Create From Scratch allows you to build a brand new set of rules or 'system' for buying and selling stocks. Copy and Modify Existing will display all the systems that have been previ- ously built and saved. You will then select a system and be able to add, de- lete, or modify rules. Market Strategist will first make a copy of the system you select and all changes you make will be made to the copy. This is essen- tially the same function as selecting Modify from the main menu, except in that case, a copy of your system is not made. This selection determines the action that the rule will trigger. For example, choose 'Buy Long' to build a rule that will evaluated on every stock not already owned to determine whether it should be bought. If you want to use the same rule for two different actions such as to Sell and to Sell Short, you must build the rule twice. When you are finished building the en- tire system, select 'Finished'. You will then be asked to supply a title for the system, and the system will be saved and available for testing at anytime. Choices 1-4 determine the data item, or Primary Variable, that will be used as a base for the current rule. Each rule uses only one Primary Variable, but you may build as many rules (up to 10 of each action-type) as you wish. In the menus that follow, you will specify how to manipulate this variable. PRICE refers to the weekly closing price of the stock. It also utilizes the high and low values for the week when appropriate. VOLUME refers to the average daily number of shares traded for the week. EARNINGS includes items such as Price/Earnings ratio and Earnings per Share. DIVIDENDS includes Annualized Dividend Yield and Amount of Weekly Dividend. CAPITALIZATION is the market value of the company expressed as the number of shares outstanding times the current price of the stock. EXIT RULE is a shortcut to specifying how to exit an open position. It is ac- tive only when building SELL or COVER SHORT rules. This selection determines whether to apply calculations to the stock itself, the market or industry group average, or a ratio of the the stock to the mar- ket or its industry group. By selecting one of the RATIOS, you are able to base the rule on how the stock performs COMPARED TO the overall market or to other stocks in its industry group. The "overall market" is the average of the 500 stocks contained in Western Database's 5-by-500 database (essentially the S&P 500) unless your Primary Variable is PRICE -- you will then have a choice of indicators including the S&P 500 index and the three Dow Jones popular indexes. Example 1: If your Primary Variable is PRICE and you select choice 2 here, then all calculations will be performed on the RATIO of the price of the stock to the market index rather than the price of the actual stock. Example 2: If you select choice 4 then the rule will be based on the behavior of the overall market rather than the behavior of the stock. This selection allows you to choose a common method of deciding when to exit (SELL or COVER SHORT) a position in a stock. In the next menu you will further define your exit rule. 'Time Limit' can mean two things depending on how you answer the SUPER rule question later. If you make it SUPER, allowing it to trigger action by it- self, then it becomes a MAXIMUM time for which to hold the position. If you make it NORMAL then it becomes a MINUMUM time. 'Trailing Stop Loss' is a stop loss that adjusts to any profit achieved in the position. The stop target that you set will be based on the HIGHEST PROFIT OBTAINED rather than the actual loss. NOTE: Stop loss rules do not guarantee that the trade will be executed at the target price. The order will take place at the CLOSING PRICE of the week that the price crosses the stop loss target. Stop Losses and Target Profits can be based on either a dollar amount or a percent change. If selecting Dollar Amount, enter a value consistent with your initial bankroll and target investment in each stock. Dollar Amounts in- clude commissions while Percent Change does not. Percent Change only looks at the closing price of the stock and how it has changed. NOTE: Stop loss rules do not guarantee that the trade will be executed at the target price. The order will take place at the CLOSING PRICE of the week that the price crosses the stop loss target. This selection determines the type of calculation to perform on your Primary Variable (Price, Earnings, etc.) and your Object (stock, stock vs. industry group, etc.) Each choice contains many further choices for calculation types. In the next set of menus you will define the specifics of the calculation. Trend: A trend is a direction of movement. The choices of methods for trend detection are Percent Change, Consecutive Points in the Same Direction, and Moving Average. Past Hi's and Lo's: Looks for achievement of a new high or low of the Primary Variable OR compares the current value to its previous high or low. Stability: The lack of trend or fluctuation over time in the Primary Vari- able. Current vs. Moving Avg (% Difference): You want the current (this week's) value of the data item to be more or less than a certain percent from the mov- ing average of the Primary Variable. Current vs. Moving Avg (Crossover): When the current value crosses down through its moving average, some believe that it may be an indication of a downward trend. You will specify whether to take action when the crossover is in the up or down direction. Crossover of 2 moving avgs: Similar to second choice, except that you are looking at a second moving average in place of the current value. Annualized Yield: The estimated annual dividend per share divided by the cur- rent price of the stock. The annual dividend is determined from the dividends paid over the last 6 months. Amount of Weekly Dividend: The actual dividend paid ($/share) (ex-dividend amount) during the current week. If a stock is BOUGHT at the end of a week that it went "ex-dividend" the dividend is NOT credited to your account. If it is SOLD at the end of that week, the dividend IS credited. Achieves new HI or LO: The rule will be satsified when the Primary Variable (price, yield, etc.) of the Object (stock, stock vs. DJIA, etc.) achieves a new high or low. You will be asked for the number of weeks (or quarters) to look back to determine the previous high or low. Approaches a previous HI or LO: Similar to choice 1, but allows action when the current value comes within a percent of a PREVIOUS hi or lo without neces- sarily achieving a NEW hi or lo. P/E Ratio: The most recent price of the stock divided by the last reported quarterly earnings per share. This is especially useful when using the Stock to Industry Group ratio as the Object. Negative earnings result in a P/E ratio of 99999. Earnings per Share (12 mos.): The most recently reported quarterly earnings per share for the past 4 quarters. Expressed as $/share. Used mainly to determine earnings growth. Values can be negative--caution is advised if using rules involving percent change calculations. Negative values also make it impossible to calculate a RATIO of the stock to its industry group or stock to the market. In this case, a value of ZERO is used for the ratio. Amount of Earnings (12 mos.): Same as choice 2 except expressed as total $ in millions. Choices 1 and 2 are very similar: Choice 1 is a "price-weighted" average of all stocks in the Western Database 5-by-500 database. The 500 stocks are es- sentially the same 500 stocks making up the S&P 500. Choice 2 is the actual reported value of the S&P 500 index. This index is a "capitalization weighted" index, meaning that companies with more net worth contribute more to the index than smaller companies. The remaining choices are the popular Dow Jones averages which are price-weighted. Lack of Trend: Specifies the TOTAL maximum change allowed over a specified length of time. The change allowed is stated in terms of percent difference between the low and high values over the time frame. The high value is used as the base in the percent calculation. Amount of Fluctuation or Variability: Looks at the "volatility" of the stock or ratio over a specified length of time. The method of stating vari- ability is unique when the Primary Variable is PRICE and the Object does not include the S&P500 or a Dow index: the average difference between the weekly HI and LO in percent for all weeks in the time frame. All other Primary Variable/Object combinations use the average of the absolute value of differ- ences between one week (or quarter) and the previous in percent over all weeks in the time frame. In either case, the CURRENT value of the Primary Variable is used as the base in the percent calculation. 'Trailing Stop Loss' is a stop loss that adjusts to any profit achieved in the position. The stop limit that you set will be based on the HIGHEST PROFIT OB- TAINED rather than the actual loss. Stop Losses can be based on either a dol- lar amount or a percent change. If selecting Dollar Amount, enter a value consistent with your initial bankroll and target investment in each stock. Dollar Amounts include commissions while Percent Change does not. Percent Change only looks at the closing price of the stock and how it has changed. NOTE: Stop loss rules do not guarantee that the trade will be executed at the target price. The order will take place at the CLOSING PRICE of the week that the price crosses the stop loss target. Percent Change: The percent above or below a previous value. You will specify the percent difference, time frame for the previous value, and whether the current value should be higher or lower than the percent difference. Consecutive Points in the Same Direction: Movement of the stock or ratio ei- ther up or down a specified number of weeks (or quarters) in a row. You can also specify a limit on the total percent change over the time frame. Moving Average: A 12 week moving average is the average of the Primary Vari- able over the most recent 12 weeks. It is called 'moving' because it is re- calculated each week. You will specify many details about the moving average. Lagging a rule allows combining rules to test for a SERIES of events. This feature allows testing for many standard chart patterns. Example 1: These 2 rules together test for a stable price for 20 weeks fol- lowed by a 5% upward trend the next 2 weeks. Rule 1) (lagged 2 weeks) PRICE of STOCK's range between the high and low values for the previous 20 weeks averages less than 5%. Rule 2) PRICE of STOCK is MORE than a point 5% ABOVE 2 weeks previous. Example 2: It is recommended that you include this example as a rule if you have another rule that looks at percent change in earnings. It prevents trig- gering action from erroneous percent change calculations resulting from negative or very low earnings. Rule 1) (Lagged 1 quarter) Earnings Per Share ($/share) of the stock is MORE THAN .3 A SUPER rule will cause action, e.g. Sell, to occur if its conditions are met --regardless of the status of the other Sell rules. A common application of a super rule is an exit rule such as a stop loss. A NORMAL rule must be met in conjunction with all other rules of the normal status. Most rules will be of the normal status. Choices 1 and 2 simply instruct to compare the current value to the previous value and trigger action if it's greater than or less than a certain percent change. Use 1 or 2 when early trend detection is not important. Choices 3 and 4 in- struct to trigger action only when the current value CROSSES that percent change line. For example, if the current value must be ABOVE the line THIS week (or quarter), then it must have been BELOW the line LAST week. Choices 1 and 2 don't care about the status LAST week. Use 3 or 4 when at- tempting to detect the beginning of a trend or to prevent triggering of many stocks during the first week of testing. Choices 1 and 2 simply instruct to compare the current value to its moving av- erage and trigger action if it's above or below a line greater than or less than its moving average. Use 1 or 2 when early trend detection is not impor- tant. Choices 3 and 4 instruct to trigger action only when the current value CROSSES that line above or below its moving average. For example, if the current value must be ABOVE the line THIS week (or quarter), then it must have been BELOW the line LAST week. Choices 1 and 2 don't care about the status LAST week. Use 3 or 4 when attempting to detect the beginning of a trend or to prevent triggering of many stocks during the first week of testing. Choices 1 and 2 simply instruct to compare the current value to its previous hi or lo and trigger action if it's above or below a line greater than or less than its hi or lo. Use 1 or 2 when early trend detection is not important. Choices 3 and 4 instruct to trigger action only when the current value CROSSES that line above or below its previous hi or lo. For example, if the current value must be ABOVE the line THIS week (or quarter), then it must have been BELOW the line LAST week. Choices 1 and 2 don't care about the status LAST week. Use 3 or 4 when attempting to detect the beginning of a trend or to prevent triggering of many stocks during the first week of testing. Choices 1 and 2 simply instruct to compare the current value to a benchmark value and trigger action if it's above or below the benchmark. Use 1 or 2 when early trend detection is not important. Choices 3 and 4 instruct to trigger action only when the current value CROSSES the benchmark value. For example, if the current value must be ABOVE the benchmark THIS week (or quarter), then it must have been BELOW the benchmark LAST week. Choices 1 and 2 don't care about the status LAST week. Use 3 or 4 when at- tempting to detect the beginning of a trend or to prevent triggering of many stocks during the first week of testing. NOTE: Be careful when specifying the benchmark value - if you chose a RATIO as your Object (Stock/Market or Stock/Ind. Grp) then the benchmark value should be referenced to one (1) instead of $/share, number of shares, dollars, or percent.