Hotwater. This engine actually doesn't have a switch for 2/4 chuffs. My 3rd Rail CB&Q Mikado has that and has to be from a later production run. The O5 has a magnet epoxied to the inside of one wheel of the tender and a pickup is wired to that location from the TMCC setup. It looks to be an addition after the manufacture of this engine because the person simply drilled a hole and shoved the 2 wires through without any sort of protection against chafing. I reamed out the hole and fitted a grommet there. I also fabbed a cleat to keep the wires away from the wheels.
I was thinking of adding another magnet if I can find one that small.
Phil