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

[dpaterso]

Hey Fabio,

If Chubs wishes to share his system then I'd like to suggest that he does this privately or starts a thread i.e. we've 'gone off track' FAR too many times EVEN on THIS thread so let's not complicate matters any further.

Regarding the CADX trades:

Sorry: my post may have been misleading. If IN a 'normal' DMS trade then of course you WOULD SAR to a CADX trade BUT you also need to take into account 'what has just happened'. Take a look at the attached chart. What you're really looking for i.e. 'the ideal CADX trade' is when you've just had a good strong 'run up' DMS trade at which point you'd SAR into a CADX trade.

NOW folks and SPEAKING OF MISLEADING POSTS:

I've put a lot of thought into our money management rules of late (since Cody's 'revelation') and it would appear that as RECENT AS MY LAST POST I have STILL been WRONG!!!

(I don't know if it's just ME i.e. if my brain has gotten 'fried' over the years or if it's just the way that 'the book' was written but I CONSTANTLY just seem to 'miss' things. I've done this COUNTLESS times up until now. Maybe I'm just not as clever as I think I am)!!!

When reading Section X ('Capital Management') I was CONVINCED that 'the rules' stated that one should never margin more than 15% of total capital on any one commodity (trade / position in our case) and that one should not margin more than 60% of total capital at any one time. This has 'stuck' for the past year 'and a bit'. HOWEVER: IN THE VERY NEXT PARAGRAPH 'the old man' says that HE would not margin more than 10% of total capital on any one commodity (trade / position in our case)!!! THERE IS A BIG DIFFERENCE let me tell you. First off: THAT is how it's possible to trade up to 6 commodities (trades / positions in our case) i.e. 60 divided by 10 equals 6!!! STUPID STUPID ME!!!

So:

THE DEFINITIVE MONEY MANAGEMENT RULES NOW ARE AS FOLLOWS (for forex pairs at 200:1 leverage):

NEVER margin more than 3.75% of total capital at any one time.
NEVER margin more than 0.625% of total capital on a sinlge trade / position).

AND DO NOT ROUND THESE FIGURES UP!!!

TRUST ME ON THIS ONE!!!

(OK: the above may change AGAIN depending on the answer that I get from 'the old man' as to what leverage he was trading with in 1978).

Now I KNOW that this is going to make it far more difficult to make money because your lot sizes are going to be MUCH smaller. But as Cody found out: our original money management rules are 'no good' and I suppose one COULD say that I've just been 'lucky' up until now!!! And to be VERY honest: I NOW HONESTLY BELIEVE that if your % gains are EXTREME then your are overtrading your account!!! That's a very good barometer and would certainly explain the EXTREME gains that I've made in the past i.e. ALL THIS TIME EVEN ALTHOUGH I WAS 100% SURE that I'd been following Wilder's Capital Management: it sure does look like I've REALLY been overtrading without actually knowing it!!!

Now one GOOD thing is this i.e. 'all is not lost':

Almost all of the time you will find that BECAUSE you never round the lot size UP but always DOWN: you will find that you are probably able to open quite a few more positions than 6 while STILL being under the 3.75% 'total capital rule'. The reason being that the DIFFERENCES between what the maximum lot sizes ARE and what they CAN be leave quite a bit of 'room' to open additional positions WITHOUT violating the 3.75% 'total capital rule'.

For example:

Let's say that 'total capital rule' of 3.75% would allow you to margin a maximum of $97 (in this example I'm using and account balance of $2 600) and the 'total capital per trade rule' of 0.625% would allow you to margin a maximum of $16 per position. CURRENTLY this would allow you to open 2 lots of 1 000 units of EUR/USD ($12 in margin because you're rounding DOWN). So on this position you now have a difference of $4. As you open other positions these differences 'add up'. In other words: STILL following these money management rules you MAY have 6 positions open BUT ARE STILL WELL UNDER the 3.75% 'total capital rule' thus allowing you to open more positions. In other words: NEVER exceed the 3.75% 'total capital rule' and NEVER exceed the 0.625% 'total capital per position rule' and you'll be fine. Per my calculations: these money management rules mean the you're EFFECTIVELY trading with 50:1 leverage.

Sorry about all the confusion!!! As I was saying to someone yesterday: ONE FINE DAY I'll have EVERYTHING CORRECT AT THE SAME TIME!!!

Regards,

Dale. (forexbrokersonline.net).

[dpaterso]

Hey!!!

You won't believe this BUT I've FINALLY after TWO YEARS just figured out the benefit of Delta's Level II Quotes Module!!!!

I'm DESPERATELY trying to get 'in' on USD/RUB so I'm watching it all the time. Today I started monitoring the prices using L2 and on a few occasions I saw that the spread was down to as LITTLE as 192 pips (which is a FAR FAR cry from the 1 500 pips FIXED spread on this pair)!!!

Anyway: I've 'missed the boat' i.e. my order price did not get hit (LIMIT ORDER SELL) so I just have to wait and see if the price gets back up to my order price.

I'm not sure if going to the trouble of using L2 to trade EUR/USD for example would be worth it but on these HUGE spread pairs: maybe it's the answer.

Regards,

Dale. (forexbrokersonline.net).

[fsprea]

A question, Dale, while I'm testing the DMS:

when you have a signal (DI's cross, or your ADXO changing color) AND in the meanwhile ADXR is below 20, we are all together in saying that you IGNORE the signal.

But then: if for instance the +DI goes on staying above the -DI, and slowly, after a while also the ADXR comes above 20, what do you do? Do you enter the trade also if the cross was some bars before, or do you skip the trade waiting for the next cross happening WHILE the ADXR > 20?

I'm asking because on GBPUSD, Daily, in 2006 there were just these crossings WHILE ADXR was above 20: 03/01; 07/06; 07/07; 06/09; 14/09; 27/09, so five times.
In 2007 it was 03/01 (what a coincidence!!!), 11/01; a series of 6 good old whipsaws between 27/07 and 08/08 (they would have been painful also with "extreme point" in place), and that's it (2 + 6 "bad").

On GBPJPY in 2006 I find: 23/01; 10/02; 21/02; 23/02 (the previous "saved" by extreme point); 10/05 (not taken thanks to ep); 11/05; 07/07 (not saved by ep); 12/07; 31/07 ignored due to ep, and trade re-taken on 01/08; 05/09; 11/09; so 12 signals 3 of which not taken (fortunately) due to ep rule;

in 2007: 05/01; 11/01; 05/02; 07/02 (the previous not saved by ep); 13/02; 03/04; 28/09; 16/10; so 8 signals.

So: it is this one the number of trades we must expect to take? I ask really just to understand!

Sorry for the "crampy" form. I'm really writing while semi-manually backtesting.

Bye

Fabio

[dpaterso]

Hey Fabio,

I'm not sure if this will help but here are the EXACT details of my backtesting on GBP/JPY:

2005:

29/04/2005 - 13/01/06

Number of trades: 3
Nett LOSS for the year: -80 pips
Largest SINGLE LOSS: -285 pips
Largest CONSECUTIVE LOSSES: -388 pips

2006:

01/02/06 - 27/12/06

Number of trades: 3
Net LOSS for the year: -570 pips
Largest SINGLE LOSS: -254 pips
Largest CONSECUTIVE LOSSES: -570 pips (no profit for entire year)

2007:

02/01/07 - 08/02/08

Number of trades: 7
Nett PROFIT for the year: 2219 pips
Largest SINGLE LOSS: -353 pips
Largest CONSECUTIVE LOSSES: 0 pips

2008:

29/02/08 31/12/08

Number of trades: 8
Nett PROFIT for the year: 3964 pips
Largest SINGLE LOSS: -689 pips
Largest CONSECUTIVE LOSSES: -494 pips

Total NETT PROFIT: 5533 pips.

A few things though:

The above resuts were obtained with the ADXR limit being 25 and not 20 as we are now using i.e. I figured that 20 was the lowest I could go without 'straying' or feeling 'guilty' about 'straying' from the original system. Also: the above results were obtained by taking profit (or at least placing a stop) as soon as ADX turned down (ADXAC turned DARK BLUE). Signals were only valid if ADX was rising i.e. the ADXAC was LIGHT BLUE. The difference between ADXR being above 25 and ADXR being above 20 could explain the one or two extra trades that you have detailed. I did not REALLY test GBP/USD i.e. once I was happy with GBP/JPY I simply 'skimmed over' GBP/USD to satisfy myself that the same results (more or less) would apply and I was satisfied after checking some of the 'bad' trades. There WILL be losses and there WILL be VERY few trades if you ignore CADX trades so your results are PROBABLY as good as they're going to get and appear to be correct.

Regards,

Dale. (forexbrokersonline.net).

[fsprea]

Hallo Dale,
thank you, thank you, thank you. Yes! This helps VERY MUCH.

Your results are really very similar to mine, with the differences explained by the "one or two tweaks" changed (level of thresholds, ADX falling rule, and similar).

Unfortunately, for a quite "statistically oriented" guy as I am, my temporary conclusion is that "this is not exactely my cup of tea", because also in your case, you have two years (two full years, you know!) of losses. And, always statistically speaking, I don't know how much 2008 can be considered a "reproducible year" (well, let's say that probably the most people on the planet would HOPE it CANNOT!!! LOL).

And being the results so comparable, I fear the same would be true with all the other currency pairs I can - now quite fast - backtest. As stated below, GBPUSD was worst than GBPJPY. But also other pairs (EURUSD) did not perform well. I will have a look to others, but do not want to scare anybody. I will for sure report any possible good and encouraging result. Of course this DOES NOT imply that, trading many different pairs at the same time with DMS, the combined result cannot be profitable. Probably the CSI/ADXR ranking would make it. But in the moment I'm not prepared tracking too many instruments, at least not on the forex. For stocks I have a panoply of free "screeners" which help me (also for Wilder's indicators).

My friend, I know that in your hands surely the DMS can make wonders, especially because you have the skills, the constance, and the time, for deeply analyzing all the available instruments. Just a little warning on ETF's (I did not look at which ones are now available on Delta, yet, also because I'm not going to trade them "straight", but through options): they also MOVE! And sometimes also very fast (at least this was the case in 2008).

For me this is now the time of mostly options, continuing "studying" seriously Wilder and possibly other systems, that best fit my needs and trading experience.

But of course it goes on being the time of good cyber friendships, and, all other businesses allowing, for looking here daily and giving a contribution whenever I can, I think it could be significant, or just funny!

Bye

Fabio

[dpaterso]

Good (Tuesday) morning everyone.

Hey Fabio,

I do understand where you're coming from regarding the DMS so 'no worries'. All I san say is this (and I KNOW people are probably SICK AND TIRED of this statement of mine): no matter WHAT I've tried in the past I've only ever come 'unstuck' when using ANYTHING BUT these trading systems and this has happened 100% of the time. Could it be BECAUSE I don't follow the trades through to their logical conclusion and TP early (something that TRY AS HARD AS I MIGHT I am STILL having a very hard time stopping myself from doing: this IN SPITE of EVERY POST that I've made on the subject)? In other words: my % gains are INDEED ALWAYS high when I'm trading these systems but would they be AS high if I waited for SAR signals or got stopped out? I believe that this is the ONLY thing that I do differently in LIVE trading as opposed to what I THINK I'd have done when backtesting i.e. in backtesting I ALWAYS follow the trades through (fooling myself?) whereas I've noticed that trading LIVE I tend to TP when it 'feels right' if that makes sense (although as I said: I'm NOT happy about me doing this BUT it obviously DOES work). As a matter of fact: I've sometimes thought to myself that maybe BILL WILLIAMS is right where, in one of his books, he says that the markets very rarely give us more than three to five consecutive bars in the same direction and I think that MAYBE SOMEWHERE in the back of my mind this has 'stuck' and maybe I TP without CONSCIOUSLY knowing why. What I'm saying is that I DO HAVE an EXIT STRATEGY when it comes to LOSSES (well I do NOW FINALLY anyway) but I apparantely have no fixed TP strategy.

And further to all of this: MORE than one person has commented in the last year to eighteen months that positions opened when using these systems ALWAYS INITIALLY turn to profit but then 'eat away profits' eventually. Could this be true? Possibly. It must be said that there really is NO feeling like it when you've actually followed a trade through ALL THE WAY and stopped and reversed at a profit. It's a good feeling no question.

I've been looking again at some of Le Beau's 'stuff' this morning (and by the way: I found an error in my coding of the 'ATRTrailingStop' or 'Chandelier Stop' so I'll be sending out an update right after this post. Nothing serious by the way i.e. the error was only making a very few pips difference between the stops that were being calculated and what they should be. Suffice to AGAIN note though: 'Chandelier Stops' are NOTHING MORE than the VS with a larger constant being used). Le Beau has an interesting method of calculating TP levels using ATR. MAYBE THIS could be used with these systems i.e. use these systems for ENTRIES (because the ENTRIES are ALMOST ALWAYS 100% of the time correct) but use something else for TP levels?

I'm afraid I don't have a definitive answer. All I know is that I'm now 'back on track' and SOMEHOW I'm back to the gains that I'm accustomed to when trading these systems HOWEVER they're being traded.

Regards,

Dale. (forexbrokersonline.net).

[chubspips]

Dale,

With your permission, I would be happy to post all my indicators and oscillators on this thread, as well as a brief history of how I came about them, how I read them, and my own insight into how the market seems to have been acting and reacting as of late.

As I said, I do understand and appreciate those who doubt my words. I further understand how to use the search feature on this site. I'm glad you are so concerned as to pay attention.

Thanks Dale and good pippin,

Chubs

[chdorry]

Originally Posted by chubspips

Dale,

With your permission, I would be happy to post all my indicators and oscillators on this thread, as well as a brief history of how I came about them, how I read them, and my own insight into how the market seems to have been acting and reacting as of late.

As I said, I do understand and appreciate those who doubt my words. I further understand how to use the search feature on this site. I'm glad you are so concerned as to pay attention.

Thanks Dale and good pippin,

Chubs

Chubs - I for one would be interested in hearing how you trade, etc but have to ask how does it relate to Wilder systems? If there's a definitive Wilder connection, then I'm all for posting it here. If there's not, then I'd suggest considering starting your own thread with the indicators, etc as I'm sure many would benefit and we can easily bounce between threads to keep up with your progress for any interested.

That's my two cents, but would be interested in the takes of others as well. Anyway, if you want to put your thoughts into a document and PM them to me (either via babypips or email me at chdorry AT yahoo.com) I'd be happy to take a look and provide some additional insight into where I think they should be posted in relation to this thread.

Thanks for the offer to share Chubs and look forward to learning about your "Holy Grail".

[fsprea]

Hallo Chubs,

I agree with Dale and Craig. If your system does not relate with Wilder, you can start a new thread and you'll have already some readers. Simply put here a link to the new thread.

I think this one is already very big, and putting all possible subjects together does not help retrieving and organizing knowledge.

Bye

Fabio

[dpaterso]

Good (Thursday) morning everyone.

AND NOW??? Why so quiet everyone??? Let me say this: YES I have been quiet BUT FOR ONCE it's NOT because I'm 'haemorrhaging $$$' (I had to SPELL CHECK that word)!!! LOL!!! Yes: I AM sitting on a FINE 'bunch of losers' at the moment but they will 'turn' soon (I'm HOPING before I have to 'report' for the week but if not then so be it i.e. everyone is just going to have to 'muster up the PATIENCE AND RESTRAINT as I am FORCED to at this time)!!! Quite frankly: these markets are going NOWHERE at the moment because of all the 'jaw-jaw' on Capitol Hill!!! MAN!!! Thos guys LOVE to talk!!! I thought that OUR government was bad i.e. they just LOVE 'summits' and 'conferences' and 'meetings' and 'comittees' and the like but it is SURE starting to appear that they have 'met their match' in the US Government!!! LOL!!! I just wish they'd 'get on with it' EITHER way and let US get on with our business!!!

Anyway: quite frankly I've had nothing really of importance to say (until now that is)!!!

Now:

I have it on 'good authority' (nudge, nudge, wink, wink) that AFTER writing 'New Concepts' (a few years later) 'the old man' 'revised' his capital management to say to never RISK more than 5% of his total capital on any single TRADE (the 60% of total capital being margined still being valid). I have also confirmed that he did not trade with leverage ANYWHERE NEAR 200:1 (no surprise). SO: I now firmly believe that my CURRENT set of money management rules are 'on the mark'. They do NOT, however, include the '5% RISK of total capital per trade' as noted above. THAT SAID (and I'm SINCERELY hoping that I'm not going to regret saying this because I AM AGAIN going to 'differ' with 'the old man' here): I CANNOT AGREE with ANY money mangement rule that places a certain maximum risk per trade. Sorry!!! The reason being that DEPENDING ON YOUR ACCOUNT SIZE: this 5% (or 1% or 2% or 3% or WHATEVER other people use) can SO VERY OFTEN mean that your stops are SO CLOSE that they can AND WILL get 'taken' EVERY TIME and all this does, of course, is 'slowly but surely' eat away at your capital and therefore results in reduced lot sizes and so on and so forth. For me personally: I'm very happy with the 'original' capital management as laid out in 'the book' and as 'tweaked' by me for 200:1 leverage.

Let me ALSO add this: the 'to not RISK more than 5% per trade' 'revision' was made with 'The Delta Phenomenon' in mind as I understand it and NOT the trading systems in 'New Concepts'. The reason that I make this statement is because it is IMPOSSIBLE to trade something like the DMS using a 'fixed RISK percentage stop' because this will interefere with 'the extreme point rule' more often than not.

NOW on the very SAME subject (well of STOPS anyway):

Take a look at this link (from 'Personal Finance Newsletter'):

http://www.pfnewsletter.com/lp/index.asp?uniqueid=413

I was PARTICULARLY interested in the section where the 'Chandelier Stop' is discussed and PARTICULARLY interested in the note where it was suggested that ONCE IN PROFIT (the example used was 50%) then the ATR multiplier is REDUCED. Now as I've noted before: the 'Chandelier Stop' is NOTHING OTHER than the VS with a larger recommended constant i.e. 4 x ATR instead of the VS's 2.8 to 3.0 x ATR. SO: this got me to thinking that HERE is a possible solution to the VS 'eating up' your profits that never ocurred to me before (well: I SUPPOSE the VCS(1) was similar). In other words: when using the VS simply DECREASE the constant once in profit!!! Elegant and simple.

I am now trading the DMS (using it for ENTRY) and once 'in' using my 'ATRTrailingStop' or 'Chandelier Stop' or 'VS with constant 4' (call it what you will) to keep me 'in' the trade. SO FAR it's avoided MAJOR 'whipsaw' losses but, of course, the losses can be FAR greater than one may anticipate. That said: I'm PRETTY DARN CONFIDENT that I'm doing OK with this. It's IS 'nervewracking' I'lll admit BUT I've have resisted any temptation to realise a loss beecause it's 'too painful' and I've not YET been siganalled to do so.

HAVE FUN and 'be careful out there'!!!

Regards,

Dale. (forexbrokersonline.net).