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

[chirules54]

Hi Dale, I am starting to follow gbp/jpy with the "simple little system" on the 1hr timeframe and I had a quick question.. if you place a stop order at the close of a candle, the hour goes by and the candle closes without the order being triggered, yet the candle still closed in the same direction, do you leave the stop order price alone or do you change it to the high/low plus the spread of the candle that just closed?

Also, to answer your question about my volatility trades, the aud/jpy would still be in profit if the sar is hit, about 150 pips or so right now. The usd/cad trade which was just opened several days ago would be closed at a loss of about 200 pips right now, though usd/cad has been ranging lately and the sar point is getting closer to the price so this should be reduced. I'm nervous about gold today, it looks like it is going to close low enough to enter a volatility trade, if it does I will enter it, but probably a pretty small trade size though.

[dpaterso]

Hi Nick,

It's funny that you should ask that question because the answer to it (as it relates to BOTH systems) just about kept me awake last night!!! I have the SAME issue with the Swing Index System i.e. what if you get an entry or stop and reverse signal (valid entries according to the system of course) and the bar closes and does not hit the order and the NEXT bar ALSO closes but only SLIGHTLY up or down from the previous bar. What do you do with the order??? It's not covered in the book!!! We'll have to help each other out on this one i.e. follow some trades through and see what the result of leaving the order / changing the order / removing the order would / should / could have been!!!

Thanks for the Volatility System info. I see / hear what you're saying about Gold. Gold is a problem for me (always has been) i.e. again the analysts are saying that it's going to go to $1 200 an ounce or more but the question is WHEN i.e. the last time they made a 'prediction' like this it took over six months to get there (and cost me a sh*tpile of money in the interim as you probably know). I can only assume that if Gold's VS SAR is penetrated it would be a short entry signal. The problem is: 'who knows'??? The last time these analysts predicted the Gold price not only did it take over six months to get to the price (as previously stated) BUT it ALSO corrected by MILES and MILES before it went up again. Short or long??? Correct or no??? I'm afraid I cannot help you on this one either!!! Sorry.

[chirules54]

Yes, this is a dilemma. So far I've just been leaving the stop order alone and not changing it to the newest candle that just closed. Maybe it's just the market right now, or maybe I'm not placing my orders far enough away from the high/low, but so far on the 1hr timeframe I haven't had very good results with gbp/jpy. The spread is 6 pips, so I am placing my stop orders 10-12 pips away from the high/low, do you think this is too close?

Also, I have pretty much come to the conclusion that there is no way I can trade off the 1hr timeframes for a long period of time. First of all, when am I supposed to sleep? I don't think I can set alerts with oanda, and even if I could, I really don't want to be waking up in the middle of the night to look at charts, especially when I have class the next day. Even the 3 or 4hr charts wouldn't work for me because I would miss at least one or two candles during the night. I have to ask you: how do you deal with this problem? For now I might have to stick with trading off the daily charts, which seems to be fine for the TBP and volatility systems, but I believe you said earlier that the SI seemed to work better for you on the 1hr charts, do you think it would still be worthwhile and profitable if I just stuck to the daily charts?

One more thing, how is that business with GCI going? I want to switch over to trading the "good stuff" and leave these stupid forex pairs alone, in a few weeks I should have close to $1,000 I could open an account with, but I want to trade the commodities obviously so I was wondering if they would let me open an account with this amount?

I also entered that short gold volatility trade today, we'll see what happens...

[dpaterso]

Hi,

Tell you what I'm doing: I have my charts set to the 'middle' price i.e. not 'bid' or 'ask' and then I'm placing my orders 1.5 x the spread + 5 points (which I supposed is equal to the spread + 5 pips on a 'normal' chart). This is keeping me out of most bad trades along with the 'wait for a test and a retraction' 'action'.

As far as the 1 hour is concerned I sit here in front of this stuff from anywhere around 06h00 in the morning until 03h00 the next morning (but do take a nap most afternoons though of course AND THEN spend most of the weekend sleeping)!!! That's how I cope!!! Not much of a life I know BUT prepared to do it while I'm still 'loving the game'!!!

The SI System will work on anything and any timeframe. The longer the timeframe the more sure you have to be that you have a lot of free margin if things go 'pearshaped' and of course you have to wait for 24 hours to find out if you're in a good trade or a bad trade BUT the system still works.

The GCI thing is still pending i.e. I would have you and one other person so far to open accounts there. I'd say to give it another three or four weeks and I should then have enough 'clients' (you know what I mean) to justify the deposit account. I know I've said this before BUT I'm saying it again though: if I do this 'deal' with them and people can open accounts with a minimum of $500 then 'be it on the account holders head' i.e. to me the ABSOLUTE minimum should be $2 000 and I personally would recommend $5 000. Just ALL bear that in mind. I know that's not 'child's play' money BUT I can assure you that you will not be sorry WHEREAS with a $500 account no matter HOW good ANY of these systems are you're 'skating on thin ice' I can assure you. All you need is one really big spike up or down during a day (especially on something like Soybeans) and your account is 'done for'. I cannot force you but can only give you advice based on what I have learned the VERY hard way. Even the Dow has been known to move 400+ points in a day and remember: if you're working on the daily charts that means that you have to be able to be $400 DOWN if you're on the wrong side of the trade that day and although this MAY change the next day the possibility always exists that it won't and you have to stop and reverse and realise the loss. If that happened you're now ALREADY down $400 and let's say the next trade is also bad: down ANOTHER 300 points or $300 let's say. See my point??? Put it this way: I'd say the bigger your account balance the longer timeframe you can trade but I would NOT even LOOK at trading the indices or commodities on a daily timeframe with under $5 000 at GCI. To be honest: I'll get commission on your trades either way but my intention here is to help new traders to NOT wipe out and end up in the 'sh*t'.

Edit:

Sorry: I'm not trying to put anyone off here i.e. it's just that it's happened to me MORE than once (last year). Remember that at GCI EVERTHING is traded with a 200:1 leverage and the lot sizes are 'fixed' ($50 or $500). I've seen single positions on the DAX 30 (for example) turn to $500 or so profit in a matter of hours and I've also seen those same positions turn into a $500 loss in an even shorter period of time (on $50 lots)!!! I've seen Soybeans drop limit down for the day and a $50 position go from $100 profit to $500 loss in MINUTES!!! I've MADE (thank goodness it was 'MADE' and not 'LOST') $840 or whatever it was in FIVE MINUTES on the Brasilian Bovespa Index on a $50 lot (something which I would not attempt to do again any time soon)!!! THIS is the REAL 'game' in town but this is POSSIBLY ALSO the reason why everyone sticks with forex pairs BECAUSE of this type of 'action'. Never thought about that until now.

[chirules54]

Dale, thanks for that input. I guess I never realized how the commodities and indices are so different from forex pairs. Looks like I might have to stick with forex pairs and gold for a while, as it looks to be a little "rich for my blood" for the time being. I was doing some reading on it, and I came across the terms "limit up", "limit down" and "locked limit". I know what limit up and down means, but how do you know what the limit price or the value of a limit move is for a specific instrument? This is part of the SI equation so it looks to be important. I also don't quite understand what happens in a "locked limit" scenario, I was doing some reading and apparently it is a pretty bad thing if say, you are long soybeans and the price gets locked limit down, because the position has moved against you and since the market is locked, you can't get out. What do you do in a situation like this?

-Nick

[dpaterso]

Hi,

You know what: I never thought about this until I read your post (very silly of me to not have thought of this before I must say) BUT I wonder if you can request a lower leverage from GCI i.e. 100:1 or even 50:1. THAT would certainly solve the problem of being 'wiped out' by Soybeans with less capital not so??? I have looked on their website and I don't see this as an option anywhere BUT I WILL send them an email to ask. If it IS possible then it will solve your problem as well as quite a few others that may have the same problem but want to trade stocks and commodities!!!

Limits:

Well you've got it right (mostly). If the price of Soybeans moves its 'limit' down in a day and stays there and is now 'locked limit' it means that you can ONLY long Soybeans at that point i.e. not short them. There's the problem: let's say you WERE long Soybeans and the price dropped 'through the floor' i.e. 'limit down' and 'locked limit' you would NOT be able to close that position i.e. you'd have to be able to sell (short) in order to close the position but you cannot at that point. Of course the opposite would apply to a 'limit' move up. See the problem???

As far as knowing what the limit is for a particular commodity you can get that information (normally) from the exchange's website (like the CBOT i.e. Chicago Board of Trade).

To be honest I have not found HOW the value of the 'limit' comes into play with the SI System so if you figure it out let me know. I agree that it's there for a reason but I've not been able to figure out the reason i.e. it does not matter WHAT value you put in there (or even if you just leave it out altogether) i.e. it makes absolutely NO difference to how the ASI is 'plotted' on a chart or indicator i.e. the 'shape' is EXACTLY the same and only the actual ASI value changes so I don't know what you make of that.

[dpaterso]

Hey Nick,

Just thought I'd let you know that I spent a good deal of the weekend looking for the reason that Wilder includes the 'limit' of 3.00 (as in the example in the book) and I STILL cannot see WHERE it makes ANY difference so I'm REALLY hoping that you or someone else comes up with something!!!

Over the weekend I tried using various other 'derivates' of the formula e.g. making the 'limit' 1.00 instead of 3.00 and all this manages to accomplish is to keep you out of LOADS of good trades on a stop and reverse signal. I also tried dividing the 50 by the 'limit' and then removing the 'limit' (which is MATHEMATICALLY 'allowable' and 'correct') and the resulting ASI is EXACTLY the same as if you kept the formula 'original'. The ONE THING that STILL worries me about this is the in the book Wilder says that the SI will ALWAYS be between 100 and -100 and this is NOT the case i.e. the ONLY place this seems to be the case is in his example. What I DID do is 'modify' the 'PIPFACTOR' for a pair to the point where the SI DID INDEED fall into this range (on EUR/USD in order for the SI to fall between 100 and -100 the 'PIPFACTOR' has to be 0.001 and not 0.0001 as we would 'normally' use) but again: this has the effect of pushing the TISAR FAR away from the reversal point and thus AGAIN keeping you out of trades. The very strange thing is that EVEN WITH SOYBEANS CURRENTLY the SI falls outside of this 100 / -100 range and the ONLY thing I can possibly think of is that either the 'limit' has changed from back then or it's because the prices are WAY different than the prices quoted back then. By the way: you'll find that adding the 'PIPFACTOR' as we have done has EXACTLY the same effect as reducing the 'limit' and NOT USING a 'PIPFACTOR' i.e. if you make the 'limit' for EUR/USD equal to 0.0003 this is the same as LEAVING the limit at 3.00 and dividing by a 'PIPFACTOR' of 0.0001. See the 'dilemma'.

By the way: I going to be using the SI System on some slightly longer timeframes from today (purely because my little IB business seems to be getting a bit of a 'kickstart' and it will become IMPOSSIBLE to trade managed accounts AS WELL as prepare signals and send them to clients every hour UNLESS I was trading at only ONE broker, ONE account, ONE instrument, and ONE client i.e. 'time' is / will become a limiting factor here).

[dpaterso]

Hi,

OK:

This is for those who have asked about opening an account at GCI with LESS than the $2 000 minimum as required by them:

I have concluded my discussions with them and this is how it works:

1 - I will deposit $2 000 into an account IN MY NAME (I cannot trade this account nor withdraw the money from it until there are no other accounts 'linked' to it i.e. see below).

2 - You (the client) will open an account directly with GCI in your name BUT I have to be specified as the SECONDARY ACCOUNT HOLDER AND THE INTRODUCING BROKER. I'm sure you'll be happy to know that me as the SECONDARY ACCOUNT HOLDER is in 'name only' i.e. I cannot trade your account, deposit funds into your account, nor withdraw funds from your account but it is this 'link' that allows you to open an account with GCI with less than the $2 000 minimum as required by them.

That's the best that I and GCI can do for you.

I have investigated the possibility of reducing the leverage on their accounts from 200:1 to 100:1 and also 50:1 BUT it's NOT going to help you i.e. all this means is that instead of a lot costing you $50 (at 200:1) a lot is going to cost you $100 (at 100:1) or $200 (at 50:1) BUT the tick / pip values are the same as on a 'normal 200:1 account' and the profit / loss per tick / pip movement is not going to change regardless of the leverage setting. Interestingly enough they can 'bump up' the leverage to 400:1 and what this means is that instead of a lot costing you $50 (at 200:1) it now costs you $25 (at 400:1) so you have more margin available 'for error'.

Like I said before though: I am NOT recommending any of this i.e. you don't really have enough margin available 'for error' with $500 UNLESS you're going to trade ONLY forex pairs. Again: notwithstanding this agreement: THEIR minimum is $2 000 and MY RECOMMENDED minimum is $5 000. I'm prepared to put the 'deposit' up BUT 'be it on your own head' if you wipe out your $500 account trading Soybeans and they go 'limit down' like they did today!!!

[chirules54]

Hello Dale,
I also have been looking into the importance of the limit value in the equation and I can't see how it is going to change the output too much. It will change the actual number value that you get, but if this is the case then as you said earlier, the "shape" of the ASI will be the same, just the values will be different. With forex pairs, since there is technically no limit, I've thought about deleting the limit altogether (by dividing it by 50 which as you said, would mathematically make it irrelevant). I have not had the problem yet of a SI value being greater than 100 or less than -100 because so far I only have it set up for gbp/jpy, which is quoted in the same format (xxx.xx) as the commodities in the book it seems. In the book, on page 89 example 15 where he says that the SI will have a max value of 100 on a limit day, perhaps the reason you are getting a value higher than 100 is because the price is moving more than the "limit" value in the equation which gives you a number higher than 100 or lower than -100. I can see how the limit value might mean something in instruments that have a limit, but with forex pairs, and gold (to which my knowledge has no limit) it is useless.

I went to the CBOT website and looked around a bit, but I couldn't find a page where it listed the limits for the commodities... what would you say are the most popular commodities? On bloomberg I see soybeans, oil, coffee, gold, natural gas and corn most often. Is the limit usually a set number or do they change it often?

Also, here's a quick summary of my current volatility system trades:

AUD/JPY short @ 96.04 +521 pips
USD/CAD long @ 1.0232 -4 pips (was as high as +50 earlier today)
Gold/USD short @ 943.85 +29.25

Because aud/jpy is a "commdoll" and since it is decently correlated with gbp/jpy, after I get reversed out of this trade I am probably going to stop trading it altogether and switch to gbp/jpy exclusively to avoid any problems. For now I'm going to keep watching usd/cad, unless I can find a pair with a higher CSI that isn't correlated strongly with gbp/jpy or gold.

[dpaterso]

Good morning Nick.

Thanks for that insight. It's something I did NOT think about i.e. the reason that I get SI values outside of the range. Very well done!!! And thank you. It makes sense (especially if you look at the different price quotes). It's been bugging me for months and now at least you have given me a good explanation as to why. It has not affected the performance of the system or anything like that so I've sort of 'lived with it' but it's great to finally have a possible reason for this 'anomoly'. Thanks again.

I see that you have probably also done exactly what I've done NUMEROUS times i.e. it does not matter whether you leave the limit out, change its number of decimals to 'suit' the instrument being traded, divide the 50 multiplier by the limit, or add a 'PIPFACTOR' to the equation. No matter what you do the 'shape' of the ASI does not change ony the value of the ASI which you have now confirmed and no matter which value you are getting and using the TISAR is always in the exactly the same place.

I'll try and find the info you're looking for (I was almost sure that I saw it on the CBOT website - well - for Soybeans anyway). I'll obviously post anything I find.

To the BEST of my knowledge the limit is a set number (for a while) but can and does and has changed in the past but I will confirm all of this (somehow).

I also see those same commodities on Bloomberg and it's only those that GCI has as tradeable instruments (funny enough GCI does not have Sugar which is always quoted on Bloomberg).

Well I don't think that those VS trades look too bad do you??? What would your 'summation' be of the VS??? Recommended??? Pitfalls??? I started following some trades through but stopped because I'm starting to run into 'time' issues i.e. just not enough time to do everything I need to do so I'm again back to the SI System ONLY so that I can concentrate on what I'm doing. Going well as always (even on the 4 hour timeframe).

Thanks again for the post.