Protecting Your Systems from Imminent Danger: Using eSignal's Set Alert Function
By Anthony Trongone, PhD, CFP, CTA*
Posted: Nov 23, 2012
Sometimes, the breakdown of one commodity can produce a sudden loss in another commodity. When this occurs, it can render a perfectly good trading system completely meaningless. This discussion focuses on two separate trading issues:
1) The negative impact of the eurozone currency (EURO: 6E #F) on the U.S. equities markets after it sank below its 52-week record lowest price (1.2153) on July 20, 2012
(2) How you can receive notifications instantly of these record-breaking situations by using the "Set Alert…" function in eSignal to keep you abreast of developments as soon as they occur
On July 20, 2012, the euro (6E #F) fell below its 52-week lowest price, generating a daily percentage loss in the E-Mini S&P 500 contract (Figure 1). This news, given the long-standing inverse relationship (Figure 2) between these two variables, was not surprising. In fact, if we were given some warning before this currency sank below a certain price, we would almost certainly be willing to take action.
Figure 1. The quotation box reports the -0.0119 (-0.97%) decline in this EURO-GLOBEX contract on the U.S. equities market; this was at least partly responsible for creating the -1.00% fall in the equities (ES #F) contract on July 20, 2012.
Fortunately, eSignal automatically warns you of impending danger by sounding the alarm. In fact, you can receive notification using the "Set Alert..." function (see "Setting the Alert Feature" below) in multiple ways, such as alarms, pop-up messages, as well as an email message, to prepare for any game-changing price swings
Figure 2 shows the daily performance of these two commodities over 300 trading days. It certainly displays some of the contrasting phases in this relationship. Early on, the correlation is positive as they run uphill together: In the spring (2011), they hold their peaks; in mid-summer, equities fall hard (blue line). Once they hit this temporary bottom, the black line (euro) begins its long descent down before finally hitting its 52-week low.
Figure 2. The daily line chart of the two commodities, the euro (black) revisits its June 2010 bottom; whereas, the ES (blue) is attacking its 52-week high.
Previous System Prior to the Breakdown in the Euro
Prior to establishing its lowest price in 52 weeks, when this currency was below 1.3000, a long position in U.S. equities was a profitable play. For instance, in the past 600 days, when the euro had a closing price below 1.3000, a long position in the ES contract gave us a decent winning percentage (82-67).
Given this current situation, past statistics may appear meaningless; consequently, my recommendation (see my July 24, 2012 article in traderslog.com) was to observe closely how a rebounding currency or one breaking below support is going to affect trading in the equities markets (Figure 3).
Figure 3. On following day, this currency contract fell to 1.2051, giving both commodities a -0.53 percent loss.
52-Week Record Highest Price
As of August 2012, this has been a profitable year (Figure 4). The spiders, in reaching $143.09, broke past their previous intraday highest price (April 2012).
Figure 4. On August 21, 2012, the spiders sat at their yearly peak. The bar chart displays this impressive rally. It began with the spiders drop from $136.95 to their lowest price ($133.03), on July 24, 2012, a day when the euro (6E #F) sank to 1.2051; barely holding above 1.2000.
With the sudden rebound of this currency to a price of 1.2492, the ES contract rallied to its 52-week high (1424.75) on August 21, 2012 (Figure 5).
Figure 5. A rising euro was the perfect remedy for an equities rally.
This upside rally was, at least partially, the result of a rising currency (1.2051 to 1.2470). Figure 6 shows the specifics of this daily up swing in the spiders.
Figure 6. In 20 trading days, the spiders went from a low of $136.32 (July 20, 2012) to a high of $143.09 (August 21, 2012).
Unfortunately, we cannot trade the past; therefore, going forward, the best we can do is to learn from this experience. One way not to miss this opportunity is to use the "Set Alert" function in your eSignal trading platform.
Setting the Alert Feature
So, how do we access this feature?
Begin by clicking on the View, Alerts...
This action will open this box:
After you click "OK", this Alert Edit/Status box will open:
Provided below are the various fields to set the Alert feature. There are many useful selections to experiment with when you are trading.
After selecting the "Daily Low" filter, select "Add..." (see black arrows).
The results show the 6E #F contract at a low of 1.2000.
This feature of eSignal provides multiple alerts. You can request an audio or pop-up alert, and it allows you to link an alert to a window or apply it to all layouts.
This feature certainly offers the user a keen awareness of the underlying price movements of certain commodities; furthermore, it will give you more insight into the pricing of the instruments you happen to be trading. Begin by experimenting with the various alert fields; this process will definitely strengthen your trading skills as you become more knowledgeable about the existing trading environment.
*Reprinted (and modified) with permission from Dr. Trongone, who has been featured in the "Trading Educator" section of eSignalLearning.com since 2006. With 15 feature articles, he is a regular contributor to Technical Analysis for Stocks & Commodities; his new book, Trade with the Odds: How to Construct Market-Beating Trading Systems (Bloomberg Press and John Wiley & Sons), is now available.