explained Video

1 template (Adaptick PowerStrike.mwt). This template properly formats your chart with the PowerStrike components, including the

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For more information on ICE, go to www.adaptick.com/ICE

Every “testable” MetaStock indicator—72 in all -- has been “classified” into four easily managed categories (Velocity, Volatility, Verticality, and Volume). 144, easy-to-run optimized and non-optimized simulations are provided to let you “elect” an indicator’s ability to perform well on your set of stocks.

ICE provides an objective, reliable means of comparing the performance of popular technical indicators. Every effort has been given to provide each indicator a “fair shake” so to speak. Every Trading Simulation in ICE is deployed with the same Exit strategy based on an all-new trailing stop loss mechanism called IntelliStop™. IntelliStops trail the lows (or highs in the case of shorts) by a variable percentage based on volatility.

For more information on ICE, go to http://www.adaptick.com/ICE.

Option Strike Price levels The following summarizes the price levels at which US options are set. These price levels are especially important, since these are where PowerStrike’s support and resistance levels are always drawn.

$5 to $25 = $2.50 increments

7.50, 10.00, 12.50…25.00

$25 to $100 = $5.00 increments

25, 30, 35, 40…100

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namely “velocity.” A better system could be constructed from Stochastics, MFI, and Bollinger’s %b. These three indicators cover three categories, namely, velocity, volume, and volatility. Such a trading system would be more diverse, and would result in better signals.

Private Coaching For those that have the time and desire, John Slauson, the developer of PowerStrike, provides private one-on-one coaching (via the Internet and phone combined) to help traders construct customized trading systems built from these Brick Rainbow components. For more information, email John at jslauson@adaptick.com.

Indicator Classification and Election System (ICE) We have found that most people do not have the time to learn and effectively exploit the power of the MetaStock programming language—a prerequisite to using the Enhanced System Tester. ICE was developed to provide the average trader with a “bridge” to trading system development.

Adaptick created a special MetaStock plug-in to fill a need that was discovered while coaching students on the processes of building their own trading systems. The MetaStock plug-in, called Indicator Classification and Election System (ICE for short), streamlines the process of backtesting, optimizing, and selecting well-diversified technical indicators using the Enhanced System Tester.

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current Upstrike Resistance, DownStrike Support, PowerStrike Bands, 20-period Time Series Forecast (TSF) smoothing line, semi-log scaling, and the key Pivot Points with their accompanying scores.

Action: Right-click chart > Apply Template

1 Expert Commentary (Adaptick PowerStrike). The expert commentary provides the current score at the upstrike and downstrike support/resistance levels and also alerts the trader to potential Long and Short opportunities.

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Action: Right-click chart > Expert Advisor > Commentary

1 Exploration (Adaptick PowerStrike). The exploration can search thousands of stocks filtering those that are PowerStrike “buy enabled” or “short enabled.”

Action: Click Tools menu > The Explorer

1 Indicator (Adaptick Volume Acceleration Index, AVAI). The AVAI indicator provides traders with a measurement of volume acceleration. Acceleration in volume is a confirmation of price movement. With AVAI, the difference between a 3 and 10 period simple

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Appendix

The Adaptick Brick Rainbow™ In our experience building trading systems, we have coined the name “Brick Rainbow” as a visual cue for remembering the primary components of a good stock trading system. The six colors of a rainbow correspond with the primary components of a solid trading system as illustrated below. The gray mortar that binds the bricks corresponds to your own personal discipline

The foundation brick and the most important component of a trading system is a reliable Broad Market forecast of the stock market. About 70% of an individual stock’s price movement is strongly correlated to movement in the broad market.

Support and Resistance is the second most important brick. PowerStrike provides you with a good tool for measuring support and resistance for individual stocks.

The remaining four smaller bricks are an individual stock’s volume, volatility, verticality (i.e., trend), and velocity (i.e., momentum). Collectively, we call these the “Four Vs”. A robust technical trading system is built from one indicator from each of these categories. This promotes trading system diversity—an important principle.

For example, an entry signal based on RSI, Stochastics, and MACD is not “diverse”. Even though three indicators with different names have been chosen, each indicator measures the same market phenomenon,

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Action: Click Indicator Quicklist on main toolbar

MetaStock also includes a powerful backtesting tool called the Enhanced System Tester to help you discover and test top performing indicators and trading rules. It is well worth you time to learn to use this powerful tool.

Action: Click Tools > Enhanced System Tester

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moving average of volume are calculated and subsequently normalized using a unique algorithm involving Linear Regression and Standard Error. Dynamic upper and lower reference lines frame the indicator’s movement. The result is a plotted value that can be compared (relative to the reference lines) from one security to another.

Action: Click Indicator Quicklist > Choose Adaptick Volume Acceleration Index

Action: From the Indicator Quicklist > drag and drop Adaptick Volume Acceleration Index to the heading of the chart.

Helper Indicators. At the bottom of your indicator QuickList, you will find many so-called “helper” indicators that start with “zAdaptick”. These custom indicators are installed in MetaStock. However, they are not intended to be plotted independently. They provide calculation help

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for the PowerStrike expert commentary and exploration. Therefore, you should simply ignore them.

Installing and Running PowerStrike PowerStrike is an add-on software program for use with MetaStock 7.21 (or higher). As such, PowerStrike shares the same system requirements as MetaStock. See your MetaStock documentation for details.

To install the PowerStrike plug-in:

1. Ensure that MetaStock 7.21 or higher is successfully installed.

2. Insert the PowerStrike CD-ROM in your drive. Or if you downloaded PowerStrike, OPEN or double-click the downloaded EXE file. The Installation Wizard for PowerStrike will start.

3. Enter the Install Password when prompted: Password: ap3m9kh48

You can verify that PowerStrike was successfully installed be running MetaStock and confirming the existence of one or more the installed components (i.e., exploration, expert, customer indicators).

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Note that the Expert Commentary validates the values reported in the Exploration report (in Step 3); namely, the DownStrike Support at $12.50 is 36 points higher than the Upstrike Resistance at $15.00. In addition, the most recent closing price is within the PowerStrike Bands, and the 20-day TSF (Time Series Forecast plotted as a red line) is above the DownStrike (12.50). All of this makes Archer Daniels officially “buy enabled.”

Note that most of the 36 points attributed to Archer Daniel’s DownStrike score occurred in the November/December 2002 timeframe. Note also that during that timeframe, $12.50 acted as Resistance, not Support. But remember, however, that classic technical analysis teaches that penetrated Resistance becomes “Support”. With the most recent price and TSF above $12.50, it has switched roles from resistance to support.

Step 5: Create Precise, Diverse Entry Rules with Stops At this point, PowerStrike has helped you find stocks that are strongly bolstered by support and/or resistance—being buy or short enabled. The final step is to use 2 to 4 diverse and well-tested technical indicators or conditions to precisely time the execution of a buy or short entry trade. It is also wise to synchronize your individual stock trades with the overall bullishness or bearishness of the overall stock market.

Indicator diversification (as we call it) is an important principle in trading system development (see Appendix, Brick Rainbow). John Slauson, the creator of PowerStrike, was introduced to this important principle by John Bollinger (www.bollingerbands.com) in the Fall of 2000 when the two developed a MetaStock plug-in called BBS (Bollinger Band System). Adaptick has been a strong advocate of this principle ever since.

At Adaptick, we also coach and train our students to use “stops” as the exclusive means of exiting trades. Your stops should be designed to first, protect from unreasonable loss of capital and, second, to protect unrealized profits. Adaptick’s IntelliStop™ indicator (provided to privately coached students) are excellent for this. However, straight percentage stops or Parabolic SAR stops are also popular.

MetaStock contains a library of over 120 technical indicators that when combined with PowerStrike can be the foundation for a powerful trading system.

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SR Ratio. Sort on this column to prioritize the report by the Support/Resistance Ratio. A high value in either case (buy or short enabled) indicates a stronger respective underlying support or overhead resistance.

As you can see in the previous illustration, Archer Daniels was sorted on the AVAI column. It has a relatively high AVAI of 42.97 and a high SR ratio of 36.00. An SR ratio of 36.00 indicates that the DownStrike support scores 36 times higher than the UpStrike resistance. The proximity of the closing price is within the PowerStrike Bands and the DownStrike score being at least 33% or higher than the Upstrike score are the primary reasons for the “buy enabled” status.

This can be verified by opening the chart of Archer Daniels and applying the Adaptick PowerStrike template and viewing the Expert Commentary (see Step 4).

Step 4: Apply the PowerStrike Template

Action: Right-click chart > click Apply Template > Adaptick PowerStrike > View menu > Expert Commentary

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Putting PowerStrike to Work Your success with PowerStrike will be dependent primarily on your ability to incorporate it into a “trading system” and to execute that trading system with strict discipline.

Terms You Need to Know Before Proceeding Upstrike. The option strike price immediately ABOVE the current price. Downstrike. The option strike price immediately BELOW the current price.

PowerStrike Bands. The dashed bands that surround the Upstrike and Downstrike price levels. These bands fluctuate with the amount of volatility.

Buy Enabled: A condition comprised of a stock’s closing price being within the PowerStrike Bands, the 20-period TSF being above the DownStrike level, and the Downstrike score being at least 33% greater than the Upstrike score. Note that a stock being “buy enabled” should not be interpreted as being an executable “buy signal” alone. The timing of a buy trade itself should come from a diverse set of 2 to 4 technical indicators or conditions (see the Appendix, Adaptick Brick Rainbow).

Short Enabled: A condition comprised of a stock’s closing price being within the PowerStrike Bands, the 20-period TSF being below the UpStrike level, and the Upstrike score being at least 33% greater than the Downstrike score. Note that a stock being “short enabled” should not be interpreted as being an executable “buy signal” alone. The timing of a short trade itself should come from a diverse set of 2 to 4 technical indicators or condition (see the Appendix, Adaptick Brick Rainbow).

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Another MetaStock plug-in called “ICE for MetaStock” (Indicator Classification and Election System) is a great tool for finding diverse, top-peforming indicators (see the Appendix for more information)

Step 1: Collect and Maintain Locally Stored, Optionable Stock Data PowerStrike is designed to search stocks (i.e., equities) on which options exist. These are called “optionable” stocks. In the U.S., there are about 10,000 listed stocks. However, only 2,300 of these stocks have options. Some data providers segregate the optionable stocks, thereby making it easier to collect and manage. Reuters DataLink (www.reutersdatalink.com), a popular data service among MetaStock users, provides this feature.

Action: Run The DownLoader > click File > New > Security > Look-up

The software that MetaStock provides to collect and maintain local data is called The DownLoader. Local data is stock price data stored on your “local” hard disk. Locally stored data is not an “absolute” requirement to run PowerStrike’s exploration. MetaStock is able to access daily data directly from Reuters DataLink (for example) via a live Internet connection. Equis calls this feature “data-on-demand.”

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Action: Run the Adaptick PowerStrike Exploration > display the resulting Report.

A value of “1.0000” in the “Enable” column means that the stock is buy enabled. A value of “-1.0000” means that the stock is short enabled.

You can sort this report on any column by simply clicking the left mouse button on the column heading. By default, the report sorts alphabetically.

The three columns in the PowerStrike Exploration report on which you will most likely sort are:

Enable. Sort on this column if you want to segregate Buy and Short enabled stocks. Most traders will want to “bias” there stock picks either bullishly or bearishly depending on their forecast for the general, overall stock market.

AVAI. Sort on this column if you want to prioritize the stocks based on recent volume activity. The higher the AVAI (Adaptick Volume Acceleration Index), the more intense the bullish or bearish potential is (all else being equal). A high AVAI means that volume is accelerating over the short-term--a positive influence for both long and short trades.

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than 100, means stocks have been found that meet the Buy Enabled or Short Enabled criteria.

Step 3: Sort the Exploration Report Upon completion of the exploration, you are automatically presented with the option of viewing the reports.

Action: Click the Reports button to display the Exploration results.

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While the data-on-demand feature of MetaStock is great for viewing charts; it is very slow for filtering and screening with MetaStock’s Explorer feature. For this reason, we strongly recommend that you use The DownLoader to collect and store your data locally (i.e., on your hard disk). Then allow the PowerStrike exploration to search across this locally stored data.

Action: Click Tools menu > The DownLoader

As of this writing (August 2003) using The DownLoader to maintain locally stored data is a much more efficient solution for filtering and screening with The Explorer. However, this feature of MetaStock is likely to improve, so keep a close eye on new developments.

Step 2: Filter Optionable Stocks with the PowerStrike Exploration This is where PowerStrike does the bulk of the serious work. PowerStrike uses The Explorer feature in MetaStock to search through your local optionable stocks (collected in Step 1) to find stocks that are either “buy enabled” or “short enabled” per the PowerStrike rules.

In a nutshell, the PowerStrike exploration searches for stocks where the closing price is near a high scoring Support level or a high scoring Resistance level. The following illustrations visually show the types of patterns the exploration searches for.

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Action: Right-click Chart > Apply Template > Choose Adaptick PowerStrike.mwt

Action: Right-click Chart > Apply Template > Choose Adaptick PowerStrike.mwt

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Action: Click Tools > The Explorer

Action: Click Explore button > The Explorer

While the Adaptick PowerStrike exploration runs, the Exploration Status window appears (see the following illustration). This window gives you feedback on the status of the exploration. If you are exploring all optionable U.S. stocks, then you should see about 2,200 in the “Total Securities To Process” field.

The “Estimated Remaining Time” is also a good value to glance at. Depending on the speed of your computer, this can range anywhere from 10 minutes to 60 minutes or longer. The “Percent Rejected” value gives you a quick idea of how many stocks have been found. Anything less