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

[fsprea]

Sorry Max,

eventually we were writing "one above the other" and just now I see your last. It's again very nice and in line with what I was writing, anyway.

Bye

Fabio

[dpaterso]

OK, I'm BACK!!!

LOL!!! You had me in 'stitches' Max!!! LOL!!! Great post (oh and WELCOME TO THE THREAD by the way)!!!

Much of what you posted sounds EXACTLY 'like me'!!! I too have been in (was) in the computer business most of my working life (well: up until 'two and a bit' years ago that is) and I too have had this INSATIABLE need to 'code' things and, well, right now, the end result of all of this has not turned out to be quite as fantastic as I'd hoped!!!

And I have to say that I appreciate your comment about RSI!!! As a matter of fact this is something that has always 'amused' me about MANY thread on this and other sites. The fact that RSI is above 70 ACTUALLY means that price is making HIGHER HIGHS and does NOT mean that a reversal WILL happen!!! How many people do YOU know that have got this wrong (and, as a matter of fact, Wilder does not even mention this but it IS fact and the only reason, I believe, that RSI 'works' to an extent is PURELY because EVEN the likes of the Bloomberg 'analysts' refer to it, as well as ADX, and even then I believe I know more about ADX and its interpretation than they do)!!! (I've always WANTED a job at Bloomberg)!!!

You make some very good points I have to say. One thing I'm not 100% convinced of though is that a 'purely mechanical' trading system cannot make money (I'm 'busy' with 'my own invention' RIGHT NOW as a matter of fact and if I told you what it's based on you'd laugh at me I'm sure)!!! Time will tell of course but 'paper trading' is telling me that I'm on the 'right track' with it (and it does not involve the use of ANY indicators either unless you want just a 'tad' more confirmation of your trades that is). You see: my big problem is that I don't have the experience or knowledge to 'call' the market. I'm one of those people who will hear some news about a company (I too favour stocks and the indices above all else) and I'll almost 100% of the time interpret that news incorrectly only to find that AFTER the fact what happened to price was actually really very logical and that my interpretation did not make sense after all. I therefore really do need something 'mechanical' to trade with and I honestly did believe I'd found it in Wilder.

Maybe I'm being a bit too 'harsh' here as regards these systems. I mean (and if the truth be told): I've also made some really 'dumb' mistakes. One of the biggest and THE MOST RIDICULOUS of which I've only discovered in the past week!!! (And PUH-LEASE can NOBODY laugh at this because it IS RIDICULOUS but it's been the cause of many missed trades). It REALLY IS RIDICULOUS!!! I almost always used to trade the daily charts but, given the amount of patience required, I JUST could not seem to 'hold on' to a system (ANY system including these). So: I then started trading the shorter timeframes (4 hours or less). In the past few weeks I'd noted that I'd not taken signals or trades in a certain direction FOR NO GOOD REASON. Only this past week did I realise that my mind has been allowed to 'play tricks' on me. In other words: let's say that on the 4 hour chart the price has moved from the bottom of the chart and therefore from the bottom left hand corner of my PHYSICAL screen and is now at the top right hand corner of my PHYSICAL screen. For some or the other reason I've subconciously managed to 'convince' myself that the price HAS to NOW reverse PURELY because it's now at the top right hand corner of my PHYSICAL screen!!! Go to a longer timeframe though and all of a sudden the entire 'picture' is totally different and it's real easy to see that 'the sky is the limit to the upside' and yet I'd be ignoring long signals and trades at this time!!! I know this must sound TOTALLY 'whacky' but it's just something that I KNOW has been the cause of me totally ignoring (in this example) long signals or trades!!! The point is that had I acted on EACH and EVERY signal or trade REGARDLESS I'd be doing splendidly right now (well: for the past month or two anyway). As I said: MY FAULT and I cannot blame ANY 'system' for this!!! (As I said: DO NOT LAUGH i.e. I'm not making this up)!!! To make matters worse: I've probably been doing this for MONTHS on end!!!

Anyway: I'm glad we're having this 'conversation' and who knows but maybe there are some more valuable contributions to be made here (for ONE thing: don't let you mind fool you)!!! LOL!!!

Regards,

Dale. (forexbrokersonline.net).

[dpaterso]

OK. Back again (this 4 hour trading is relatively 'stress free' is it not)!!!

Further to the above discussion:

I TOO (Max) have wondered just WHY Wilder would have changed and started using 'The Delta Phenomenon'. I have it (the book) and I can tell you that for ME it's just too 'non-specific' and leaves FAR too much for the like of me to try and interpret. For me: it WOULD be 'the end' if I used it to trade I assure you.

And now for something 'different':

My best friend of 25 (26???) years cut this out of a magazine and gave it to me last week (I'm not sure WHICH magazine so I cannot give credit to the author). (She is ALSO quite probably the only person in the world who, in SPITE of the fact that she does NOT have a mental defect, STILL believes that I SHALL be able to 'get this right'):

10 Things About Winners

They take chances
They don't give up
The are flexible
The know they are not perfect
When they fall they don't stay down
They don't blame fate for their failures
They are positive thinkers
They are patient
They belive in the path they have chosen
They are people like you

Nice huh!!!

(I'm not one for 'mumbo jumbo' but sometimes a person NEEDS positive input ESPECIALLY in this business WHICH BRINGS ME TO A POINT that I need to mention here as well i.e. IN SPITE of the copious amounts of money that I've lost that belonged to those that believed in me at some point last year I've received some positive comments from those VERY SAME people and I just have to say that I really do appreciate those comments i.e. I'm not sure I'd be feeling nor be able to feel the way that you do and I thank you)!!!

Regards,

Dale. (forexbrokersonline.net).

[Quasar71]

Hi guys,

Thank you Dale; Grazie Fabio...

How's everyone?

Dale, I like your '10 Things About Winners'. Very Inspiring

I don't know how many here are using eSignal, but I went through the exercise of rewriting the DMI and all seems to check out alright. So, as far as I can tell DMI on eSignal has been coded according to the orignal 'recipe'.

Now, the Parabolic SAR. That looks slightly different, but... they're all different, and I wouldn't expect otherwise given the elusive nature of the SIP. How can you determine a SIP accurately?

"Highest price reached while in a Long trade"? It depends on the look-back period, and when you decide that your hypothetical short or long trade started. No matter how much pattern analysis someone tries to use, the whole thing looks to me pretty subjective. And I think that's why they all differ slightly.

I don't know, I guess I don't use PSAR that much. The MAN himself says:"If the market is in a general UP trend, go back several weeks to a Hi SIP on your chart and make a paper trade Short on the most significant down day within 3 or 4 days after the Hi SIP". I don't know about you guys but I find too many gray areas in that statement to be able to determine a precise starting point.

Anyways, I'm sure you guys spent enough time on the SAR to write a book about it, so I respectfully step away...

Damn... intraday on a 15min chart is a pain...

See ya later

M

[Quasar71]

One last thing:

I live in NZ, not more than an hour flight from where Mr Wilder lives, and so many times I thought about going to see him and ask him what the real deal with the RSI, and DMI, and pSAR, etc. is. But you know what I think he would tell me (I assume he's a nice guy and wont try to shoot me for bothering him): "Son, the DMI is what you make of it. Now... would you like a cup of tea?"...

M

[dpaterso]

Hey Max,

Well: if you ever DO go over to Mr Wilder's place then be sure to give him MY regards. Also let him know that I still marvel at his work and maybe take a printout of the thread with you. I think he'd appreciate it!!! (Actually: I'd 'give a lot' for the privilege of having him go over this thread and comment on our 'work')!!!

Concerning Parabolic SAR:

If you REALLY want to get into this and recode eSignals' Parabolic SAR then here is a hint:

GCI's (ACTForex's) Parabolic SAR is 'spot on to the pip / point'. The way it's (theirs is) done is that the script goes to the very FIRST bar (oldest, earliest bar) of the chart and starts plotting Parabolic SAR from that point. That alleviates the need to find or define the SIP's from that point onwards. In other words: once Parabolic SAR starts 'flipping' from the beginning of the chart then the rest is taken care of. This, I believe, is the easiest and preferable and most accurate method (well: it HAS to be because as I say their Parabolic SAR is EXACT). Delta does it a different way i.e. they allow an input (the default input setting being 20) of the number of periods to 'scan' (as it were) for the SIP (in other words: the lowest low or highest high of 'n' periods i.e. the software finds the peak or trough for 'n' periods). This also works fine (GCI's is just 'tidier' and leaves no room for error). (Of course and as I assume you'd already know: Parabolic SAR WILL vary between charts depending on the brokers timezone if trading off the daily charts. Parabolic SAR will also differ between brokers ALTHOUGH IT SHOULD NOT on the shorter timeframes due to price differences. Unfortuanately: 'not all charts are created equal' e.g. I was looking at this very thing the other day and a certain movement on Delta's and FXDD's charts was TOTALLY different on GCI's charts so of course Parabolic SAR will be different as will any other indicator 'slapped on' for that period. WHY the big difference between the brokers??? No idea but seeing that I only trade with Delta NOW and I KNOW their data to be 'spot on' I did not bother to investigate further). I hope this helps.

Regards,

Dale. (forexbrokersonline.net).

[fsprea]

Hi Max, hi Dale,

yes I agree with the algorithm proposed by Dale. I am pretty sure (because this is the way the "old man" calculates it on his book) that the relevant SIP is the one reached while in the last trade of the opposite direction as determined by the pSAR itself. And so, after let's say the first two to three almost "random" cycles in an historic graph (for currencies on different brokers this means years ago... I think nobody is interested in what SAR was indicating in March 2003...!), the indicator "stabilizes".

Max, if you want and if you're familiar with code (but you are, guy, you told us!) you can have a look at the code I posted here some pages ago. It's just a C++ lingo, so it should be like plain English for you!

Anyway, to both, I start being quite excited about Williams. Today it got me into four trades (on dailies) and they are all green now. 'know that this means NOTHING AT ALL, but I'm just happy.

One thing I am noticing, and it's relevant also for Dale's "little thing". We went on here for months crying about the right way for determining, "Wilder-based", when we were in a trending or in a trading (ranging, or call it as you want) market. We all agreed that this was really FUNDAMENTAL (and you, big Max, rightly reminded us this in your recent posts). Now: what? We couldn't find an agreement based on Wilder (I already gave my explanation about it: the "buffering effect"). Look: do you think that there is something better than the ALLIGATOR for assessing it? Till now, as much as I look at graphs, I start being convinced that the nappig beast is really the sleeping market. And this is not so much lagging indication, actually, especially if you determine the start of a ranging period the first cross of one of the three lines after a previous trend.

I don't know how far will BW bring me (hopefully upwards and not downwards, at least). But I start considering this single one a quite nice acquisition.

Looking for your thoughts!

Fabio

[ozzy007]

Is there any way to set a profit target with rsi? Example i am short & the rsi is above 50 but i want to take profit when rsi hits 50. Is there a way to do that with price action? I would mainly use this when i am asleep & can't look at the charts.

[dpaterso]

Hello,

Well: the only way I think you'd be able to do this is to 'reverse engineer' the RSI equation to find out 'what price needs to be in order for RSI to have a value of 50'. That said: I don't think it's going to be possible given the fact that RSI uses Wilder's 'smoothed' moving average i.e. it's not a 'straight line equation' (for want of a better expression). In other words: if the price movement of the CURRENT bar does not 'cause' RSI to reach 50 then you'd have to recalculate your 'reverse engineered RSI' again (and so on and so forth) in which case you may JUST as well sit and watch the chart!!!

In my opinion you only have two choices really:

1 - Trade longer timeframes (although even this is probably not going to help because RSI may indeed reach 50 at some point during a period and then 'back off' in which case you would have missed your TP ANYWAY

2 - Get someone to 'code' an indicator (modify RSI) so that it will send you a signal when RSI reaches 50. If you're using MT4 then it SHOULD be possible to 'code' an EA that will place a market order to close your current position when RSI reaches 50.

By the way (to anyone still following this thread):

I'm still 'at it' OF COURSE!!! As agreed with my investors I'll only be reporting results monthly and no longer weekly. At first I thought that reporting weekly was a 'good thing' for all concerned but it has resulted in my taking 'unreasonsable risks' toward the end of every week if I've felt that my results for the week are 'poor' (no pun intended). This has, on more than one occasion, resulted in my trading high risk (high paying) instruments that, given the account balance, I have 'no business' trading (and, of course, thanks to 'Murphy and his law', these trades, almost always, have 'turned on me').

And if I may give some VERY good advice: 'get a hold of' a book entitled 'Long-Term Secrets To Short-Term Trading' by Larry Williams BEFORE YOU PLACE ANOTHER ORDER (assuming of course you're having a 'hard time' like me BUT EVEN IF YOU'RE DOING WELL I believe it has merit)!!! Over the years I've gotten so 'tired' of the 'same old tired takes' on the 'psychology of trading'. This book, however, 'tells it like it is' and I've found it to be the MOST worthwhile 'read' on this subject i.e. better than any OTHER 'take' on the psychology of trading that I've read (no offense Mr Carter and Mr Bill Williams)!!! There are various trading systems detailed in this book but I'll not be trading them IRONICALLY because in this book there is an entire chapter 'dedicated' to someone like me i.e. a 'technician' that spends HIS LIFE developing a trading system, does one or two GOOD trades with it, and then is 'off' to 'tinker' to try to improve THE VERY SAME TRADING SYSTEM that has JUST MADE MONEY!!! LOL!!! THIS 'trap' I've been falling into ALL my 'trading life' but, thank goodness, this book 'stopped me dead in my tracks'!!! That said: Larry Williams is a 'legendary trader' and the systems in this book look quite exciting. 'ONE DAY WHEN I'M BIG' I'll 'give them a shot'!!!

(There is no 'promotional code' offered as with 'New Concepts In Technical Trading Systems' and I'm not involved in any way in the marketing and sales of this book i.e. it was just a book that I 'came across' WHILE LOOKING FOR A 'TWEAK' TO A TRADING SYSTEM THAT WORKS FOR ME)!!! LOL!!!

Regards,

Dale. (forexbrokersonline.net).

[ozzy007]

I know it is hard to calculate a price when rsi hits 50. Just thought i would throw that out there. I actually do have an rsi alert when it hits 50. Just sometimes if i'm asleep i just forget about everything & get some sleep & try to approximate TP.