The SATS5 Expert Advisor

Expert System

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The extended SATS5 expert system application consists out of 2 different parts.

In this first part we just look at the SATS5 expert. Here there is no user interference except of course opening the stock chart with the SATS5 expert linked to it. SATS5 will then clearly show the buy and sell signals. In this part we will also look at money management.

In the second part we are going to show techniques to avoid SATS5 non profitable trades. For this we will heavily rely on a few proprietary indicators and some Elliott wave analysis. One of the indicators will help us to make Elliott wave counts.

Important is that opening a long or a short trade is always initiated by SATS5. That way it will almost be impossible to have trading results that would be worse than just using the SATS5 system by itself.

IMPORTANT REMARK!
The SATS5 formula references the number of bars loaded. The trading result may therefore be different loading more or less price bars.

SATS5 Basic Aplication

The SATS5 basic application consists of the SATS5 expert function.

Linking the SATS5 Expert to a chart

Open a new chart with only price bars and color this bar chart (or candle chart) red.

Next, attach the expert advisor.
Click the right mouse button in the price chart window.
Then select "expert advisor" and click "Attach".

In the smaller popup window "Attach Expert", now double click the expert SATS5 or select SATS5 and click the OK button.

Once SATS5 is attached, the basic red bar chart or candlestick chart will automatically be colored green for long positions and black for short positions and a red bar means there is no open trade.

In the next chart you can see the closing price of the first green bar after a red or black bar is a signal for opening a long trade (buying the stock).

The closing price of the first red bar after a green bar is the signal to close an open long position (sell the stock in possession).

The closing price of the first green or red bar after a black bar is the closing signal for an open short position.

That’s it, very simple!

For best results I repeat what I wrote in the introduction.
Use a selection of stocks that make bigger price moves over a longer period of time avoiding stocks that have a history of:

• A long period of small price changes
• Very high intraday volatility
• Very high daily volatility
• Regular big surprise moves

Example Charts

In the chart of GCI of the next figure, you can see how complex medium term up moves, are nicely captured by SATS5 avoiding non profitable short trades.

This figure shows a large longer period up move, completely captured by SATS5.

As you can see in the chart of Alcoa Inc in the following figure, SATS5 does perform quite well in down moves. It will limit losing long trades in the downtrend even during very choppy trending.

Of course no system is perfect. In the third part we are going to show example techniques to avoid entering non profitable trades. This is however a manual process based on basic technical analysis techniques and using some proprietary indicators.

Money management

Part of good money management with SATS5 is to use a limited selection of stocks. With a fixed, limited number of stocks it is also easy to keep individual charts with specific notes over a longer period of time.

Capital Distribution

To this limited selection of stocks I attribute a fixed evenly distributed starting capital to each stock. Each stock will be traded individually with no profit or loss sharing with the other stocks in portfolio. This means that each stock must be handled individually, because it must only use its own private capital.

Applying this kind of money management is very effective and has a number of advantages:

• With a starting capital of $25,000, distributed between 25 stocks with each $1,000, the total loss of one stock represents a limited loss of 4% only of the total portfolio.
• A stock doing well generates maximum profits by re-investing all the profits for its own benefit.
• A stock producing bad results will have less and less capital to spend, limiting losses when things continue to go the wrong way.
• Profit of a stock doing well is not lost investing it in stocks not doing that well.

Bad performing stocks will be recognized much faster. That way they can be replaced much sooner or in the worst case they are not in the race anymore because there is no capital left.

The find out the difference using a portfolio with profit and loss sharing or no profit or loss sharing, we can run a SATS5 test with the same stocks over the same period of time.

We use the 25 stocks from the SATS5 system results and a period of 1500 days.

The result with profit and loss sharing, meaning 4% of the total available portfolio value is always available for each stock; renders a total profit of about $50,000.

The result without profit/loss sharing, meaning each stock gets $1,000 initial start capital and has only access to this amount; renders a total gain of about $90,000.

No profit and loss sharing gives a better profit with exact the same trading signals. This difference will be dependant of the stocks and period considered, but usually generates a minimum of 40% to 50% higher profit.

No profit or loss sharing is clearly the way to go.

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