Fundwatch Help Contents

Press F1 to get context-sensitive help for any active control on any screen.

Overview
Quick Start
Changes in this Release
Use of Technical Analysis

File Options
Owner's Name
Edit Securities/Prices
Update Data
Find/Screen New Securities
Import List of Symbols
Import Security
Portfolio
Distributions
Streamer
Links Menu

Analysis Report Settings
Configuration and Alerts
Signals Analysis
Rate of Return Analysis
Performance Analysis
Yearly Analysis
Trend Analysis
Volatility Analysis
Momentum Analysis
Summary Analysis
Graphic Analysis
  • Plot Security
  • Moving Averages
  • Relative Strength Index (RSI)
  • Money Flow Index (MFI)
  • Least Squares Regression Curve
  • Trading Range
  • Auto Trendline
  • Bollinger Bands
  • Fibonacci Levels
  • Speed Resistance Lines
  • MACD
  • R-Squared
  • Momentum Oscillator (Rate of Change)
  • Candlestick Plot
  • Parabolic SAR
  • Stochastic Oscillator
  • On Balance Volume
  • Klinger Volume Oscillator
  • P/E Ratio
  • Backtesting (and Building Trading Systems)

     


    Overview

    Fundwatch is a tool for evaluating and comparing the performance of common market-based securities and helping to determine good times to buy or sell. Fundwatch uses price and volume data with incorporated dividends and distributions to compare performance and analyze market movements with technical analysis and backtesting. Fundwatch can analyze a variety of securities, including mutual funds, stocks, ETFs, options, and market indexes. Data is downloaded from a public source but is saved in data files for fast access, requiring updates only on demand or at periodic intervals.

    The Data File Structure

    You can build as many data files as you want. Each data file stores a price-volume history of up to 100 securities for which you have entered symbols or names. Fundwatch provides two options for the granularity of price histories: daily or weekly. You can choose daily or weekly any time you download data and can change between the two at any time. Because the size of the data file is limited, choosing daily may provide a shorter history.  

    You build each data file by entering symbols or names of securities, downloading security price information (or manually entering or importing it if it is not publicly available) and updating it periodically. Securities can be added or deleted at any time, and price histories can be updated at any time for any or all securities. Once a data file has been started, analysis can be performed at any time.

    Each data file will be built according to regularly-spaced price dates. In a weekly data file each price date will represent one week (assumed to be Friday's closing price). Fundwatch expects prices to be entered for each regular interval (day or week), but if prices are missing on some price dates, the program will simply assume that security prices for skipped dates are the same as their previous entries.

    Building Your Data File (See also Quick Start)

    The first step in building a data file is selecting its initial daily or weekly designation. You will then add the names and symbols of securities you wish to track, and then add price data, either by downloading it from the internet, importing it from a file, or entering it manually. You can update prices at your discretion, and new securities can be added at any time.

    A security's price is the closing price (or Net Asset Value for mutual funds) on the price date for which it is being entered. Available high, low, open, and volume data is also collected on each price date if you download from the internet.

    Distributions (and dividends) are typically included in downloaded historical data for most securities so you will rarely need to enter these manually, but they may be entered manually for any date falling within the time span of the data file (does not have to be on a price date). Entering dividends and distributions allows securities of various types to be accurately compared on the basis of their total return.

    Fundwatch also stores the number of shares you own of each security in the data file, and allows you to enter "cash equivalent" accounts for securities without tracked price histories, so you can monitor your entire portfolio's current value and asset allocation.

    Backups

    Each time you save a data file, Fundwatch makes a backup of the previous version using file extension .bak.dtb. You should perform external backups of your data files since they will contain a lot of custom information that cannot be recovered from the internet. Fundwatch data files are identified by the extension .dtb. Trading Systems (for backtesting) are kept in FWSystems.dat.

    Data File Limitations

    Fundwatch's data file is large enough to store 50 years worth of weekly prices or 10 years worth of daily prices at a time for any security, however, new price dates and new prices can be added to the data file indefinitely (a price date added beyond the time limit causes the earliest price date to be lost, having the effect of scrolling the data file forward).

    An unlimited number of distributions may be entered for any security, however only the 1250 most recently entered are able to be listed or edited. Those entered prior to the last 1250 are not listed but are still embedded in the data and included in all calculations.

    Fundwatch does not make predictions or investment recommendations; it merely performs calculations on historical data to help you make assessments of what has happened historically and make better informed decisions. You should understand that past performance of market investments does not guarantee similar performance in the future. Also, be advised that computer-aided analysis is potentially susceptible to both program and user error, and that you use and rely upon the results of Fundwatch at your own risk. See License Terms and Limited Warranty for further information.

    Technical Support

    You can email questions to fwsupport@hamiltonsoftware.com.

     


    Quick Start

    It is strongly advised that you read the Overview section before you proceed because it explains the structure, limitations, and proper usage of the program.

    A sample data file is provided to help you learn the program's operation. Simply click the File menu, then under File, click Open Data File. Open the file by double clicking on "Sample" in the file list.

    While using Fundwatch, you will be collecting price-volume data for one or more stocks, mutual funds, etc. at daily or weekly intervals. You may create and maintain as many data files as you want; each may contain as much as 50 years of weekly data or 10 years of daily data for up to 100 securities.

    To start a new data file:

    1. Click the File menu. Under File, click New Data File. You will first be asked if you have historical data which must be entered manually. Unless you plan to enter historical data for a special investment that is not listed publicly, answer "No". The new file will initially be shown as "untitled"; you will be prompted to name the file later. You will be asked to designate the pricing interval for all securities in the file as weekly or daily (it can be changed later). If you have data which must be entered manually, you will need to specify the beginning date (this is the date of the oldest prices you plan to enter manually).

    2. A spreadsheet will then appear which allows entry of security symbols, names and prices. Here is where you add securities you want to track. You can either add securities by (1) entering this information in the text boxes above the spreadsheet, pressing Tab for each data item and Enter for each new security (steps 3 thru 6 explain this in more detail). Or (2) you can drag and drop a symbol file onto this grid.  Leave prices blank if you intend to download them (Fundwatch will ask you if you want to download the security data). Once data has been entered, it will appear in the spreadsheet. Data in the spreadsheet will be saved in the data file and can be edited by clicking on it in the spreadsheet grid and editing the data in the text area above the grid. You can download all securities at once by first entering their symbols and names and then clicking Download History.

    3. To add a security, enter the symbol (e.g. FPURX) in the Symbol field (if the security has a symbol). If the security does not have a symbol, leave this field blank.

    4. Press the Tab key to move the cursor to the Name field. Fundwatch will attempt to automatically provide the name and style from the symbol but if it cannot, you must enter the security's name (e.g. Fidelity Puritan). The name is limited to 20 characters. Select a Style from the dropdown menu (if it hasn't been correctly set). You can then enter the security's Price for the displayed Price Date, but if you plan to download the data from the internet, leave the price blank.

    5. Either press the Enter key or click the OK button to add the new security to your file. Fundwatch will then ask you if you want to download the security data. Downloading takes very little time, but you can wait until you've added all your securities and then download them all at once if you prefer. If you have more securities to add, repeat steps 3, 4 and 5. Securities can be added by clicking on an empty grid row or by clicking the Add New Security button, and prices can be added or edited for existing securities by clicking on a cell under the corresponding price date.

    6. If you didn't enter or download prices for the securities you entered above, you can download them now. Click the Download icon button in the upper left, select a single security (or select "All"), and click Download.

    7. When you have no more data to enter, close the display to return you to the main display. Here, you can enter the name of the owner of the portfolio. You can also open the Portfolio display to edit your holdings in each of the securities you own.

    8. To save your new data, click the File menu and Save Data File As selection. In the File Name box, enter a filename for your data file and click Save.

    9. Once you have price data in your file for more than one date, you can click on the analysis functions in the Analysis menu. Refer to Contents for instructions on the use of the Analysis functions and the Analysis Report Settings.

    Press F1 to get context-sensitive help for any active control on any screen.

     


    Changes in this Release

    Major changes added in Version 15:

    Major changes added in Version 14:

    Major changes added in Versions 12 & 13:

    Major changes added since 2000:

     


    Use of Technical Analysis

    Technical analysis is the process of analyzing a security's historical prices in an effort to predict probable future price movement.

    To be a profitable trader, your goal should be to improve your odds of making profitable trades. Even if you do nothing more than determine the long- or short-term trends of a security, proper use of technical analysis will gain you an edge you would not otherwise have. You'll never know for sure that a security's price is going to rise, but if you buy a security when it is in a rising trend after a minor selloff, you will have improved your odds of making a profit, and over time, the practice of improving your odds will show up in your returns.

    The price at which an investor is willing to buy or sell depends mostly on price expectations. If the investor expects the security's price to rise, he will buy it; if he expects the price to fall, he will sell it. If prices are based on investor expectations, then knowing what a security is worth (fundamental analysis) becomes less important than knowing how investors expect its price to move. That's not to say that knowing what a security is worth isn't important, but there is usually a fairly strong consensus of a stock's future value that fundamental analysis cannot predict. This principle of analyzing investor expectations by examining price or price/volume patterns by themselves provides the basis for technical analysis.

    The roots of modern-day technical analysis stem from the Dow Theory, developed around 1900 by Charles Dow. Its principles include the trending nature of prices, confirmation and divergence, volume accompanying price changes, and support/resistance. Today, technical analysis is accepted as a viable analytical approach by most universities and brokerage firms. Rarely are large investments made without reviewing the technical climate.

    While there are probably hundreds of technical analysis methods in use, and new ones continuously being invented, a few have gained widespread credibility and refinement, and are relied upon on a daily basis across world markets. Fundwatch employs a number of these most popular methods, both as charting tools, and to provide alerts of common buy/sell signals.

    A key principle in the interpretation of technical analysis is the phenomenon known as confluence, or confirmation of indicators. Simply put, confluence is a simultaneous prediction of price direction from multiple technical indicators. If one technical indication increases your odds of predicting price movement, multiple indications occurring together theoretically strengthen those odds. Many analysts will ignore a technical indication altogether unless it is confirmed by another. You can configure Fundwatch's technical analysis methods to alert you using parameters you specify.

    Before setting these configurations, you may want to do some research to suit your investment approach and get the most harmonious confluence from alerts. Fundwatch provides a backtesting platform that allows you to combine indicators and experiment with varying parameters. You can also use these tailored indicator combinations (called Trading Systems) to provide buy/sell alerts.

     


    File Options

    New Data File initializes the program for creation of a new Fundwatch data file.

    You'll be asked if you have historical data which must be entered manually. Answer "No" unless you plan to manually enter historical data for a special investment that cannot be downloaded from the internet. You will then be asked to designate the pricing interval for all securities in the file as weekly or daily. Choose a frequency that best fits the type of investments you are tracking and the granularity of analysis you need (for instance, you might create a weekly data file for mutual funds and a daily file for frequently traded stocks). Note that a weekly data file can store up to 50 years of data, whereas a daily file can only store up to 10 years. You can easily change the designation at any time in the future. All securities maintained within the same data file will use the interval designated for that file. See Quick Start or Edit Securities/Prices for instructions on creating a new data file.

    If you have data which must be entered manually, you will need to specify the beginning date (this is the date of the oldest prices you plan to enter manually). All price data you manually enter will be subsequent to the starting date; you will not be able to manually enter price data occurring before this date.

    Open Data File asks you for a Fundwatch data file filename, and then loads the file from disk. There is a sample data file, "Sample.dtb", in the Fundwatch program directory which you can open and experiment with.

    Save Data File saves the data file currently in memory to the currently opened data file. It also saves the previous version of your data file with the file extension .bak.dtb.

    Save Data File As allows you to save the data file currently loaded to a new filename or location. The filename extension .dtb (automatically appended) is used for identifying Fundwatch data files.

    Import List of Symbols allows you to add multiple securities to your data file using a text file containing a list of symbols (see Import List of Symbols).

    Import Security allows you to import a security's price-volume data from a text file. You are presented a popup which allows you to specify the data to import (see Import Security).

    Password Protect allows you to specify a password for the currently loaded file which will be required to open the file in the future.

     


    Edit Securities/Prices

    This window allows you to add or delete securities, and edit any of the existing security data. The grid shows what the data file contains, with each row representing a single security and its price history, and each column a single price date and the security prices on that date. Clicking on a cell in the grid selects a security, a price date, and the security's price on that date for editing in the text boxes above the grid. You can also edit the security's name, symbol or investment style.

    New security names can be added to the data file by clicking the Add New Security button (or by clicking an empty row on the grid). For step-by-step instructions for adding security data, see Quick Start.  You can also add new securities via the Securities Finder/Screener Tool, which is accessed by clicking Find Securities, or you can enter a search term in the Search for Symbol field and select a security from the results that appear in the adjacent dropdown.*

    Once there is price data in the data file, Fundwatch will create future entries at either weekly or daily intervals depending on the file's current tracking interval. A new price date is therefore predetermined when you open the price entry display, however if the file is weekly, you can adjust it to any day within the week. Fundwatch will normally prompt you to update price data automatically when you open the data file, so you would only need to update prices on this display if you are maintaining securities that cannot be downloaded.

    Three buttons in the upper left-hand corner allow you to delete the selected security from the data file, view detailed information on the selected security from Yahoo!®, or download historical price-volume data from Yahoo!®.  You can change the daily/weekly tracking interval for the file any time you download data for the entire file.

    Downloading Price-Volume Data
    Importing Data from a Text File
    Adding New Symbols from a Text File

    *Please note that the Find Securities and Search for Symbol features make use of third-party websites that could be impeded by your browser or system security, or may change or reduce their functionality in ways beyond our control.

     


    Owner's Name

    This editable field on the main Fundwatch display allows you to designate a person as owner of the portfolio holdings contained within the currently loaded data file. For instance, you may have several files, each representing the investments of different people.

     


    Update Price and Volume Data

    Full Update

    A price-volume history going back as far as 50 years (if weekly) or 10 years (if daily) from the latest date of your data file (depending on available data) can be downloaded for a selected security by clicking the Download icon button on the Edit Securities/Prices display or by choosing Update Data from the main menu. Fundwatch will normally prompt you automatically for updates as it determines they're needed.

    If you're editing a specific security in the Edit Securities/Prices display, there must be a symbol entered for the security. The downloaded data is obtained from Yahoo!®. If Yahoo!® is unavailable or you cannot connect to Yahoo!®, you will not be able to use this feature. Be advised that Yahoo!® may not adjust this data for dividends, stock splits, distributions, etc, and that it could be inaccurate for other reasons. The start date of the data will be limited to either the capacity of Fundwatch's data file or to what Yahoo!® provides.

    Changing the Tracking Interval

    Whenever you download data for all securities, you can designate the tracking interval as either daily or weekly. Choose a frequency that best fits the type of investments you are tracking and the granularity of analysis you need (for instance, you might create a weekly data file for mutual funds and a daily file for frequently traded stocks). Note that a weekly data file can store up to 50 years of data, whereas a daily file can only store up to 10 years.  Daily data takes longer to download.

    Changing the tracking interval from weekly to daily shortens the time span of the data, causing earlier data to be lost. Changing from daily to weekly will preserve only one day per week (the final values) causing the other days of the week to be lost. If the data cannot be re-downloaded (i.e. you've entered it yourself), it is not recoverable once you save your file.

    Update Latest Only

    The "Update Latest Only" option downloads only the most current (real-time) price-volume data for the current day (this will not be the day's closing prices unless the market has closed). This is normally the default option for daily data since full updates take much longer for daily data. Note this method will not capture distribution data. Distribution data (if available) can only be downloaded with the full history, so Fundwatch will suggest a full history download of daily data once a month. The default for weekly data is always a full update.

    Earnings and Morningstar Ratings

    Morningstar® updates its ratings approximately once a month, so Fundwatch automatically selects the Mornigstar checkbox once a month. Corporate earnings are reported at periodic intervals (usually quarterly), so this is also a good frequency for updating earnings as well.

    High, Low, Open, and Volume data can only be entered into Fundwatch by download or import, and only if it is available for the security (e.g., not all such data is available for mutual funds). High, Low, Open, and Volume data is only displayed on the Graph and cannot be edited.

     


    Find/Screen New Securities

    The Securities Finding and Screening Tool (accessible from the Edit Securities/Prices Display) allows you to search the web for securities meeting your selection criteria and then add them to your data file. The tool simply provides access to securities screening features available on third-party websites and allows you to easily add your selected mutual funds, stocks, or ETFs to your Fundwatch data file.

    Use the tool as a web browser, navigating the third-party screening features to set your search criteria. You may have to scroll the page and click an action button to get results. 

    When results appear on the webpage, a list opens on the right side of the display allowing you to select one or more of the result securities for addition to your data file. Select the securities you want to include in your data file in this list and click Add selected securities to data file. You can also view charts and other data via links on the third-party's pages, but you must return to the results page to add securities to your file.

    Be aware that third-party web pages may display ads or error messages during navigation. Generally, these can be ignored or dismissed.  Also be aware that third-party websites are beyond our control and may change functionalities or become inoperable in the future.  Additionally, their functionality may be blocked or limited by your browser or system security settings.

     


    Import List of Symbols from a Text File

    You can add multiple securities to your data file in one easy step simply by importing a text file containing a comma-delimited list of symbols (e.g. "AAPL, TIP, S, FPURX"). Symbols in the list must be separated by commas or line feeds. This type of text file is also known as a CSV (comma separated variable) file, which can often be exported by other programs. You can also easily create such a file yourself using a simple text editor like Notepad.

    You can import the file using the File->Import List of Symbols menu selection, or you can simply drag and drop the file directly onto Fundwatch's main display (if a data file is active) or onto the Edit Securities/Prices display. Fundwatch will ask and then download the price histories for the added securities.

    Fundwatch attempts to automatically supply names and styles for the added symbols, but you should check these for correctness. Also, Fundwatch will not add symbols which are already in the data file.

     


    Import Security from a Text File

    You can import a security along with its price-volume history from a text file by selecting Import Security from the File menu. The Import Security popup allows you to enter the name, symbol, and type of the security (securities must be imported one at a time), and specify a text file containing its historical data. The file must be a CSV (comma separated value) ASCII text file.

    The text file must be formatted as rows for each price date, containing comma-separated values for each row, and must include on each row at least a date and price. The rows can optionally contain high, low, open and volume data, and can include an adjusted price in addition to the listed close price (an adjusted price is the listed price adjusted for dividends, splits, and distributions).

    You tell Fundwatch what data is included in your file by checking the appropriate checkboxes. The required format is displayed in the Format field below. All specified data items in the Format field must be included on each row and must be in the order shown. If your data file is not formatted the way Fundwatch requires, you can edit your text file using Excel or a similar spreadsheet program and rearrange the columns of data so they are in the required order. Make sure you resave the file as a CSV file. Once you have properly formatted your file according to the displayed format, you can then import it by clicking the Import button.

    Also note the importance of properly indicating whether the dates are in ascending or descending order.

    This example shows five rows of data, including date, open, high, low, close, volume, and adjusted price (in that order). The dates are in descending order:

    9/19/2008, 4880, 5351.2, 4857.1, 5311.3, 2147442800, 5311.3
    9/18/2008, 4912.4, 5015.9, 4860.7, 4880, 2145521400, 4880
    9/17/2008, 5025.6, 5124.4, 4903.3, 4912.4, 2146561600, 4912.4
    9/16/2008, 5204.2, 5204.2, 4961.2, 5025.6, 2146099200, 5025.6
    9/15/2008, 5416.7, 5416.7, 5124.9, 5204.2, 2087491400, 5204.2

    Once imported, this data will provide a price-volume history of five days for a new security, which will be given the name entered on the popup. Once you've imported a security, it will be viewable just as though you had downloaded or entered it manually, but you must save your data file to permanently add it to your file.

     


    Portfolio

    The Portfolio window allows you to maintain a record of your current holdings and view their current value and allocation. You can maintain the shares you own of any of the securities in your data file, and you can add the values of other accounts (or debts) you have so that the portfolio accurately represents your entire net worth.

    A list of all the securities in the data file is displayed along with the number of shares you own of each security (initially zero), the most recently recorded price per share, the total value based on that price, the ratio of each dollar amount with respect to the total, and the date on which you last changed the number of shares.

    To enter or change the number of shares for a specific security, select the security from the list and edit the Shares text box. At this point, you can also select a Tax Type designation for the holding. Adding a tax type will allow you to view your asset allocation not only by investment style (e.g. stocks, bonds, etc.), but also by tax treatment (tax-deferred, tax-free, or unsheltered). Press Enter or click on OK to save your changes. Whenever you change the number of shares held for a security, the Last Change date is updated with the current date.

    Cash Equivalent Accounts

    Click the Add Cash Equivalent Account button (plus icon) to add a holding that is not a security in the data file (because it is not a publicly traded security or does not have a fluctuating price history). Examples could be savings accounts, bonds, CDs, real estate, personal property, or even debts such as a mortgage. Adding these accounts (and periodically updating their values) will allow you to get a frequently updated view of your net worth, along with extensive breakdowns of your asset allocation. This information can also be imported by other HSI programs (Easy ROR Pro and EarlyRetire Pro). These accounts will only be viewable and editable in the Portfolio; they will not appear in any analysis reports (other than asset allocation). You can delete a cash equivalent account by setting its value to zero.

    The portfolio can be updated automatically when you enter a distribution, as described in Distributions. When this occurs, the Last Change date will also be automatically updated with the date that you entered the distribution.

    Securities in which you specify a holding in the Portfolio will appear bold faced and highlighted in all analysis reports. Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares.

    Asset Allocation Pie Chart

    The Asset Allocation button (pie chart icon) displays a pie graph of your portfolio's percentage breakdown, which you can control to show by security, by style, by tax type, or by security within a category.

     


    Distributions

    Many investments, including most stocks, bonds and mutual funds, periodically pay interest, dividends, and/or capital gain distributions to their shareholders. Regardless of whether such distributions are paid out as cash or reinvested in the security, they represent a part of the security's total return not reflected in the security's price change. It is therefore necessary to track such distributions in the data history in order to accurately represent the security's performance. Note that stock splits are also effectively distributions, and can be treated the same way (e.g. a two-for-one split is equivalent to a distribution of the full share price; or a three-for-two split is equivalent to a distribution of half the share price, etc).

    When you download the complete history of a security, Fundwatch is usually able to automatically extract all distributions from the downloaded data (for most securities), so you don't have to manually enter them.  Distributions must be manually entered for securities whose prices you are manually entering.

    To enter or change a distribution, select the appropriate security from the pull-down list to get a listing of the 1250 last entered distributions. The listing will show the date of each distribution and the percent distributed. The price of the security on the distribution date and the dollar amount of the distribution will be displayed only if there is a price in the data file on the distribution date. Click the Add button to add a new distribution, or click a distribution in the list to edit or remove it.

    When the Add (or Change) Distribution window appears, enter the date on which the distribution actually occurred, usually called the Trade Date on accounting statements (if you are editing a distribution, the date cannot be changed; the only way to change the date of an existing distribution is to remove the entire distribution and re-enter it). If there is a price in the data file for this date, Fundwatch will display it, otherwise you must enter it from your statement. You must then enter the dollar amount of the distribution either as dollars paid per share or as total dollars paid (if you owned shares at the time). One or both of these figures is typically reported on your statement (dollars per share is the figure you will be quoted by institutions which handle the security). If you are unable to obtain the information in one of these forms, you may have to calculate it from provided information.

    Checking the Update Portfolio Shares box tells Fundwatch to automatically update the number of shares in your portfolio based on the number of shares you owned when the distribution was paid. You must therefore enter the number of shares of the selected security you owned just before the distribution occurred. This number is also important if you enter the distribution as total dollars paid (even if you don't update the portfolio) because it will be used to calculate dollars paid per share.

    When you click the OK button, the data file will be adjusted to include the distribution as part of the security's return, and the distribution can be viewed on the Graph or in the Rate of Return report.

    Removing Distributions

    You can remove a distribution by selecting it from the list and clicking the Remove button. It may ask you for the number of shares you owned before you received the distribution because it cannot always calculate this value from the information it has saved. Simply enter the number of shares you owned prior to receiving the distribution you are removing.

     


    Streamer

    The Streamer displays stock, index, and ETF quotes collected from the internet at approximately 1-second intervals. The interval may vary according to the speed of your internet access and servers, and the quotes themselves may be delayed. The time of the quote is displayed in the last column.

    You can sort information on the Streamer by clicking on the column you want to sort.  You can also filter the displayed securities by category, and you can display market index charts by clicking the Chart toggle at top.

    Since mutual funds do not update during the trading session, they are excluded from the display; only stocks, ETFs and indexes are displayed. Quotes are obtained from Yahoo!® and/or CNN. Any symbol which is invalid, misspelled, contains a bad character, or for any other reason is not listed on Yahoo!® or CNN, will cause quote data for subsequent symbols to be corrupted. The Streamer attempts to exclude such symbols automatically, but if you see bad quote information on the Streamer starting on a particular row, check the symbol on that row or the preceding row for correctness.

     


    Links Menu

    The Links menu provides you quick access to external websites such as brokerages or news sources (similar to Favorites or Bookmarks). It automatically contains links to the login pages of several major brokerages, and allows you to add and edit your own links. Use Add/Change/Delete to add a new link or edit an existing one. All links you create are saved between sessions and can be edited or deleted by clicking the Add/Change/Delete menu and selecting the desired link in the User Links dropdown list.

     


    Analysis Report Settings

    This is the section of controls on the main Fundwatch display.

    All of the Analysis Reports require you to specify a time period, the significance of which is explained in each of the Analysis sections. Rate of Return Analysis, Volatility Analysis, Summary Analysis, and Graphic Analysis each require a specified start and end date, while Trend Analysis requires a specified number of price intervals (days or weeks). Only securities with prices spanning the specified time period will be processed in the selected Analysis function.

    Start/End Date: When a Fundwatch data file is loaded, a list is displayed on the main screen showing the securities contained in the data file, their start dates and number of price intervals. Pull-down lists in the Analysis Report Settings area p

    Import Security allows you to import a security's price-volume data from a text file. You are presented a popup which allows you to specify the data to import (see Import Security).

    Import Security allows you to import a security's price-volume data from a text file. You are presented a popup which allows you to specify the data to import (see Import Security). you entered. You can also quickly set the start date to that of a desired security by clicking on the security in the list, or you can set it by clicking any of the standard time period buttons (YTD, 1 yr, 5 yr, etc.).

    The Trend Period defaults to 9 months (it is configurable in the Configuration dialog), but can be set anywhere between 2 and the maximum number of price intervals currently in the data file.

    The Filter allows you to create Analysis reports which include only the securities meeting the filter criteria. For instance, if you only want to compare rate of return for Small-cap Growth securities, you can set the filter to Small Growth before selecting the Rate of Return Analysis. The filter also limits what is displayed on the Streamer.

     


    Configuration Settings and Alerts

    Many of the technical analysis methods Fundwatch uses allow you to vary the parameters used in the analysis. These parameters are usually the specification of a period (number of days or weeks depending on the data file type) to use as a trend period (except for "Risk-Free Rate of Return" which is specified as a percent). You may want to use different trend periods depending on the analysis method, the type of investments you're tracking, the type of trading you're doing, or to follow a specific approach. Risk-free Rate of Return is simply the rate of return you would expect from a riskless investment (e.g. money market fund) and is used to calculate Sharpe Ratio.

    Fundwatch allows you to set these parameters so they will be remembered between sessions and automatically applied to calculations on the reports and associated alerts (see descriptions of the various alerts in Trend Analysis, Momentum Analysis, and Summary Analysis). They also appear as modifiable defaults in the Graphics functions.

    The Configuration Settings are accessible under the main menu.  Settings for Daily files and Weekly files are saved separately so you can use different parameters for different trading approaches.  Fundwatch provides defaults for these values that are the most recommended and widely used by technical analysis experts.

     


    Signals Analysis

    The Signals report shows a list of technical buy/sell indications for each security. Buy/sell indications (also called signals or alerts) occur when price or price-volume movements cross thresholds calculated for technical analysis functions according to settings in your Configuration. Some technical analysis functions are often evaluated in conjunction with others (to implement strategies of confluence), and in general, signals are considered more meaningful when they are corroborated by others simultaneously. This is especially true if you have configured your alert settings in a coordinated way.

    The report lists each security for which an alert (buy/sell signal) has occurred on the specified date, and for each listed security, lists all alerts occurring on that date. Each alert is represented by a three-character abbreviation for the technical indicator and its calculated value. It will be color-coded green if it is a buy and red if it is a sell. In the right-hand column, a "score" is produced by adding the number of buys and subtracting the number of sells, thus showing the net buy or sell strength of the combined signals. Scores are highlighted in green or red when the net buy or sell total is 3 or more.

    How signals are calculated:

    MAV (moving average) and EMA (exponential moving average) produce a buy signal when the price crosses up through the average and a sell signal when the price crosses down through the average. The value shown is the price-to-moving average margin ((current price - average) / average).

    RSI (relative strength index) produces a buy signal when the index crosses upward through the 30% level, and a sell signal when it crosses downward through the 70% level. The value shown is the RSI itself.

    MFI (money flow index) produces a buy signal when the index crosses upward through the 20% level, and a sell signal when it crosses downward through the 80% level. The value shown is the MFI itself.

    BOL (Bollinger bands) produce a buy signal when the price crosses up through the lower band and a sell signal when the price crosses down through the upper band. The value shown is the price-to-band margin ((current price - crossed band) / band).

    SAR (parabolic stop and reverse) produces a signal when its trend direction reverses. The value shown is the price-to-SAR margin ((current price - sar) / sar).

    MAC (MACD) produces a buy signal when the MACD crosses up through its signal line, and a sell signal when it crosses down through the signal line. The value shown is the MACD-to-signal margin ((MACD - signal) / signal).

    RET (retracement) produces a buy signal when the price makes an upward retracement (following a downward trend) through its Fibonacci 61.8% level, and a sell signal on a downward retracement of an upward trend through the 61.8% level. The value shown is the retracement.

    MOM (momentum oscillator) produces a buy signal when it turns from negative to positive and a sell signal when it turns from positive to negative. The value of the momentum oscillator itself is shown.

    STO (stochastic) produces a buy signal when the fast stochastic crosses up through the slow stochastic and a sell when the fast crosses down through the slow. The value shown is the difference between the fast and slow stochastic (fast stochastic - slow stochastic).

    KVO (Klinger volume oscillator) produces a buy signal when the KVO rises from below zero and crosses its signal line, and produces a sell signal when it falls from above zero and crosses its signal line. The value shown is the KVO itself.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Rate of Return Analysis

    The Rate of Return report enables evaluation of securities on the basis of their percentage return over a period of time. Given a period of time in the data file (set in the Analysis Report Settings), the Rate of Return Analysis function computes the total rate of return for that period (including distributions) of all the securities in the data file having prices spanning that period. It then annualizes those percentages and separates the portions of the return due to price growth and distributions paid. It also summarizes each of these figures for your portfolio by weighting each return figure according to how much of the security you own.

    Period Return is the actual computed percentage return (including distributions) of the securities over the time period.

    Annual Return is a conversion of the Period Return to an annualized Rate of Return. Be aware that this figure is only a mathematical conversion for the period you selected and may not accurately represent the actual annual return for any given year.

    Annual Growth and Annual Distributions represent a breakdown of the Annual Return into components of the total return due to price growth, and distributions, respectively. This breakdown tells you a little more about the nature of each security by revealing the relative roles of income and growth in its performance, and is often useful for estimating the effect of income tax on the returns of different investments. Bear in mind, however, that Fundwatch makes no distinction between distributions due to interest or dividends, and capital gains distributions which may be taxed differently.

    Least Squares ROR is the annualized rate of return obtained from a least squares regression of the security prices between the beginning and ending dates. A least squares regression finds a constant rate of return that best fits all the data points within the span, not just the beginning and end. For more explanation of least squares regression, see Plotting Least Squares Curve.

    Portfolio Total figures expressed at the bottom represent the weighted combinations of the security performance figures proportioned by the dollar amount currently owned of each security in your portfolio. If, for example, you had your money split evenly between two securities, your Portfolio Total return would be the average of the returns of these two securities. Since you may have moved money in or out of your securities during the time period of the Rate of Return Analysis, these figures may not accurately represent your past performance. They are most useful as indicators of your portfolio's current (and projected) performance.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Performance Analysis

    Performance Analysis lists the annualized returns of each security over 10-yr, 5-yr, 3-yr, 1-yr, 6-mo, 3-mo, and 1-mo periods. This compares securities on the basis of both long and short term performance, and on consistency of performance over time. Additionally, the last column lists the Performance Momentum of each security.

    Performance Momentum

    Studies have shown there to be value in concentrating on a fund's more recent track record as a predictor of future success. Building on work by Burton Berry, author Austin Pryor developed a formulaic approach to rank the performance of mutual funds which he calls "Performance Momentum". Performance Momentum theory holds that securities that have been the strongest of late are the more likely winners in the coming months (who would you bet on to win the Superbowl at midseason, the team that has done the best over the last 5 years, the team that won last year, or the team that is currently leading the league?). The Performance Momentum value is the sum of the unannualized 12-mo, 6-mo, and 3-mo returns. Notice that the most recent three months' performance is reflected in all three statistics. It represents 100% of the first number, 50% of the second number, and 25% of the final number. In this way, a security's more recent performance is given greater weight.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Yearly Analysis

    Yearly Analysis lists the returns of each security for each of the last 7 calendar years (showing YTD returns for the latest year). As with all analysis functions, the End Date in the Analysis Report Settings is used to determine the latest date used, so that choosing an End Date prior to the current year will allow you to see yearly performance more than 7 years ago.

    This report is especially useful to see how securities perform relative to each other during different economic cycles. While some securities fall in a given year, others may rise in that same year, suggesting they may be good candidates for providing difersification in a portfolio. Securities that perform consistently well in all years may be good choices for risk mitigation.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Trend Analysis

    The belief behind Trend theory is that prices tend to move in cyclical trends, and that the strength of the current trend provides an indicator of the probable direction of a security's future price movement. The objective of Trend Analysis is to measure the strength of the existing trend and to identify changes in the trend.

    A selected length of time called the trend period is necessary for trend calculation. Fundwatch calculates trend data with respect to the End Date and the number of weeks (or days) for the Trend Period specified in Analysis Settings. All data shown on this report will be calculated using the specified trend period, and only securities in the data file having prices spanning that period will be included in the analysis. Selection of a trend period appropriate for your investments is a subjective process, and Graphic Analysis is an excellent tool for evaluating different values. A 39-week period (nine months) is commonly used for mutual funds.

    Fundwatch uses several common methods of identifying trend. The first is a comparison of the current price to a simple moving average. For a 39-week trend period, for example, a 39-week price average (adjusted for distributions) would be calculated for each security. The moving average margin ((current price - price average) / price average) of each security is reported in the Simple Moving Average Margin column. This represents the percentage difference of a security's current price from its moving average. Thus, if the trend margin for a security is positive, its price is above its moving average; its trend is presumably upward, and the strength of its trend is suggested by the trend margin's magnitude.

    The second method uses an exponentially weighted moving average. Exponential weighting has the effect of mathematically assigning greater value to the more recent data, which some analysts believe produces a more accurate trend indicator. The Exponential Moving Average Margin is then calculated in the same way as the Simple, giving the percentage difference of the security's current price from its weighted average.

    The third method involves the calculation of a constant rate of return trend curve using a Least Squares regression of the logarithmically adjusted price data. The least squares curve is a mathematical best fit of the price data to a smooth curve with a constant rate of return. The Least Squares Margin, calculated the same way as the other trend margins, is listed in the third column. A positive margin indicates that the current price is above the least squares curve, and a negative margin means that the price is below this curve.

    The fourth column lists the R Squared values associated with the Least Squares regression. R-squared is a measure of how tightly correlated the price movement is over the period and reflects the strength of the trend. The more closely prices move in a linear relationship with the passing of time, the stronger the trend. R-squared values (which range between 0 and 1) show the percentage of movement that can be explained by trend. One of the most useful ways to use R-squared is as a confirming indicator. Momentum based indicators (e.g., MACD, RSI) and moving average systems require a confirmation of trend in order to be consistently effective, and R-squared provides a means of quantifying the trend. For instance, when using momentum based indicators, you may want to only trade overbought/oversold levels if you have determined that prices are trendless or weakening (i.e., a low or lowering R-squared value) because in a strong trending market, prices can remain overbought or oversold for extended periods.

    The fifth column shows the R-Squared Change. This is important because a rising R-squared indicates a strengthening of the trend and a falling R-squared indicates a weakening of the trend.

    The sixth column shows the Parabolic SAR Margin. Calculated the same way as the other margins, this compares the price of a security with its Parabolic SAR value. A positive margin means its price is above its SAR point and the security is in a rising trend.

    The last column, P/E Ratio, is simply the price/earnings ratio using the TTM (trailing twelve months) earnings for the security. Red values are above the high threshold set in your Configuration, and green values are below the low threshold.

    Alerts: Backlighted green values indicate a transition from negative to positive (commonly considered a buy signal), and backlighted red values indicate a transition from positive to negative (commonly considered a sell signal). R-Squared changes are not normally used as buy/sell signals by themselves and therefore do not produce alerts.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Volatility Analysis

    Volatility Analysis measures and compares the volatility of your securities, and helps to compare investments with different behavior and performance characteristics. In general, investments with higher expected returns tend to be more volatile; that is, their prices tend to fluctuate over a broader range. Higher volatility introduces increased risk of losses at time of liquidation. Volatility analysis helps to assess whether or not an investment's potential for higher returns is in desirable proportion to the risk added by its volatility.

    It should be noted that while volatility is the one form of risk most readily addressed by technical analysis, it is certainly not the only form of risk associated with an investment, and other hidden risk factors may exist for numerous reasons and may vary between investments.

    Annual ROR is the annualized total rate of return over the time period for the list of securities with data spanning the period.

    Volatility is the average absolute daily (or weekly) percentage change in price (adjusted for distributions) of each security during the time period.

    ROR Stability is the ratio of the average daily (or weekly) rate of return over the average daily (or weekly) volatility. This number is expressed as a percent (between 0 and 100) and measures the extent to which price movement was consistent with overall performance during the time period. An ROR Stability of 100% would indicate a constant growth rate (i.e., a perfectly smooth exponential performance curve). Lower numbers indicate larger price movement variations with respect to such a curve.

    Max Drawdown is the maximum peak-to-valley loss the security experienced during the time period.

    Standard Deviation is the standard deviation of the rate of return over the period. Standard deviation is a common way to measure the variance of data points from a mean calculated by least squares regression. A standard deviation of 25% means that the security's rate of return differed from the security's least squares rate of return regression by an average of 25% over the period. Fundwatch always uses logarithmically-adjusted data when calculating least squares regression and standard deviation to neutralize the effect of expanding variations at higher percentage levels.

    R Squared is a measure between 0 and 1 of how well the least squares regression fit the data over the period. An R squared value of 1.00 means a perfect fit. Low R squared values suggest that the standard deviation and Beta values derived from the least squares regression may not be meaningful, and that a different period should be selected for such analysis.

    Beta is a measurement of how closely a security's performance correlates with the performance of a benchmark index, such as the S&P 500, and thus is a measurement of what portion of its performance can be explained by the performance of the overall market. The benchmark index (Beta Index) is selectable at top from any security or index in the data file which spans the specified period. You can think of Beta as the tendency of a security's returns to respond to swings in the benchmark index. A Beta value of 1 suggests a security is closely correlated with the index and will tend to move in concert with the index. A Beta greater than 1 suggests a strong directional correlation but with higher volatility. Values less than one suggest a low correlation or lower volatility, and negative numbers suggest an inverse correlation (price movement in the opposite direction). By itself, Beta can be ambiguous, so one must always consider the R-squared value when examining Beta. A higher R-squared value will indicate a more useful Beta. For example, if a fund has a Beta below 1, it could mean there is little correlation with the benchmark index. But if it has an R- squared value of close to 1, it is most likely offering less volatility than the benchmark. A low R- squared value generally means you should ignore the Beta.

    Sharpe Ratio is a ratio developed by Nobel Laureate William Sharpe to measure risk-adjusted performance. The Sharpe Ratio is calculated by subtracting the risk- free rate of return from the security's rate of return and dividing the result by the security's standard deviation. Greater excess returns from an investment will result in a greater Sharpe Ratio, but the opposite is true for its standard deviation, a measurement of the investment's volatility. The Sharpe ratio is thus a measurement of return per unit of risk. Securities with larger Sharpe Ratios are generally considered to have a better risk/reward ratio. For mutual funds, Sharpe Ratios are typically between about 0.5 and 3. A Sharpe Ratio over 1 is good; over 2 is considered outstanding.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Momentum Analysis

    Momentum Analysis provides alerts for common momentum indicators (green backlighting is a buy signal; red backlighting is a sell signal). The theory behind momentum analysis is that a strongly trending market acts like a pendulum; the move begins at a fast pace, with strong momentum. It gradually slows down, or loses momentum, stops, and reverses course. Momentum indicators lead the advance or decline in prices and produce signals in advance of price trend reversals. Parameters used to calculate the alerts can be adjusted in the Configuration dialog.

    X-Week Momentum (X-Day Momentum in a daily file) is the X-week momentum on the end date of the report (X is set by the Mometum period configuration setting). Backlighted green values indicate an upward transition from negative to positive, and backlighted red values indicate a downward transition from positive to negative.

    X-Week RSI is the Relative Strength Index (X is set by the RSI period configuration setting). Backlighted green values indicate an upward transition through the 30% level, and backlighted red values indicate a downward transition through the 70% level.

    X-Week MFI is the Money Flow Index (X is set by the MFI period configuration setting). Backlighted green values indicate an upward transition through the 20% level, and backlighted red values indicate a downward transition through the 80% level.

    X/Y-Week MACD is the percentage value of the X/Y-week MACD over the price (X and Y are set by the MACD period configuration settings). Backlighted green values indicate an upward transition of the MACD through its signal line, and backlighted red values indicate a downward transition of the MACD through the signal line.

    R Squared is a measure between 0 and 1 of the strength of the trend over the momentum period (how well the least squares regression fit the data over the period). Since momentum indicators are indicators of reversals in the trend, they are more meaningful when the trend is strong and less meaningful when the trend is weak. A high R squared value means a tight fit, thus a strong trend. A low R squared value means the trend over the period was not strong.

    Stochastic is the current value of the X-week fast stochastic oscillator, a number between 0 and 100. Values over 80 are considered to indicate an overbought condition, and values below 20 are considered to indicate an oversold condition. Backlighted green values signal an upward crossing through the Y-week slow stochastic oscillator (buy signal) and backlighted red values signal a downward crossing through the slow stochastic (sell signal). (X and Y are set by the Stochastic Oscillator period configuration settings.)

    The last column is the Performance Momentum for each security.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Summary Analysis

    Summary Analysis provides an overview comparison of securities with alerts for common technical indicators (green backlighting is a buy signal; red backlighting is a sell signal). Parameters used to calculate the alerts can be adjusted in the Configuration Settings dialog. The overall time period for the report is set in the Analysis Settings.

    Annual ROR is the annualized total Rate of Return over the report time period for the list of securities with data spanning the period.

    Risk Adj ROR is the annual Rate of Return multiplied by the ROR Stability (see Volatility Analysis for a description).

    X-Week MA Margin is a comparison of the current price to a simple moving average over the specified trend period (see Trend Analysis for a description). Backlighted green values indicate a transition from negative to positive, and backlighted red values indicate a transition from positive to negative.

    X-Week RSI is the Relative Strength Index. Backlighted green values indicate an upward transition through the 30% level, and backlighted red values indicate a downward transition through the 70% level.

    X-Week Retrace is the percentage of retracement of the X-week trend that has occurred (X is set by the Fibonacci period configuration setting). Backlighted green values indicate an upward retracement of a downward trend through the 61.8% level, and backlighted red values indicate a downward retracement of an upward trend through the 61.8% level.

    X/Y-Week MACD is the percentage value of the X/Y-week MACD over the price (X and Y are set by the MACD period configuration settings). Backlighted green values indicate an upward transition of the MACD through its signal line, and backlighted red values indicate a downward transition of the MACD through the signal line.

    P/E Ratio is simply the price/earnings ratio using the TTM (trailing twelve months) earnings for the security. Red values are above the high threshold set in your Configuration, and green values are below the low threshold.

    Morningstar Rating is the Morningstar mutual fund "star" rating (only available for mutual funds). The range of this rating is 1 thru 5, with 5 being the best. For an explanation of this rating, visit Morningstar's website at www.morningstar.com.

    If the name of the security itself is backlighted green, that indicates that its price on the end date is a new high for the Trading Range Period indicated at top. Likewise, a backlighted red name indicates the security has established a new low over the period.

    Securities in this report can be ranked or sorted by column value by clicking on the desired column. Bold faced, highlighted securities are those in which you currently hold an investment (see Portfolio). Checking the My Portfolio box restricts the displayed list to only those securities in which you own shares. You can double-click a security to highlight it for easy identification while sorting.

     


    Graphic Analysis

    Graphic Analysis plots security performance over a specified period of time by plotting either Total Return OR Price (as set by the toggle above the graph) as a percent of its initial plotted value. This type of graph enables you to superimpose and compare securities directly, comparing performance and volatility, as well as identifying patterns and trends. Technical Analysis indicators can be superimposed on selected securities in any order.

    A Total Return graph includes the effects of all dividends, splits and distributions.  A Price graph excludes these effects.  Total Return provides a better comparison of investments, but Price is sometimes useful if you want to measure an unrealized capital gain or perform technical analysis on price movement only.

    The x-axis represents the selected period (initially specified in the Analysis Report Settings area). The y-axis represents percentage change. The y-axis can be logarithmically or linearly scaled, as set by the toggle above the graph. If volume data exists for the selected security, it is plotted along the bottom if the Volume toggle is selected. If the Distribs toggle is selected, all distributions, dividends and splits are indicated on the plots.  If the Hi-Lo toggle is selected, vertical lines representing the hi-lo range for the day or week are plotted.

    Once you plot a security, you can use the buttons across the top to superimpose technical analysis indicators such as moving averages, RSI, least squares regression, trading range, etc. As you add plots, a legend appears in the upper left region of the graph. You can click on the name of any security in the legend to change the security selection for adding analytical indicators or to remove a security from the graph.

    You can zoom the graph by left-clicking and dragging along the horizontal span you wish to zoom (the graph automatically scales itself vertically). Unzoom by clicking the Unzoom button (magnifying lens icon) at top. When zoomed, the graph can be scrolled forward or backward by means of the arrow glyphs along the top margin. The double arrow glyphs extend the graph's range to the beginning or ending edges of the data file.

    The Set Range button will set the beginning and ending dates to whatever is set in the Analysis Report Settings.

    You can draw trendlines by right-clicking and dragging. Trendlines are scaled (and colored) according to the security selected in the legend.

    A vertical marker can be positioned by means of the lower scrollbar or date entry field. A horizontal marker can be turned on and off, and simply displays the Y coordinate of the selected security at the scrollbar's position, both as security price and percentage change with respect to the beginning position of the graph.

    Icons along the top of the graph provide the following functions:

    Securities Menu (Plot Security)
    Moving Average
    Relative Strength Index (RSI)
    Money Flow Index (MFI)
    Least Squares Curve
    Trading Range
    Auto Trendline
    Bollinger Bands
    Fibonacci Levels
    Speed Resistance Lines
    MACD
    R-Squared
    Momentum Oscillator
    Candlestick Plot
    Parabolic SAR
    Stochastic Oscillator
    On Balance Volume
    Klinger Volume Oscillator
    Set Vertical Marker
    Remove Plot

     


    Plot Security

    Selecting a security to plot produces a plot of the security's percentage change with respect to the security's value on the beginning date. This means that all plots start at 0 on the y-axis and represent percentage performance (including distributions) independent of the security's base share price. The plot will start at the security's start date on the x-axis if it is later than the beginning date of the graph. Note that unless plots start at the same point on the x-axis, they cannot be compared directly on the y-axis. In order to compare securities directly, set the beginning date of the graph to a date on which there is data for all securities you are wanting to compare.

    If the Volume checkbox is selected, any volume data existing for the selected security will be plotted as a bar graph along the bottom of the graph. The magnitude of the volume data is adjusted so that it fits legibly in the lower section of the graph while keeping patterns clearly visible, but the range of the volume data is not displayed. If there is no volume data, it means that volume data has not been collected for this security over the displayed interval. Some securities, such as mutual funds, do not have associated volume data.

    If the High-Low checkbox is selected, any high-low data existing for the security will be superimposed on its performance plot. If there is no high-low data, it means high-low data has not been collected for this security over the displayed interval. Some securities, such as mutual funds, do not have associated high-low data.

    If the Distribs checkbox is selected, any distributions or dividends existing for the security will be indicated (with Xs) on its performance plot.

    Click on the name of a security in the legend to change the security selection for adding analytical plots, displaying volume, or plot removal.

     


    Remove Plot

    Clicking this button will remove the plot of the currently selected security and all its associated plots (moving averages, RSIs, trading range, etc) from the graph.

     


    Set Vertical Marker

    If for any reason you want to mark a particular price date on the graph (maybe to identify a certain event or period of special interest), use the lower scrollbar or enter a date in the textbox to position the date marker. If you click on the Set Marker button, a dated mark will be drawn on the graph at the position of the Vertical Marker.

    The Horizontal Marker (if turned on) follows the Vertical Marker along the currently selected security, and its actual price and percentage growth (with respect to the beginning of the graph) are displayed at top right according to the Vertical Marker's position.

     


    Trading Range

    The Trading Range button allows you to identify the high and low price of the selected security over a specified period. Most analysts use a 52-week period to define a stock's trading range, applying the theory that when a stock moves above or below its 52-week high or low, it has broken out of its trading range and established a new trend, either up or down. If a stock's current price is the same as its 52-week high or low, it has already broken out of its trading range and set a new trend.

     


    Least Squares Regression Curve

    The Least Squares Curve button plots a least squares regression curve for the currently selected security. A least squares regression curve is a smooth growth curve (constant rate of return) which best fits the plotted data. Because it has a constant rate of return, it is a straight line when plotted logarithmically. Its mathematical meaning is easier to visualize on a logarithmic graph, because there, it is the line which passes through the data points with the least variance between itself and the data points (the same is true on a linear graph, but since the data variance on a linear scale has not been adjusted for percentage, the line is curved and variances are wider with higher prices). It provides a very good indicator of where the security is likely to continue moving if market conditions don't change, and is a good basis for comparison of securities. Its rate of return fluctuates less between different periods than a rate of return simply calculated between two endpoints, and thus may be a more reliable indication of the security's expected performance over time.

     


    Moving Average

    With the Moving Average button, you can specify a trend period in days (or weeks) for plotting a moving average for the currently selected security. A moving average is the set of simple or exponential price averages (as discussed in Trend Analysis) calculated for each price date in the range of the graph and plotted with respect to the security's performance. This effectively provides a moving trend analysis for the security over time. Points at which the moving average is above the security performance plot correspond to positive trend margins, below the performance plot are negative trend margins, and points at which the moving average crosses the performance plot indicate trend reversals.

    In addition to selecting the period for the moving average, you can also specify a percentage value with which to plot bands above and below the moving average. For example, if you enter 5, bands will be plotted around the moving average representing + and - 5% of the moving average value.

    You can select the security for which to plot a moving average by clicking on its name displayed in the graph legend. Multiple moving averages can be plotted for any security. The legend is modified for each moving average with an "MA" followed by the number of days or weeks for that moving average. If exponential was selected, "E" is appended, and if percentage bands were specified, they are indicated with a dash followed by the percentage. Example for a 52-week exponential moving average with a 3% band: EMA52-3%

     


    Relative Strength Index (RSI)

    The RSI button will produce a plot of the Relative Strength Index of the selected security beneath the performance graph. The relative strength index is a momentum oscillator--a calculation that measures the velocity (rate of change) of directional price movement over a period of time. The RSI is one of the most widely used technical indicators because of its success in identifying trend reversals and price range breakouts at a very early point. The formula for RSI is:

    RSI = 100 - 100 / (1 + RS)

    where RS = the average of up closes over a period of time divided by the average value of down closes over the period.

    Like the moving average, the RSI requires a trend period, but the rules for selecting this period are different than for moving averages. The period should be between 2 and 30 price intervals, with 14 being most often recommended as ideal (although some studies have suggested a 21- interval period produces the best results). Both simple and exponentially weighted methods can be used, with exponential weighting assigning greater value to the more recent data.

    There are a number of things the RSI can reveal: Tops (overbought conditions) and bottoms (oversold conditions) are indicated when the RSI rises above 70% or drops below 30% respectively. The RSI typically tops before the actual price tops, and crossing the 70% line going downward is considered a sell signal according to experts. Likewise, a crossing of the 30% line going upward is considered a buy signal. Failure swings (subsequent trading range breakout attempts which are weaker than the previous) above the 70% or below the 30% lines are very strong advanced indicators of trend reversals, as is divergence in direction between RSI and security performance (i.e., when the RSI changes direction and price movement does not, a price trend reversal is expected).

    The RSI legend appears above the RSI plot and shows the period prefixed with an "RS" (an "E" is appended if exponential is selected).

     


    Bollinger Bands

    Invented by John Bollinger in the 1980s, Bollinger Bands are curves drawn in and around a security's price structure to form an envelope that provides relative definitions of high and low. Knowing whether prices are high or low allows you to make smarter investment decisions when comparing price action to other indicators. The base for the bands is a moving average and the band's width is determined by volatility as measured by standard deviation. Unlike simple percentage bands, Bollinger Bands are extremely quick to react to large moves in the market. Many reversals occur near the bands, and the average provides support and resistance in many cases.

    The use of Bollinger Bands varies widely, but experts recommend the use of Bollinger Bands for generating buy and sell signals through comparison of another indicator (e.g. RSI) to the action of price within the bands. Some traders buy when the price touches the lower band and exit when price touches the moving average, or buy when the price breaks above the upper band and sell when price falls below the lower band. Others believe buy and sell signals are not based solely on price touching the bands. Some believe a top (chart formation) formed outside the bands followed by a second top inside the bands constitutes a sell signal (there is no requirement for the second top's position relative to the first top, only relative to the bands). The converse is then true for lows.

    For mutual funds, market indexes and stocks, a 20-50 interval period is considered optimal for calculating Bollinger Bands. The average that is selected should be descriptive of the desired time frame (short, medium or long-term). The easiest way to identify the proper average is to choose one that provides support to the correction of the first move up off a bottom. If the average is penetrated by the correction, then the average is too short. If, in turn, the correction falls short of the average, then the average is too long. An average that is correctly chosen will provide support far more often than it is broken.

    A Bollinger band plot is indicated in the legend with "B" followed by the number of weeks selected for the trend period.

     


    Fibonacci Levels

    Fibonacci numbers are a numerical sequence made by adding the two previous numbers together (i.e., 1, 2, 3, 5, 8, 13, etc.). An interesting property of these numbers is that as the series proceeds, the ratio of any two adjacent numbers approaches 1.618. This property of the Fibonacci series occurs throughout nature, and the number 0.618 is often referred to as the "golden ratio". Fibonacci numbers are commonly used in technical analysis to determine potential support and resistance levels, theorizing that market behavior follows this natural pattern (also the basis of Elliott Wave theory). According to experts, a 61.8% retracement from a high or low usually implies a new trend is establishing itself, and a 38.2% (1 - .618) retracement implies that the prior trend will continue. 38.2% retracements are considered natural retracements in a healthy trend.

    There are three popular ways to plot Fibonacci levels: retracement lines, fans, and arcs. Changes in trend are anticipated as prices approach the lines created by the Fibonacci levels. Confluence occurs when Fibonacci projections using multiple trend periods yield the same number and strengthens when it corresponds with other technical indications. Each plot method requires first finding a trendline between the high and low (preferrably a peak and valley) over a specified period. Fibonacci levels are calculated within the range of the high and low and lines are then drawn to indicate retracement levels signifying trend continuance or reversal.

    Retracement Lines: Three horizontal lines are drawn at the Fibonacci levels of 38.2%, 50%, and 61.8% of the range. After a significant price move (either up or down), prices will often retrace a significant portion of the original move. As prices retrace, support and resistance levels often occur at or near the Fibonacci retracement levels. After reaching the 38.2% retracement, the price should normally break through the previous extreme on heavier volume. 61.8% retracements are warning signs of potential trend changes.

    Fan Lines: Three trendlines are drawn from the first extreme so they pass through an invisible vertical at the second extreme at Fibonacci levels of 38.2%, 50%, and 61.8%. Support and resistance is anticipated as prices approach the fan lines.

    Arcs: Three arcs are drawn, centered on the second extreme, so they intersect the trendline at the Fibonacci levels of 38.2%, 50%, and 61.8%. Support and resistance is anticipated as prices approach the arcs, though another common technique is to anticipate support/resistance at points where the corresponding Fibonacci arcs and fan lines intersect.

    A Fibonacci plot is indicated in the legend with "F" followed by the number of weeks selected for the trend period.

     


    Speed Resistance Lines

    Developed by the late Edson Gould, Speed Resistance Lines are constructed by drawing trendlines between the most recent high and low of a trend period, and represent support or resistance levels. A dashed trendline is drawn from the two extremes of a selected period. Two "speedlines" are then drawn from the first extreme so they pass through an invisible vertical at the second extreme at the 1/3 and 2/3 levels. The speedlines show the expected support on retracement. In an uptrend, for example, prices should find support above the upper speedline. When prices do fall below the upper speedline, they should quickly drop to the lower speedline where they should then again find support.

    Speed resistance lines are considered especially good when a technician is looking at securities that are inside of strong trends, and can be used by those interested in both short and intermediate phases as well as long-term outlooks. Analysts theorize that a pullback from a major trend will always be within a range of 1/3 to 2/3 of the most recent upward movement, where 1/3 is the minimum an investor can expect. At the 1/3 level of retracement, an increase in trading volume is expected to occur because of the increasing number of individuals that understand retracements and wait for them as a buy signal. Investors have also learned that, should the retracement continue to fall through the 1/3 level, the next support will be found at the 2/3 level. For a security that is currently showing a downtrend, the reversal is true; a penetration through the lower speedline signals a likely rally to the upper line, and if the upper line is broken this usually indicates a continued rally.

     


    MACD (Moving Average Convergence/Divergence)

    Developed by Gerald Appel in the sixties, Moving Average Convergence/Divergence (MACD) uses the difference between a fast and slow moving average, which are lagging indicators, to produce an oscillator with trend-following characteristics. These lagging indicators are turned into a momentum oscillator (so named because the resulting curve swings back and forth across the zero line) by subtracting the slower moving average from the faster moving average.

    MACD = ema1 - ema2
    ema1 = current value of EMA using short period
    ema2 = current value of EMA using long period
    signal line = EMA of MACD using 3/4 of short period

    The most popular formula for the "standard" MACD is the difference between a security's 26- interval (day or week) and 12-interval EMAs (exponential moving averages). This series is plotted as a solid line. Then a 9-interval EMA (3/4 of the shorter period) of the difference is plotted as a dashed "signal" line. The signal line trails the primary series by just a bit, and trades are signalled whenever the solid line crosses the dashed line. A bullish crossover presumably occurs when MACD moves above the signal line and a bearish crossover occurs when MACD moves below the signal line.

    Another common indicator provided by MACD is known as the "Golden Cross", which is the upward crossing of a short moving average through a longer moving average. The MACD reflects this crosspoint when it crosses the zero line (the signal line is ignored). A common combination for the Golden Cross is a 200-day and 50-day moving average.

    For more volatile markets, you may want to shorten the periods of the EMA's (for example, a 7- day and 13-day pair is popular for evaluating commodities). Using shorter moving averages will produce a quicker, more responsive indicator, while using longer moving averages will produce a slower indicator, less prone to whipsaws.

    You must enter the number of weeks (or days) to use for both ema1 and ema2 (order doesn't matter), and Fundwatch automatically determines the period used for the trailing signal line. The legend appears above the graph and shows the two ema values prefixed with "MAC" and separated by a slash (e.g. MAC12/26).

     


    R-Squared

    R-squared provides a means of quantifying the strength of the trend, and is thus typically calculated using the same trend period used for other trend analysis methods. It is calculated using Least Squares regression and is a measure of how tightly correlated the price movement is over the period. R-squared ranges between 0 and 1 and is plotted as a dashed line in the lower region beneath performance. The number of weeks used to calculate each R-squared plot is listed at the very bottom of the region, starting at the left. A solid, horizontal "critical value" line indicates the 95% confidence level of the R-squared indicator. Where the R- squared indicator falls below the critical value line, assume there is no correlation between the price and the Least Squares Trendline.

    One of the most useful ways to use R-squared is as a confirming indicator. Momentum based indicators (e.g., MACD, RSI) and moving average systems require a confirmation of trend in order to be consistently effective. For instance, when using momentum based indicators, you may want to only trade overbought/oversold levels if you have determined that prices are trendless or weakening (i.e., a low or lowering R-squared value) because in a strong trending market, prices can remain overbought or oversold for extended periods.

    The R-squared legend appears beneath the R-squared graph and shows the period used prefixed with an "R".

     


    Momentum Oscillator (aka Rate of Change)

    The Momentum button produces a plot of the raw momentum beneath the performance graph. Raw momentum is simply the rate of change calculated as follows: (price(n) - price(n - period)) / price(n - period) where the period is a selectable number of days or weeks. A 10-day momentum line fluctuates on an open scale around a zero line (although on this graph, it fluctuates around the 50% midline). When the latest closing price is higher than that of 10 days ago, a positive value is plotted above the zero line. If the latest close is lower than 10 days previous, a negative value is plotted.

    The Momentum line leads price action frequently enough to signal a potential trend reversal in the market. Momentum indicators can warn of dormant strength or weakness in the price well ahead of the turning point. At extreme positive values, momentum implies an overbought position; at extreme negative values, an oversold position.

    The theory behind momentum analysis is that a strongly trending market acts like a pendulum; the move begins at a fast pace, with strong momentum. It gradually slows down, or loses momentum, stops, and reverses course. The momentum line is assumed to be always a step ahead of the price movement. It leads the advance or decline in prices and levels off while the current price trend is still in effect. It then begins to move in the opposite direction as prices begin to level off.

    Three common signals are generated by the momentum oscillator: midline crossings, trendline violations, and extreme values. A crossing above the midline is considered a buy signal if the price trend is up and a crossing below the midline, a sell signal, if the price trend is down. Trends on the momentum chart are normally broken sooner than those on the price chart. The theory is that the momentum indicator turns sooner than the market itself, making it a leading indicator.

    Ten days or weeks are usually used in calculating momentum, but any time period can be employed. The shorter the time frame used the more sensitive momentum becomes to short term fluctuations with more marked oscillations. Oscillator swings are smoother and more stable when a longer period is used.

    The momentum legend appears beneath the momentum graph and shows the period used prefixed with an "M".

     


    Candlestick Plot

    A Candlestick plot uses boxes to show the open, high, low and close values for a security. Each day (or week) is represented by two superimposed boxes. The outer box delineates the high and low, and the inner box depicts the open and close. If the closing price is higher than the opening price, the inner box is hollow. If the security closes lower than its opening price, the inner box is solid.

    Many traders consider candlestick charts more visually appealing and easier to interpret than traditional bar charts. Each candlestick provides an easy-to-decipher picture of price action, allowing a trader to immediately see the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information, making the candlestick plot an essential tool. Hollow candlesticks, where the close is greater than the open, suggest buying pressure. Filled candlesticks, where the close is less than the open, suggest selling pressure.

     


    Parabolic SAR (Stop and Reverse)

    Developed by Welles Wilder, creator of RSI, the Parabolic SAR (stop and reverse) is used to set trailing price stops for long or short positions. Parabolic SAR is more popular for setting stops than for establishing direction or trend. Wilder recommended establishing the trend first, and then trading with Parabolic SAR in the direction of the trend. If the trend is up, buy when the indicator moves below the price. If the trend is down, sell when the indicator moves above the price.

    The name of the system is derived from its parabolic shape, which follows the price movements in the form of a dotted line. When the parabola follows along below the price, the trader should be buying or going long, according to Wilder. A parabola above the price suggests selling or going short. The value of the Parabolic SAR is that it allows traders to catch new trends relatively early. If the new trend fails, the parabola quickly switches from one side of the price to the other, thus generating the stop and reverse signal.

    SAR(i) = SAR(i-1) + acceleration * (extreme(i-1) - SAR(i-1))

    Where:
    acceleration defaults to an initial value of .02 but can be configured,
    acceleration increases between its initial value and .2 as each new SAR is calculated,
    extreme(i-1) is the highest or lowest price for the previous period (high for long positions and low for short positions).

    The acceleration factor increases through the trend, causing Parabolic SAR and the price to converge. The faster the price grows or sinks, the faster the indicator approaches the price. When the SAR value crosses within the price range, a new trend direction is signaled, and the SAR switches sides, thus establishing the stop and reverse point.

     


    Stochastic Oscillator

    Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that compares a security's closing price to its price range over a given time period. The theory is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low. Closing levels that are consistently near the top of the range indicate buying pressure and those consistently near the bottom of the range indicate selling pressure.

    The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result. Thus it is normally plotted as two indicators, the "Fast" Stochastic (known as %K) and its moving average, called the "Slow" Stochastic.

    Fast Stochastic = %K = 100 (C - L(n)) / (H(n) - L(n))

    C = the most recent closing price
    L(n) = the low of the n previous trading sessions
    H(n) = the highest price traded during the same n-session period.

    The Fast Stochastic (%K) tells us the percentile of the high/low range the close was in, and ranges between 0 and 100. The Fast Stochastic is normally plotted alongside the Slow Stochastic, which is simply its own moving average. The number of periods used to generate the Fast and Slow Stochastics will vary according to the sensitivity and the type of signals desired. As with RSI, 14 is a popular number of periods for Fast, and 3 is most commonly used for Slow.

    Readings below 20 are considered oversold and readings above 80 are considered overbought. However, Lane believed that some of the best signals occurred when the oscillator moved from overbought territory back below 80 and from oversold territory back above 20. Buy and sell signals can also be given when the Fast Stochastic crosses above or below the Slow Stochastic, however such crossover signals can be quite frequent. One of the most reliable signals is said to be a threshhold crossover which occurs after a "divergence" develops. This appears as a "double dip" accross the threshold, with the second crossing providing the signal.

    You must enter the number of weeks (or days) to use for both fast and slow stochastics. The order doesn't matter because Fundwatch automatically uses the longer period for fast and the shorter for slow. The legend in the lower section of the graph will show the the two values prefixed with "%K" and separated by a slash (e.g. %K14/3).

     


    On Balance Volume

    On-balance volume (OBV) is a momentum oscillator developed by Joseph Granville in the sixties. OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down. Only the shape of the resulting indicator is used, not the actual level of the total. OBV is generally used to confirm price moves. The idea is that volume is higher on days where the price move is in the dominant direction. For example, in a strong uptrend there is more volume on up days than on down days. So when prices rise, OBV is expected to rise too, and when prices set a new rally high, OBV should too. If OBV fails to exceed its previous rally high while prices continue rising, this negative divergence suggests a weakening trend.

    OBV can be used to predict trend reversals in other ways. Granville's theory stated that when volume increases dramatically without any significant change in the issue's price, then a major trend reversal is imminent. He believed that as institutions (pension funds, investment funds, trading houses, etc.) begin to buy into an issue that retail investors are selling, volume increases as the price begins to level out. Over a period of time volume begins to drive the price upward and the converse then appears as institutions begin selling their positions and retail investors begin to accumulate (the term "smart money" thus refers to the institutions that buy stock from consumers at the bottom and then sell it back to them near the top).

     


    Auto Trendline

    A trendline is a straight line connecting two or more price extremes or "pivot points", and is regarded as a bounding line for price movement. In an uptrend, the trendline is drawn below the price action and acts as a support line. Similarly, in a downtrend, the trendline is drawn above the price action and acts as a resistance line. Significant breakouts through the trendline signal trend reversals.

    Trendlines are commonly drawn by hand because it is rarely possible to connect all pivot points neatly with a straight line, and subjective judgement must be used to determine exactly how the trendline should be drawn. Fundwatch allows hand-drawn trendlines to be applied to the graph by right-clicking and dragging, but it also provides a useful tool to quickly create trendlines by automatically identifying and connecting price extremes.

    The Auto Trendline is calculated according to the price action within the visible range of the graph; therefore, the best way to use it is to isolate the trend using the zoom feature and then apply the trendline. Note that on a linear graph, the auto trendline is actually a curve because it is calculated in log scale.

     


    Klinger Volume Oscillator

    A technical indicator developed by Stephen Klinger, the Klinger Volume Oscillator (KVO) uses volume to determine long-term trends of money flow to enable a trader to predict short-term reversals. The indicator compares the volume flowing in and out of a security to its price movement, and produces an oscillator (plotted below the security's performance graph).

    The KVO has a complex calculation based on cumulative volume, with volume added or subtracted according to the direction of "typical prices" and weighted by a daily range calculation. A trend direction is determined from today's and yesterday's "typical prices" (which are (high+low+close)/3). A "Volume Force" is then formed by accumulating volume amounts, adding or subtracting according to the direction of the price trend, and with the values scaled by daily and cumulative measures of the trend. The oscillator is then formed as the difference between fast and slow EMAs (exponential moving averages) of the Volume Force. Typical values for fast and slow EMAs are 34-periods and 55-periods, respectively.

    KVO = EMA[34] of VF - EMA[55] of VF

    A signal line (EMA of one quarter of the slow period) is used to trigger transaction decisions. To interpret the KVO, look for divergence with the price to signal the coming end of a trend, or to indicate that rising/falling prices are not forming a new trend. A buy signal is generated when the KVO rises from below zero to cross above the trigger line. A sell signal is generated when the KVO falls from its high and crosses below the trigger line. The KVO also uses divergence to identify when price and volume are not confirming the direction of the move. It is considered bullish when the value of the indicator is heading upward while the price of the security continues to fall. Likewise, when the KVO starts decreasing but the price is increasing, the price is likely to start decreasing.

     


    Money Flow Index (MFI)

    Money Flow Index (MFI) is a momentum oscillator calculated over an n-day period, whose value ranges from 0 to 100. MFI is similar to RSI, but measures dollar accumulation rather than price change.

    MFI = 100 * positive mf / (positive mf + negative mf)
    mf = volume * (high + low + close) / 3

    Positive mf is the total for those days (in n) where the typical price is higher than the previous day's typical price, and negative mf is the total for those days where the typical price is lower than the previous day's typical price.

    Since mf measures dollar volume, an up day is said to represent the enthusiasm of buyers, and a down day the enthusiasm of sellers. An extreme MFI in one direction or the other is interpreted as a prediction of a price reversal.

    A value over 80 is generally considered to indicate an overbought condition, and a value under 20 oversold. An upward crossing through 20 is often considered a buy signal, while a downward crossing through 80 is considered a sell. Divergences between MFI and price action are also considered significant. For example, if price achieves a new high but the MFI peaks at a point less than its previous high, that may suggest a likely price reversal. Many traders simply watch for an MFI moving in the opposite direction of the price, as divergence can be a leading indicator of a change in the trend.

     


    P/E Ratio

    If you have collected Earnings when downloading, you can plot the P/E (price/earnings) Ratio of a security for the most recent twelve months. Earnings may not be available for all securities, and the Earnings figure Fundwatch collects is TTM (trailing twelve months), so it is not accurate any farther back than one year. Companies update their earnings at different intervals so you should update Earnings roughly once a month to be sure all values are current.

    The P/E Ratio itself is plotted in the lower section of the graph, but the lower and upper thresholds for P/E Ratio (specified in your Configuration) are indicated by dashed lines in the upper section of the graph (on the security price plot). They indicate the price levels at which the security is above or below the associated P/E Ratio represented by each threshold.

    Because the earnings figures Fundwatch uses are only valid for the trailing twelve months, P/E Ratio is not charted, reported, or backtested beyond that historical period. This is particularly important to remember when specifying P/E Ratio as a backtesting criteria, because it will not be tested any further back than the most recent twelve months.

     


    Backtesting (and Building Trading Systems)

    Backtesting is the process of evaluating a trading strategy (or "system") by applying it to historical data. Backtesting calculates how a trading system would have performed if it had actually been applied in the past. A trading system consists of a set of rules or specific conditions under which to buy or sell a security, and is meant to be applied methodically, without the variation of emotional decisions. Backtesting a system of this nature provides statistical measurements of its performance in real conditions.

    While backtesting is a common and methodologically accepted approach to research, the results achieved are highly dependent on the market movements of the tested period. Using backtesting to develop a trading strategy assumes that what happened in the past will at least resemble what happens in the future, and this assumption adds varying degrees of risk to the strategy.

    Fundwatch allows you to define a number of different Trading Systems (up to 200), each consisting of a set of buy and sell rules based on Fundwatch's technical analysis toolkit. You can quickly backtest a system on any individual security over any time period to get a set of statistical results and a graphic display of buy and sell points. This is known as "single-symbol" backtesting and produces results for only one security at a time. It is up to you to design a system and associated testing method that targets your objectives, and to subsequently manage a trading account containing multiple securities with margins, asset allocations, and other considerations.

    Building/Editing a Trading System

    Each Trading System must have:

    A Name
    One or more Buy Rule(s)
    One or more Sell Rule(s) and/or Alternate Exit(s)

    All buy rules must be satisfied for a buy to occur.
    All sell rules must be satisfied for a sell to occur, unless an Alternate Exit is specified.
    A sell will occur if ANY Alternate Exit is satisfied.

    When a buy occurs, the system is totally invested in the security (open position) until a subsequent sell occurs (position closes). Between positions, the system is totally invested in cash, earning your Cash ROR (Risk-Free ROR).

    Each rule consists of a selected technical Signal (an indicator with specified parameters) and a Condition of that signal.

    Note that some Conditions are triggers, meaning they describe specific events (e.g. price crosses up through its moving average), while others describe general conditions that may exist for periods of time (e.g. price is above its moving average). It is common to combine triggers with general conditions (for instance, to restrict the trigger to a certain trend), but it may not be your intention to specify a general condition as the only rule for a buy or sell. Be attentive to the exact Condition description when specifying rules.

    Add rules using the Add Buy Rule, Add Sell Rule, and Add Alternate Exit buttons. Once a rule is added to its list, you can change or delete it by clicking on it in the list.

    Once you've defined your rules, Click Add System to add the new system to the list of Trading Systems. The systems in this list will be automatically saved on disk. Once a system is in the list, you can edit it, backtest it on any security(s) over any time period, or apply it to current prices to give buy/sell alerts.

    Backtesting a Trading System

    To perform a backtest (on the Backtest tab), you must select a system, a security, and a time period (which defaults to the total span of the security). When you click the Backtest button, the system is applied to the security over the time span, simulating all buys and sells, and calculating associated statistics.

    The Short Sells toggle causes each sell event to enter a short position instead of cash (by default, each sell event places your investment in cash). Even if you don't want to actually enter short positions in practice, testing with this option provides a measure of the quality of your sell rules, and helps unbias your results to the effect of the prevailing trend. Note that short selling causes each transaction to result in a new position, which roughly doubles your number of closed trades and increases your time invested to nearly 100%. Also be aware that it is possible to lose more than 100% of your investment in a short sale.

    Backtest results are displayed as follows (note that all RORs are annualized):

    System ROR shows the rate of return your system produced by trading the selected security.
    Security ROR is the rate of return you would have obtained by buying the security at the beginning of the time period and selling it at the end (buy and hold).
    Cash ROR is the Risk-Free rate of return set in the Configuration settings.
    System Sharpe Ratio is the Sharpe Ratio calculated on your system's performance.
    Closed Trades per Year is the average number of "round-trip" trades (opened and subsequently closed) executed per year (it may be fractional if your period spans multiple years).
    Percent of Time Invested is the percent of the time span your system held an open position in the security.
    Risk Adjusted Return is the annualized system rate of return divided by the percentage of time invested.
    Percent of Profitable Trades is the percentage of closed trades that resulted in a gain.
    Ending Position specifies whether the system holds an open position at the end of the time span (an open position at the end of the test is not counted as a completed trade and its unrealized gain is excluded from the system ROR).
    Avg Gain per Trade is the average percentage gain for all closed trades.
    Avg Gain per Profitable Trade is the average gain for profitable closed trades.
    Avg Loss per Losing Trade is the average loss for closed trades that resulted in a loss.
    Profit Factor is the ratio of total profit on profitable trades to total loss on losing trades.
    Max Drawdown is the largest single peak-to-valley loss your system experienced.
    Avg Days per Trade is the average length of a held position in calendar days.
    Most Consecutive Losses is the greatest number of consecutive losing trades that occurred throughout the test period (a large string could be difficult to absorb, especially emotionally).

    The Graph button produces a graph of the security showing the buys (empty circles) and sells (filled circles). Also plotted is the "equity curve" of your system, or the total return of your initial investment as it was invested in the selected security according to your buy/sell rules. You can add indicator plots to this graph.

    Note that a System ROR that underperforms the security does not necessarily mean you have a bad system. There are many factors to consider. If your system only keeps you invested in the security for a brief percentage of the year, for instance, you have less market exposure risk than if you buy and hold, and your capital is freed part of the year for other opportunities (e.g. a mirror system on an inverse security). If you have a high success rate with each trade and very few losing trades, that may indicate your system is reliable and only puts money in during safe opportunities. A system that performs consistently can produce a positive return in bear markets, or simply keep you out of the market during those times. So your objective may be to get a consistent and safe return rather than to beat the market.

    It is good to expand the number of test cases as much as possible and test over varying time periods. Be careful not to over-optimize, or "curve-fit". It is a common mistake to tweak a system repeatedly until it gives the best backtest results. Such activity tends to tailor a system for previous market events which will not repeat themselves in the future. It is best to keep systems simple, and find ones that work consistently on multiple securities and various time periods.

    Testing a Group of Securities

    If you select "All" as your security selection, all securities in the selection list will be backtested. You can use the Filter to narrow the list to a specific group or category. When a group is selected, the test period will default to the longest period in which data is present for every security (i.e., the span of the shortest security). You may select dates outside that span, but doing so will cause some securities to be evaluated over shorter test periods, making comparison of individual results less valid.

    When the test completes, the results displayed on the Backtest display are averages for the group. Clicking the List All button will produce a list of results for each individual security, which can be sorted by clicking the column header over any variable. You can also view the equity curve for any security in the list by selecting its row and clicking the Graph button.

    Applying a System to Current Prices

    Once you have confidence in a certain system, you can apply it for trading pruposes by going to the Apply to Current Prices tab and selecting a security or group of securities. The system selected in the Trading Systems list will then be applied to your security selection(s) and securities producing a buy condition will appear in the Buys list, while those producing a sell condition will appear in the Sells list (regardless of whether you actually hold a position in the security). Note that Stop-Loss and Target Profit Exit rules are not applied in this list because Fundwatch does not track your actual transactions.