Craig & Dale, thanks for your DMS analysis! I'd like to add my interpretation about entering DMS. It's true that in my example I wasn't having a position at the time of +DI/-DI crossing. But I don't think that changes this kind of a situation essentially. We could also end in not having an open position before the crossing after TP-ing the previous position earlier. If doing that e.g. with the help of AC, in the example there could have been a TP somewhere around 1.0200 when AC first turned red for the previous trade, and that would have been hit. There was also some analogous discussion about initial SIS entries a few posts ago: should we follow Wilder's rules or could we use TISAR of the previous, virtual trade.
The Extreme Point Rule (let me call it "EPR" here) defines the reverse point which should be used for both entry and exit. Here I can imagine having a virtual long position and not reversing it to a real short position until EPR is completely filled. So Dale's stop rule could also have been applied on Jul. 11th, and it would have got cancelled.
But then there is also the possibility to consider retro DMS trading. If you don't apply EPR when you don't have an earlier position open, and you didn't open the new position right after the signal, then the price would have been in a favourable level for several days. But if you apply EPR in every case, then there is no place for a retro trade here yet.
I'm now inclined to the following principles for the initial (and any other) entry of DMS:
- Wait until EPR is filled, even if you don't have an earlier position.
- Rank the trade as either a "good" or "bad" one based on the indicators on the date of EPR (ADX, AC and possible others). Don't take a "bad" trade.
- Enter by placing a stop 'a couple of ticks' below (on short) / above (on long) EPR
- Use TP once AC turns against the trade.
J.
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