By Zak Mir*
One of my stopping-off points in the search for the automated holy grail of trading has been the Expert Trend Locator (XTL) in eSignal's Advanced GET. GET is an add-on to the eSignal application.
When you apply the XTL to any given market, it changes the lines or bars into three main colors: blue, red and black. The blue indicates a bullish trend and the red a bearish one, and they can be applied to any time frame. I take the black to be neutral.
The way I use it is as a mechanical system. So that, when you see the first blue bar, you go long, and you stay long until the bars turn red. You have the option of taking profits when the bars turn black, but the “system” seems to work best if you just wait for the red color change when long and the blue when short. However, the guide to how to use the XTL says that you should not use XTL as a mechanical system. In fact, it has the following instructions:
If the bars are blue in color, then the trend is up. If the bars are red in color, then the trend is down. When you have a bar turn from its normal color to blue or black, this first signal is called a Break-Out Bar. An entry is taken when the bar following the Break-Out Bar is the same trend color as the Break-Out Bar, and the range exceeds 150% of the Break-Out Bar in the direction of the trend. You would place a stop below the low of the Break-Out Bar if the trend is up, and you would place a stop above the high of the Break Out Bar if the trend is down. As the market moves in the direction of the trend, you would use a trailing stop to follow the trend.
All this seemed to be too complicated for me, and, in fact, I did not read this until I devised my own interpretation. In fact, I find that the XTL does seem to be quite good as a mechanical system. You can see how on the FTSE 100. In the examples in this article, it caught all the major moves, and all you had to do was not be color-blind.
Examples
The FTSE 100: In March 2003, it was short of the FTSE 100 at 3,600, went long after the low of the year at 3,400 and stayed long until 3,700. Even with slippage and choppy markets, the numbers looked to add up. As far as the current position (as of the date this article first appeared*) is concerned, we are short.
Dow: The picture with the Dow is quite similar in that the XTL caught a massive move from 7,600 to 8,200 even if one followed it to the letter. The XTL went short yesterday*, 
and it will be interesting to see whether it can build on the sell from approximately 8,250.
NASDAQ: Here, we see how the XTL managed to cope with some of the most severe gaps up and down the tech index has displayed in recent times. As with the FTSE 100 and Dow, the NASDAQ went into Thursday’s session in bear mode.
Just to reiterate: The XTL can, not only be used in any time frame from minutes to weekly, but it can also cover any market, be it stocks, commodities or currencies.
*Reprinted (and modified) with permission by Zak Mir from the April 10, 2003 issue of www.zaks-ta.com
