Intrinsic Trend Module for eSignal

User Guide
Intrinsic Trend User Guide

December 2013 Edition

PF-435-01-01

Support
Worldwide Technical Support and Product Information
www.nirvanasystems.com
Nirvana Systems Corporate Headquarters
7000 N. MoPac, Suite 425, Austin, Texas 78731

USA

Tel: 512 345 2545 Fax: 512 345 4225

Sales Information
For product information or to place an order, please contact 800 880 0338 or 512 345 2566. You may also fax
512 345 4225 or send email to sales@nirvanasystems.com.
Technical Support Information
For assistance in installing or using Nirvana products, please contact 512 345 2592. You may also fax
512 345 4225 or send email to support@nirvanasystems.com.
To comment on the documentation, send email to documentation@nirvanasystems.com.
2013 Nirvana Systems Inc. All rights reserved.

Important Information
Copyright
Under the copyright laws, this publication may not be reproduced or transmitted in any form,
electronic or mechanical, including photocopying, recording, storing in an information retrieval
system, or translating, in whole or in part, without the prior written consent of Nirvana Systems, Inc.

Trademarks
Intrinsic Trend is a trademark of Nirvana Systems, Inc.
Product and company names mentioned herein are trademarks or trade names of their respective
companies.

DISCLAIMER REGARDING USE OF NIRVANA SYSTEMS PRODUCTS

Trading stocks, mutual funds, futures, and options involves high risk including possible loss of
principal and other losses. Neither the software nor any demonstration of its operation should be
construed as a recommendation or an offer to buy or sell securities or security derivative products
of any kind.
Neither Nirvanas OmniTrader, VisualTrader, Nirvana Systems, Inc., nor its employees and
affiliates recommends any specific security for purchase or sale, nor do they recommend any
specific approach to investing in securities. Nirvana Systems, Inc. is not an investment advisory
service nor a registered investment advisor or broker/dealer.
No representation is being made that the methods presented will guarantee profits in trading. Past
performance, whether actual or indicated by historical systems testing, is no guarantee of future
performance or success. Information presented by Nirvana Systems, Inc. is from sources Nirvana
believes are reliable. However, Nirvana has not independently verified such information.

Contents
Chapter 1
Introduction
The Intrinsic Trend Advantage ......................................................................................1-3
Package Contents ...........................................................................................................1-4

Chapter 3
Intrinsic Trend Indicators
Calculating the Intrinsic Trend ......................................................................................3-7
Intrinsic Trend Study .....................................................................................................3-8
Plotting Band Bounces ....................................................................................3-10
Showing Trend Statistics.................................................................................3-10
Intrinsic Trend Slope .....................................................................................................3-12
Intrinsic Trend Strength .................................................................................................3-13
Intrinsic Trend Quality...................................................................................................3-14

Chapter 2
Using Intrinsic Trend in EFS
Chapter 4
Trading with the Intrinsic Trend Module
The Long Bounce...........................................................................................................4-19
The Short Bounce ..........................................................................................................4-20
Trend Detection .............................................................................................................4-21
Using the additional studies ...........................................................................................4-22

Appendix A
Additional Resources

Nirvana Systems Inc.

Intrinsic Trend User Guide

Introduction

Congratulations on purchasing the Intrinsic Trend Module. The Intrinsic Trend

Module offers a revolutionary new way in order to determine trend direction and
strength.
The vast majority of traders use classic trendlines in order to find trend trades, but
getting caught up in connecting the dots can lead to them missing great
opportunities. Intrinsic Trend uses an arsenal of proprietary tools in order to identify
a truly trending market and then determine the quality of that trend. By finding the
best trending markets, it can then present us with the best trend trading opportunities.
Intrinsic Trend takes a unique approach to trend analysis. Its goal is not to just identify
a trending market, but also to determine the quality of the trend. The module first
looks to find major market tops and bottoms. It then looks at all of the price action
from the major pivot and calculates the intrinsic trend

Nirvana Systems Inc.

Intrinsic Trend User Guide

Chapter 1

Introduction

Figure 1-1. Price Bouncing off the Bottom of the IT Bands

This is different from classic trend analysis as the intrinsic trend automatically adjusts
to new price activity within the trend.
Additionally, a set of trading bands are then applied to the Intrinsic Trend Line,
showing the anticipated extremes of price action. The bands provide actionable
decision points that can be used to identify opportunities.

Intrinsic Trend User Guide

nirvanasystems.com

Chapter 1

Introduction

The Intrinsic Trend Advantage

Classic trend analysis is applied by looking for price pivots and then drawing a
trendline. This isnt a bad way to identify the trend, but it also doesnt present many
trading opportunities. Below is an example of a trendline drawn on CSCO.

Figure 1-2. CSCO Trended Well for a Year but Did Not Provide Trendline Bounce Opportunities

This trend lasted for almost a year after the second pivot was established in late
September, but the trendline didnt help provide a single trend trading opportunity.
With Intrinsic Trend, the trendline adjusts as the trend continues, allowing the study
to adapt to incoming price action. Here is the same chart with the Intrinsic Trend
Study applied.

Nirvana Systems Inc.

Intrinsic Trend User Guide

Chapter 1

Introduction

Figure 1-3. IT Indicator Plotted on CSCO

This example show how the Intrinsic Trend Bands can be used to find optimal trend
entries. For this chart, the stufy identifies three excellent entry points, as price
bounces off the lower band.

Package Contents
The package provides the Intrinsic Trend Line study and three additional studies based
on the Intrinsic Trend calculation. It also contains a new EFS library that lets you
access the Intrinsic Trend from your within own custom studies.
The Intrinsic Trend Trading Module includes the following components:
Studies:

Intrinsic Trend

Intrinsic Trend Quality

Intrinsic Trend User Guide

nirvanasystems.com

Chapter 1

Introduction

Intrinsic Slope
Intrinsic Trend Strength

EFS Function:
Intrinsic Trend Library Function

Nirvana Systems Inc.

Intrinsic Trend User Guide

Intrinsic Trend Indicators

There are four studies included in the Intrinsic Trend Trading Module. This chapter
includes details on how the studies work and the parameters for each one.

Calculating the Intrinsic Trend

All of the Intrinsic Trend Indicators are based on an internal calculation used to
generate the intrinsic Trend Line and its associated bands. This calculation uses both
pivot analysis and regression analysis.
The calculation first identifies an emerging trend by looking for new long term pivots
in the chart. Once a new pivot is found, the trend is then anchored to that pivot for the
remainder of the calculations, or until a new pivot is found.
To calculate the trend line, a regression is performed starting from the current pivot
anchor up to the current bar. Custom error bands for this regression are then used for
the calculation to draw the upper and lower boundaries for the trend.
All of the remaining indicators are derivatives of this calculation, measuring specific
characteristics of the relationship between price, the Trend Line, and its Bands.

Nirvana Systems Inc.

Intrinsic Trend User Guide

Chapter 3

Intrinsic Trend Indicators

Figure 3-1. Intrinsic Trend Line Plotted on the Daily Chart of CSCO

Intrinsic Trend Study

The Intrinsic Trend Study plots the intrinsic trend line with its associated upper and
lower bands. The study independently colors the bullish and bearish trends, and
marks the points at which a trend reversal is detected. Optionally, the study can also
plot band bounces to help signal entry points, or summary statistics that describe the
characteristics of each detected trend.
Parameters:
SensitivitySpecifies in ATRs the sensitivity of the Pivot Calculation that is
used to initialize each leg of the trend.

BandwidthSpecifies the width of the deviation bands around the central

intrinsic trend line.

Intrinsic Trend User Guide

nirvanasystems.com

Chapter 3

Intrinsic Trend Indicators

Show Band BouncesAllows the user to determine whether band bounces will
be displayed or not.
Show DetailsAllows the user to determine whether the summary statistics are
displayed in the chart.
Bullish ColorSets color for bullish trends
Bearish colorSets color for bearish trends
Reversal colorSets color for reversals.

This study returns the value of the central intrinsic trend line, along with the values
of the upper and lower bands.

Figure 3-2. Intrinsic Trend Study Plotted on CSCO

Nirvana Systems Inc.

Intrinsic Trend User Guide

Chapter 3

Intrinsic Trend Indicators

Plotting Band Bounces

The Intrinsic Trend Study can be used to find entry points into a dominant trend.
When the plot band bounce setting is enabled, the study fires signals in the direction
of the dominant trend as price bounces off the Intrinsic Trend bands. The lower band
is used to trigger long trades in a bullish trend, and the upper band is use to trigger
short trades in a bearish trend. The goal is to find optimal entries into an ongoing
trend, by waiting until price moves to edge of its expected trading channel.

Figure 3-3. Band Bounces on CSCO

Showing Trend Statistics

The Intrinsic Trend Study also displays summary statistics for each detected trend.
These are displayed in the chart at the conclusion of the current leg. The statistics
shown are cumulative, showing the data over the entire range since the trend began.

Intrinsic Trend User Guide

nirvanasystems.com

Chapter 3

Intrinsic Trend Indicators

Figure 3-4. Trend Statistics on CSCO

The statistics displayed are:

DurationDisplays the number of bars since the trend started.
Return RateDisplays the rate of Return for the trend as measured in APR (See
Slope Study)
Avg StrengthShows the cumulative average strength for the trend (See
Strength Study)
Avg QualityShows the cumulative average Quality of the Trend (See Quality
Study)

Nirvana Systems Inc.

10

Intrinsic Trend User Guide

Chapter 3

Intrinsic Trend Indicators

Intrinsic Trend Slope

The Intrinsic Trend Slope returns values related to the slope of the Intrinsic Trend
Line. This indicator lets you gauge the steepness of the current trend. It includes two
calculations: a floating calculation that shows the recent slope, and a cumulative
calculation that reflects the slope of current trend since its start.
The slope is measured in Annual Percentage Return (APR) to help keep the units in
a scale familiar to users. The plot uses colors to match the colors from the Intrinsic
Trend study.

Figure 3-5. Intrinsic Trend Slope Plotted on CSCO

Intrinsic Trend User Guide

11

nirvanasystems.com

Chapter 3

Intrinsic Trend Indicators

Parameters:
SensitivitySpecifies the degree of sensitivity used in the pivot calculation that
initiates the trend.
Periods Specifies the number of bars to look back for the floating slope
calculation.

Intrinsic Trend Strength

The Intrinsic Trend Strength study measures how strong the underlying trend is, as
measured by whether the price is remaining above (stronger) or below (weaker) the
Intrinsic Trend Line. The calculation returns both a floating calculation over a number
of periods specified by the parameters, and a cumulative calculation. The floating
calculation is plotted as a histogram, while the cumulative value is plotted as a line.

Figure 3-6. It Strength Indicator Plotted on Starbucks

Nirvana Systems Inc.

12

Intrinsic Trend User Guide

Chapter 3

Intrinsic Trend Indicators

Parameters:
SensitivitySpecifies the degree of sensitivity used in the pivot calculation.
Periods Specifies the number of bars to look back for the slope calculation.

Intrinsic Trend Quality

The Intrinsic Trend Quality Study helps to determine the health, or quality, of the
trend. If the market consistently trades above the lower band (in bullish markets), then
the trend is considered to be of high quality and the indicator will return a higher
reading. However, if price has recently been trading below the lower band, then the
quality is considered low and a lower indicator reading is returned. As trends begin
to falter the quality indicator is designed to give you early indication of the potential
trend change. The study return both a cumulative value and a floating value over the
number of periods specified by the parameters.

Figure 3-7. IT Trend Quality Plotted on DIS

Intrinsic Trend User Guide

13

nirvanasystems.com

Chapter 3

Intrinsic Trend Indicators

Parameters:
SensitivitySpecifies the degree of sensitivity used in the pivot calculation.
BandwidthSpecifies the number of deviations to use when plotting the band.
Periods Specifies the number of bars to look back for the slope calculation.

Nirvana Systems Inc.

14

Intrinsic Trend User Guide

Using Intrinsic Trend in EFS

In addition to studies in the Intrinsic Trend Module, we provide a library function that
allows the user to access any of the data displayed by the intrinsic trend module,
including the displayed statistics and flags for trend reversals and band bounces. The
function can be called from any user built EFS.
Parameters:
SensitivitySpecifies the number of ATR's used in the pivot calculation that
determines the start/end of each trend.
BandwidthSpecifies the distance in standard deviations of the trading bands
relative to the calculated center line.
Outputs:
The function returns an array of outputs that specify specific information about the
centerline, bands, and trend statistics.
CenterReturns the centerline of the Intrinsic Trend Calculation
UpperReturns the upper band of the Intrinsic Trend Calculation
Lower Returns the lower band of the Intrinsic Trend Calculation
Direction Direction of a current trend: 1: Uptrend -1: Downtrend
DurationSpecifies the number of bars that the current trend has been in place
APRSpecifies the cumulative slope of the current trend in APR
StrengthSpecifies the cumulative Strength of the current trend
QualitySpecifies the cumulative Quality of the current trend
TrendChangeFlag specifying the direction of a current trend: 1:New Uptrend
-1:New Downtrend 0:Same
BandBounce Flag indicating points at which band bounces are detected in the
chart.

Nirvana Systems Inc.

15

Intrinsic Trend User Guide

Chapter 2

Using Intrinsic Trend in EFS

Example Code:

To access the library a call to the Add library function must be made. This is usually
done before the preMain() function:

Figure 2-1. AddLibrary Function

After you have a variable accessing the library, you can make the call to the intrinsic trend
function (ITFull):

Figure 2-2. Example Code

Intrinsic Trend User Guide

16

nirvanasystems.com

Trading with the Intrinsic Trend

Module

The Intrinsic Trend Study is designed to give you valuable feedback about the current
trend. The trading bands provide good indications of the range in which price is likely
to remain, as long as the trend stays intact. The bounces off these bands are prime
trading candidates, provided the trend is behaving nicely. The idea is to find good
valued entries but still capture the underlying tendencies of the dominant trend.

The Long Bounce

Figure 4-1. Long Bounce Entries on SBUX

Nirvana Systems Inc.

17

Intrinsic Trend User Guide

Chapter 4

Trading with the Intrinsic Trend Module

The most popular trend trade to take is a long band bounce trade as price bounces off
the lower band in a bullish trend. These action points are signaled by green arrows in
the chart, allowing you to easily identify both current and historical instances of these
trades.

The Short Bounce

Figure 4-2. Short Bounce Entries on AAPL

A similar trade can be taken during bearish trends by looking at points where price is
bouncing off the upper band of the bearish channel. These signals are plotted with red
arrows.

Intrinsic Trend User Guide

18

nirvanasystems.com

Chapter 4

Trading with the Intrinsic Trend Module

Trend Detection
The intrinsic trend module uses pivot analysis to identify emerging trends before
building out the trading bands. Due to the nature of this methodology, newly detected
trends may require a number of additional bars for the bands to stabilize. This is
generally easily detected by visual inspection of the chart. As the emerging bands
smooth out, you know the module has locked on to the price movements and the
bands are ready to be used.

Figure 4-3. Disney showing the early trend variability before later stabilizing.

Nirvana Systems Inc.

19

Intrinsic Trend User Guide

Chapter 4

Trading with the Intrinsic Trend Module

Using the Additional Studies

The strength, slope, and quality studies give you a way quickly access various
features of the current trend. Each of these calculations gives you a particular insight
into the expected behavior in the chart.
The Strength calculation helps you understand how much pullback is seen within the
current trend. This allows you to know whether a test of the band is likely. For
example when an uptrending stock has very high strength, it is predominantly trading
above the intrinsic trend centerline, making a move back to the lower band very
unlikely. In this scenario, you might revert to trading bounces off the centerline
instead of the lower band.
The Slope calculation tells you how steep the current trend is, measured in Annual
percentage return. This helps relate the rate of return of trend to commonly seen rates
of return for comparison purposes. A common goal of slope analysis is to detect
overheated trend or trends that are too weak to engage. For example, if you saw a
trending utility stock with an APR in excess of 100%, the sustainability of that trend
would be highly suspect.
The Quality Study shows you how well the current bands fit the current trend.
Trends which have frequent or large counter trend moves outside their bands will
have lower quality than those which honor the levels. The quality gives you
perspective on how to interpret a test of the band in the given situation. Bounces from
stocks with lower quality would be more suspect.

Intrinsic Trend User Guide

20

nirvanasystems.com

Additional Resources

If you would like to learn more about indicator trendline analysis you may wish to
review the following resources:
Profiting with IndicatorsProfiting with Indicators is designed to show you
how to improve your trading decisions by using indicators to confirm winning
trade candidates. Indicators help you visualize important factors such as trend
direction, price momentum, volatility, and market participation in the form of
volume. Financial institutions, brokerages, professional traders, and even
long-term investors make use of indicators when making decisions.
Nirvana Systems Technical Support TeamOur support team is available to
help you with questions about the various features of the plug-in. You can contact
them by email at esignalsupport@nirvsys.com or by phone at 512.345.2592.
Nirvana Systems thanks you for your patronage, and we wish you the best of luck in
all of your trading endeavors.

Nirvana Systems Inc.

23

Intrinsic Trend User Guide