Trading Systems in 'New Concepts In Technical Trading Systems' by J. Welles Wilder

[dpaterso]

Well folks,

That is ME for the week!!! Fantastic week!!! Thanks to everyone on the thread, the markets, Mr Wilder, and the moon (don't ask)!!!

OBVIOUSLY I'll be checking the thread over the weekend (probably ever hour or so you know) so any input or questions welcome!!!

For those of you who are trying to succeed in this business but for some or the other reason it just does not seem to be working for you: have patience, do not over trade your account, stick to your system, and you WILL succeed and WHEN you do it will be more than wealth that you gain I can assure you.

And if my creditors are reading this: it will NOT be TOO much longer now I promise!!! Your patience is GREATLY appreciated!!!

[datom]

Originally Posted by dpaterso

If you're asking for MY advice I'd steer you in the direction of the Dow, Nasdaq, and S&P 500 (futures) to start with then move on to metals, commodities, and oil when you've built up a bit (a lot) of capital. The only problem is that the amount of capital that you have available to you to start with will limit your choice of broker and therefore your choice of tradeable instruments. I'm working on something for people who want to open accounts with GCI Financial (GCI Trading???) that have a minimum of $500 starting capital (GCI requires a minimum of $2 000) but I can only do this if I have more clients to justify the arrangement. GCI has EVERYTHING on offer so that's why this is such a 'big deal' to sort something out.

Are the indices and futures the same thing Dale? Also, I was once told that Futures are more riskier than Forex because sometimes you are not able to get out of a futures contract and you are pretty much stuck with it (even if it means you losing all of the initial deposit that you put into your brokers account + liable for even more $$ after that) Is this true? Or was I told wrongly? And why would you recommend these futures/indices in front of commodities?

Oh yeah... I would be interested in the $500 account with GCI if you are able to pull some strings!

Many thanks for your wisdom words,
Tom

[dpaterso]

Good morning.

The indices (indexes???) (never quite sure which word to use but always seem to use 'indices') is a term that is 'loosely' used to refer to a whole RANGE of different instruments. An index is made up of underlying stocks. The S&P 500 for example is an 'average' of the prices of the stocks of 500 companies listed on the NYSE, the Dow is made of 30 stocks of 'blue chip' companies listed on the NYSE. Same with the Nasdaq 100 i.e. consists of the stocks of 100 companies listed on the NYSE etc. Each of these companies fall into different sectors and each sector has a different 'weighting' on the index and as such on the price movement of the index e.g. the S&P 500 is financial and banking stocks 'heavy' while the Nasdaq 100 is tech stocks 'heavy' etc. Price movement in the underlying stocks causes movement in the associated index. While this may seem 'daunting' at first it is not I can assure you. As far as you being able to lose MORE money than you put in it would depend which options you are trading and on the broker you are trading with and a variety of other factors. Suffice to say that for people like you and me and the brokers that we are able to trade with due to our limited resources this cannot and will not happen i.e. same as forex. The stuff you've heard about concerns the 'big time' players and while whatever you have heard is probably quite true it is not a concern for people like you and me. As far as not being able to get out of a trade again: not a concern for people like you and I. Having said that be aware that certain commodities are subject to 'limit' moves e.g. the price of Soybeans can only move a certain amount during a session and if it tried to move MORE than the 'limit' then trading in one direction or the other would be halted until the next day. This is to stop 'frantic' buying and selling in those markets (sort of like a 'cooling off period') and HUGE price swings. This means, for example, that let's say the price of Soybeans was going down BIG TIME during a session and the price moved the 'limit' early on during the session (moved down in this example). You would at that point ONLY be able to go long or buy Soybeans and would not be able to go short or sell until the next day (session). Problem: if you were ALREADY long you would not be able to realise your loss and close out your position until the next day and if the price continued to move down there is nothing you can do about it. After one of the 'crashes' (I forget which one) a type of 'limit' was introduced on the Dow etc. (I think it was called the 20% or 25% rule or something like that i.e. I forget now but you can look it up on the Internet). The idea was that you could not place orders MORE than 20% or 25% below the closing price of the day before (or something like that). This was to stop 'panick' selling and thus avoid another 'crash'. While I MAY not be too clear on the 'ins and outs' of this 'rule' suffice to say that it has been subsequently 'done away with' so it's not something that you have to worry about (at least not on the Dow, Nasdaq, and S&P 500)!!! The reason that I (ME) would recommend that you start with the Dow (futures) is because it is 'manageable' i.e. each single point movement on the Dow (futures) is $1 (mini lot at GCI which will cost you $50 of margin). There is unbelievable intra day movement (volatility) and you can make some good money while not 'losing your shirt'. The value of a pip ('tick' actually i.e. 'pip' only refers to forex) movement on commodities can be WAY more than $1 and with a $50 lot at 200:1 leverage on Soybeans this CAN result in a loss of $500 in a matter of minutes i.e. whole account 'wiped out' in a heartbeat. See the point? I suppose that trading one mini lot of the Dow is the 'equities equivalent' of trading one mini lot of EUR/USD in forex. I hope this clears things up for you somewhat.

The best thing that you can do for yourself is open a demo CFD account at GCI Financial and then you will be able to get an idea of how the different indices and commodites 'move'. DO NOT be fooled by the demo however. The prices will be the same as the live accounts BUT order execution is NOT e.g. orders on the Dow, S&P 500, and Nasdaq are executed in realtime on the LIVE accounts i.e. no dealing desk and the SAME on the DEMO account BUT orders on Soybeans are executed in realtime on the DEMO account BUT the LIVE account orders for Soybeans go through the dealing desk so sometimes you may wait a minute or two for a Soybeans order to be executed on the LIVE account and you will nearly always be requoted. Nothing to worry about i.e. THIS IS A NORMAL MARKET (this 'business' of people getting upset when they are requoted is nonsense i.e. that is how the REAL market works).

There is ONE thing I need to make quite clear here to you and everybody else: I am makiing this 'deal' to allow people to open accounts with $500 minimum at GCI (given enough clients) BUT this DOES NOT mean that it's a good idea i.e. I believe that at GCI their $2K minimum is a good thing. It's REAL easy to wipe out $500 with 200:1 leverage at GCI I can assure you. My recommendation for anybody with less than $2K (and a minimum of $500) would be to rather open an account with Delta and trade micro lots until you've built up AT LEAST the $2K. Unfortuanately this exlcudes you from being able to trade the futures and commodities although you can trade Gold and Silver and Oil (and the 'proper' or 'main' Dow IF you can afford $700 per lot)!!!

[datom]

Thanks for your quick reply Dale!

So for all the instruments you trade (forex, commodities, futures etc) you basically stick with Wilder's SI system? (I don't know much about it at the moment... but will study it thoroughly when I receive the book!!)

Is it just the SI system you trade with now that's found you success? Or do you add other systems to it as well (I've heard the volatility system mentioned around).

Cheers,
Tom


(I can't wait to receive the book!)

[dpaterso]

Hi,

Me: I am only trading the SI System now (and currently testing a little 'variation' on the order entry to try and keep away from 'spikes' in the price which result in a bad trade now and then) and this is 'the ticket' for me. The Volatility System is a great system BUT again does not 'suit' ME i.e. LOOOOONNNNNGGGGGG trades (on the daily charts a trade could be MONTHS long) and although EXTREMELY profitable by the looks of things requires LOADS of patience and LOADS of margin and 'nerves of steel' in my opinion. I have tried IT on the shorter timeframes with mixed success i.e. too much 'market noise' to make it a winner on a short timeframe in my opinion (although you MAY find that it works on the 4 hour timeframe which I did not try i.e. to me if I'm going to trade the 4 hour then I may as well be trading the daily and have done with it). The Swing Index System can be traded on ANY timeframe and ironically (I say ironically because up until about a week or two ago I would not even LOOK at any other timeframe other than the daily) it seems to give BETTER results on the 1 hour than the the daily would you believe and I"m starting to think that this is THE ONLY 'tweak' needed with the system i.e. shortening of the timeframe. By doing this you're in all the intra day moves up and down whereas on the daily chart you miss these moves. I never thought I see the day when I was a proponent of the 1 hour timeframe but you're never too old to learn I guess. It does make logical sense though. Think about it: the book was written in 1978 and I don't think they knew what the REAL meaning of 'volatility' WAS back then!!! I have a documentary on the October 1987 'crash'. At the time they actually reported the fact that in a single day the Dow dropped 50 points!!! Big headlines!!! 50 Points!!! If the Dow moves anything less than 150 - 200 points during a session nowadays then the market may as well be closed!!! See my point. I've been thinking about converting the documentary to MPEG format and putting it on a website for everyone to view (if they want). I love watching it (I normally watch it when I'm 'piss*d' and the markets are closed like over a weekend. Sad I know)!!! It's very interesting though and it gives you insight into what CAN happen when things start to go 'pear shaped' and people get 'scared' and 'fear' takes over the market. Riveting sutff to me!!! It also gives you an insight as to WHY they introduced the 'limits' and the 20% or 25% rule that I mentioned earlier (for a while anyway). Hmmm. Just had a thought. Maybe I could put it on YouTube for us. I'll see.

[Bocajunior]

Evening all, Dale and everyone else,

I just got home after a 2 week job offshore and my Wilder book has arrived. Woo Hoo!

I've got 12 pages or so of this thread to catch up on and of course I've got to work my way through the book as well. Thanks again for the discount and the code Dale.

Hope to be involved once I'm up to speed.

Best Regards
Boca

[dpaterso]

Further to my post above (with regard to the documentary):

I did not realise it at the time of posting but this documentary is available direct (for purchase) from CNBC so I would be unable to post a copy on YouTube as this would be a violation of copyright.

I also cannot insert the link here because the site will not accept it.

The documentary is called 'October '87: Crash and Comeback'. Google 'october 1987 crash and comeback video' and you will find some links there (as I mentioned previously it is avaliable direct from CNBC and it would also appear that it is available for purchase from Amazon as well).

If you can: buy it (or rent it if possible). It gives some amazing insight into the world of stock market trading and the similarities between what happened back then and what has happened in the past couple of months are uncanny.

And while I'm on the subject it would certainly appear that the Dow has averted disaster (for now anyway) and, if Wilder's 'Delta Phenomenon' is anything to go by, should rally for at least the next two weeks or so (I'll attach a chart to this post sometime this weekend after I've drawn the 'lines' again). Again, according to 'The Delta Phenomenon' this may be a temporary 'reprieve' i.e. according to 'The Delta Phenomenon' look for the Dow to get to 10 000 or below: this drop to be starting somewhere around 21 April 2008 and only reaching a bottom somewhere around 20 May 2008. Could this be the NEXT wave of sub-prime casualties (credit card companies)??? Already VISA is looking to raise cash via an IPO (as of Thursday last week VISA stocks are tradeable at Delta Stock and the stocks MAY NOT be shorted i.e. only long orders)??? A foreboding of things to come??? Watch this space!!!

[roger123doger]

I was wondering if you had any feedback on the effectiveness of the Awesome oscillator in conjunction with the accelerator/decelerator indicator

thanks

[Bocajunior]

Good day all,

Recieved my book recently so just trying to make my way through it and understand it fully. I'm also half way through "Japanese Candlesticks" by S.Nison so it's pretty full on reading at my place at the momement, Anyway, on to the subject in hand.

In section II of the book, the section about PSAR (sorry to talk about this again) it mentions that the SAR point should increase by .02 every day as long as a new high is made. I picked up a chart and went through and calculated the position of the SAR dot and is quite fascinating to see how it all works out.

Great stuff! On to the next section.

[dpaterso]

Hi Boca,

Agreed: it IS fascinating to see how the thing works isn't it? What's even MORE fascinating is that if you pick 10 brokers or charting packages I'll almost guarantee that 5 of them will give you an incorrect Parabolic SAR parabola!!! Not 'out' by much but incorrect nevertheless.

Oh and don't worry about bringing up Parabolic SAR (again). It's STILL Wilder and it's CORRECTLY detailed in the book. I myself, however, cannot think of ANYTHING more that I personally could contribute to a discussion on Parabolic SAR i.e. the other thread is 222 pages long and counting AND someone has started ANOTHER thread on it because the original 'is just too much time consuming reading' from some!!!

I think you're also going to find the section on ADX interesting i.e. there is a lot of info there on the CORRECT use of ADX / ADXR. Same with RSI.

Anyway: good reading. Let us know what you think of Steve Nison's book as well i.e. I 'toyed' with the idea of buying it once but seeing that I have 'issues' recognizing the patterns as they are forming EVEN WITH the 'forests' of paper that I printed out on the subject I figured it would not help me at all and it would therefore just be a waste of $$$ for me.

I was actually saying to someone yesterday: I thought this thread would take off 'like a rocket' i.e. it is ALMOST a 'licence to print money' and yet for some or the other reason the 'free' systems STILL seem to be the more popular regardless of the fact that a lot of them MAY have been developed by someone who's been trading a demo account for two weeks and got 'lucky' with what they assume to be a 'holy grail' system (and I include myself in that statement by the way i.e. when I started the 'Parabolic SAR - that's all!!!' thread this was just about the case and look where I ended up because of it)!!! Don't get me wrong i.e. I'm not trying to 'stifle' other peoples creativity or ingenuity but we are here to make a living not prove a point (well that goes for me anyway) (see my signature)!!!

Anyway: for those prepared to do the 'slog' the rewards are great.

Edit:

Just remember to check the 'errata' post at the beginning of the thread i.e. you'll save yourself LOADS of time by NOT having to spend DAYS AND DAYS trying agree your own workings to workings in the book where there are indeed mistakes here and there!!!