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

[dpaterso]

Further to my post above another observation:

I can guarantee you that this is why the Volatility System is mentioned by Wilder (in an interview) as being one of 'the favourites' i.e. the Volatility System DEFINITELY keeps you away from sh*t like the above. The problem is the number of trades that the Volatility System gives you AND the fact that the Volatility System leaves ABSOLUTELY NO ROOM FOR ERROR when it comes to money management. (STILL waiting for some Volatility System entry points)!!!

[chirules54]

Hi Dale.. an update on the VS trades. I am still short gold (unfortuately) but it looks like the sar point is going to hit today, so I will reverse long. Depending on what gold closes at tonight, I'll either have a small gain or small loss on the trade. USD/CAD has been rangebound for a while, and I probably shouldn't have even entered the trade based on it's adxr value, but it is also approaching the sar point, which would result in a moderate loss. AUD/JPY (long) is starting to look better again, it was down around 200 pips earlier in the week but has since come back to around +65 pips, no doubt due to the increase in gold lately.

My future plans are to keep trading the TBP system with gold and eur/jpy, which I am seeing excellent results with so far: I don't want to "jinx" it, but I have yet to be stopped out on a gold TBP trade, and I've been trading it for about 6 weeks so far. I will continue to monitor the VS trades, although if/when usd/cad reverses I think I am going to stay out because it has been ranging for a while now and the adxr value is pretty low. I'm also going to set up an adxr(7) spreadsheet and use that to trade the SI by choosing the best of each "group" i.e. ???/jpy, gbp/???, etc. I will let everyone know how that is going as well. Have you started in with the RT system yet? I'm also looking forward to studying that system as well in the near future..

[dpaterso]

Hi Nick,

Thanks for the update.

I would NOT, however, 'beat yourself up' TOO much about STILL being short Gold right now i.e. if the VS can keep you in that trade just a little while longer I think you MAY see some good profit i.e. Oil is pulling Gold up with it at the moment and for what my opinion is worth I just can't see how the price of Oil at over $114 per barrel is sustainable for much longer at least not without a correction. WHEN that happens I figure that if the VS has managed to keep you in that trade then it's proved itself.

I am tracking several instruments with the VS at the moment but still no entries.

One VERY important thing that I've noticed (and although it's contradicting 'the old man' I feel it definitely has merit) (I noticed this on the four hour charts when I was using them and tracking some VS trades):

In the book he says to go short or long at MARKET if the price has closed above or below the VS SAR. I don't agree with this. I would RATHER place a stop order to go short or long at this point ('a couple of ticks above the high or the low of the signal bar'). The reason I say this is because twice (on the four hour charts) I noted that a price closed above or below the VS SAR but the very next period turned and went straight back through the VS SAR and closed on the opposite side of the VS SAR. All this means is that had you gone short or long at market you would have had to stop and reverse on the very next candlestick or bar at a loss (obviously). Because the VS 'accommodates' such wide ranges and should result in loads of pips over time the few pips that you MAY lose by placing stop orders as opposed to going long or short immediately at market are well worth the cost of the 'added insurance' as it were in my opinion.

I currently have four open RT System trades open and so far so good. To be honest I'm not using the 'BOS' labelling system either i.e. I'm waiting for the price penetrate either S1 or B1 and in some cases even HBOP or LBOP and then placing stop orders so that if the price goes back through one of these points then I'm in the trade (pretty much the same thing as one would do with pivot points). I'm still using the opposite S1 or B1 as my target and adjusting this up or down every day. I'll see how it goes.

Having said all of that I'm about to make yet another one of my 'startling revelations' to self and everyone else (see below) i.e. I'm pretty much using the RT System to 'make up' for my 'mess' of yesterday!!!

NOW!!!

I cannot actually believe that after all this time I'm having to post another post of this nature!!!

Yesterday I got absolutely SLAUGHTERED with the SI System!!!

I'll let you all 'digest' that statement for a while!!!

Now here is the thing:

I was given TISAR signals the night before on three positions and I placed the orders as I have been doing night after night for months now. Yesterday during the course of the day all three of these TISAR orders were executed at losses that took me from +30% for the month down to practically 0%. As you all know I was REALLY 'pis*ed' about this (see my previous post about this). Now up until this point, strange as it may sound and ASIDE from me being 'pis*ed' about what had happened, things were 'still on track'.

NOW for the 'good' part:

I was watching Oil yesterday and I 'figured' that 'there is no way that this can continue going up and up forever' and it just so happened that the three positions that I'd just stopped and reversed were GBP/CAD, AUD/JPY, and Gold. SO: I got the 'proverbial thinking cap on' and started saying to myself (and my business partner): 'I know what's going to happen. Oil is going to tank and all this means is that the positions that I've just stopped and reversed are going to reverse direction AGAIN resulting in further losses'. Also: by this time I realised, EVEN ALTHOUGH I WAS SO SURE that I had not strayed from my money managment rules, I had too many positions open i.e. I had not exceeded my maximum margin percentage used on a single trade BUT I had far too many different positions open i.e. was using too high a percentage of my total capital to trade with to be within the bounds of my money management rules. Now the strange thing about this is that I did not notice this until my free margin percentage started dropping to an 'uncomfortable' level EVEN ALTHOUGH I WAS CONVINCED that I had not broken my money management rules!!! So what did I do: the moment any of the positions that I had just stopped and reversed turned into a profit I closed the positions. The end result: today I'm STILL down to 0% gain AND every single one of those positions that I'd stopped and reversed continued on down to the point where every single one of them (would have) covered the loss realised on the stop and reverse AND made a profit.

NOW:

The reason I'm telling you all of this:

ONCE AGAIN I allowed 'the human factor' to 'come into play' which I have NOT done up until yesterday for at least two months. The sad part about it is that I allowed this to happen without actually realising that it was happening. WHY was I ALL OF A SUDDEN watching what Oil was doing??? For what reason??? Same thing with my money management. I THOUGHT and was CONVINCED that everything was being done 'by my book' but, without realising it, I had actually started 'pushing the envelope' and saying to myself: 'Well everything you've done for the last two or three months has turned to gold so why not JUST add another position here or JUST add another position there'!!! WITHOUT EVEN REALISING IT and being ABSOLUTELY CONVINCED that I was still following my own rules it turns out that somewhere in the past day or two I had allowed some old 'demons' to return. Because I was not doing so well I also found that the tendency to 'hold on' to large profits became OVERWHELMING. What ABSOLUTELY KILLS ME is that I EVEN POSTED about this yesterday being ABSOLUTELY CONVINCED that I was following the system 'to the letter'!!!

THIS ladies and gentleman and boys and girls is the NUMBER ONE REASON that we fail in this business: 'the human factor'!!!

While I now find myself having 'egg on my face' AGAIN and having to apologize to my business partner at least I am not past the point of recovery and just have to 'start the month over' from today!!!!

NOW the point of all of this:

The Swing Index System MUST be followed BLINDLY and MECHANICALLY and each trade must be seen 'in isolation' of everything else.

'The human factor' can play NO part in this business. I am ABSOLUTELY ASTOUNDED that after all this time I based trading decisions on what I 'thought' may happen. As a matter of fact I'm even starting to form the opinion that the sooner you absolutely LOATHE this business and treat it as nothing more than a 'means to an end' the sooner that end will be reached.

The more profit you make the harder it is to realise a loss. Once you're doing well it is easy to 'covet' your profit without you actually realising that this is what you're doing i.e. you tend to try to 'hold on' to that profit at all costs not realising that by doing this you're actually setting yourself up for a fall.

Had it not been for the fact that I had at least following part of my money management rules the content of this post would definitely have been FAR more sombre in nature I can assure you.

And again: NEVER GIVE UP!!!

[dpaterso]

By the way:

Boca:

I've been having a look at the 'PIPFACTOR' thing (I've decided to modify the description of this in my 'coded' systems to 'Quote Price Factor' or 'QPF' by the way):

After trying all SORTS of variations YET again I STILL come back to my original QPF's. If you ASSUME that a pair like AUD/JPY because of the way the price is quoted has no QPF i.e. a QPF of 1 then that MAY work although again it would appear that the Trailing Index SAR will NEVER be hit and this is a problem BECAUSE the Trailing Index SAR MUST follow the price closely (as stated in the book) and by NOT using the QPF that we originally decided on i.e. 0.01 the Trailing Index SAR is NEVER close to the price so while you MAY not have to stop and reverse as often if you're trade is 'bad' you're going to take BIG losses if you're wait for the Trailing Index SAR to be hit i.e. you're in effect then ONLY trading using HSP's and LSP's and sometimes they are REAL far away from the price. Admittedly I had my doubts about all of this yesterday but I think I've explained those doubts away in my previous post. I mean to say that I need to NOT lose sight of the fact that up until yesterday this system has not let me down and having said that (in light of my previous post) the system has STILL not let me down.

If you disagree with me and can substantiate the reasons and give me an example I'll be ONLY to happy to change my 'thinking' but at this point I'm PRETTY sure that we're right 'as is'. Because it is a stop and reverse system losses are inevitable now and then and being able to accept them with 'grace' is the key. Again: not using a QPF MAY avoid whipsaws which is what I / you would be trying to avoid but ignoring the fact that a QPF is necessary for forex pairs depending on the way in which their prices are quoted looks like a recipe for an even BIGGER disaster to me.

Edit:

Just to add to this I can see some POSSIBLE merit of moving the QPF 'up' by one decimal place e.g. we would NOW normally be using a QPF of 0.0001 for EUR/USD and I'm suggesting that POSSIBLY this could be changed to 0.0010 (much like Gold i.e. the QPF for Gold is 0.10 EVEN ALTHOUGH one would imagine that it should be 0.01). This COULD avoid SOME whipsaws but it would NOT have had the effect of keeping me in the trades from yesterday i.e. it would not have stopped me from having to place orders to stop and reverse. Also: NONE of this is based on 'science' but rather just and observation that's led to a suggestion!!!

Second edit:

Just to throw in a 'curve ball' here:

What about basing the QPF on the spread???

Let me explain:

Like I said before: Gold should have a QPF of 0.10 EVEN ALTHOUGH it is quoted as 999.99 i.e. two decimal places. Following on from that take a look at some 'exotics' i.e. GBP/ZAR has a spread of 500 pips and the QPF I've been using is 0.0010. Now in order to 'standardise' what about basing the QPF on the spread. SO: Gold (spread is 0.80) has a QPF of 0.10, GBP/ZAR (spread is 0.0500) has a QPF of 0.0100, EUR/USD (spread 0.0003) has a QPF of 0.0001, and so no and so forth. I've had this discussion on another thread and the size of the spread IS directly related to the the 'perceived' volatility of an instrument SO does THIS not make more sense??? Again: just another thought!!!

[dpaterso]

And again 'by the way':

If I can make another suggestion:

If you're inclined to have the 'need' to trade more instruments at a time (as I do) then the solution here is to halve the lot sizes as detailed in my previous post about money management.SO what this means is that on an account with 200:1 leverage you stay with the 15% of maximum allowable margin to be used but decrease the lot sizes to 1.875% (instead of the original 3.75%).

As soon as I close out my currently open positions that's 'where I going'!!!

What this means as an example:

On a $2 000 account you would apply the following money management rules:

15% of $2 000 = $300 maximum amount margined at any given time

and

1.875% of $2 000 = $38 (rounded) maximum lot size per instrument traded / position.

While this MAY seem EXTREMELY conservative believe me it will 'save your bacon'.

he above will ensure that you only trade a maximum of seven and possibly eight instruments / positions at a time.

The 'plus' of this is that let's say that according to ADXR you find four good trades on a certain day. With the original previous money management percentages that I described this would pretty much put you at the limit so that if you found one or two new and good trades in the next day or so you could not take them (welll the temptation to take them being very strong particularly if the originals positions are already in profit and that CAN cause a problem).

[chirules54]

Hi Dale.. just wanted to update on what happened tonight. As I expected, gold closed above the sar point and I am now long. So far it's been ok, as it is up around $4 an ounce right now, but only time will tell. I was going to start on my adxr spreadsheet so I could start following the SI, but i realized that I left the book at my uncle's house last weekend so I will have to wait until monday to start it up..

[Bocajunior]

Originally Posted by dpaterso

By the way:

Boca:

I've been having a look at the 'PIPFACTOR' thing (I've decided to modify the description of this in my 'coded' systems to 'Quote Price Factor' or 'QPF' by the way):

After trying all SORTS of variations YET again I STILL come back to my original QPF's. If you ASSUME that a pair like AUD/JPY because of the way the price is quoted has no QPF i.e. a QPF of 1 then that MAY work although again it would appear that the Trailing Index SAR will NEVER be hit and this is a problem BECAUSE the Trailing Index SAR MUST follow the price closely (as stated in the book) and by NOT using the QPF that we originally decided on i.e. 0.01 the Trailing Index SAR is NEVER close to the price so while you MAY not have to stop and reverse as often if you're trade is 'bad' you're going to take BIG losses if you're wait for the Trailing Index SAR to be hit i.e. you're in effect then ONLY trading using HSP's and LSP's and sometimes they are REAL far away from the price.

Hello Dale, How you doing?

I see what you mean about if there is no pipfactor, then the TISAR is then too far away. I think I trust your long term research on this issue . I brought it up, as by looking at the book initially, I just couldn't really figure it out.

If you look at the book again (p.105 -106) the instrument that he is tracking is priced around abouts 50.00 but if you look closer still, although it is priced to 1 cent, it moves in 10 cent incrrements...i.e you never see it priced at 51.05. This is different from AUD/JPY, which can be priced at say 93.45. Could this be a factor,, I really dont know,, but it's possible.

And then Silver is another issue.. It is priced at 19.xxxx but it doesn't move in one pip intervals either.. It always moves about 50 or 100 pips at a time.. Yet again,, is this a contributing factor?? Not sure buddy.

Anywa,, Long Gold VS entry in the house.. My SAR hit at 944 on close this morning.

Rgds
boca

[Bocajunior]

Originally Posted by chirules54

Hi Dale.. just wanted to update on what happened tonight. As I expected, gold closed above the sar point and I am now long. So far it's been ok, as it is up around $4 an ounce right now, but only time will tell. I was going to start on my adxr spreadsheet so I could start following the SI, but i realized that I left the book at my uncle's house last weekend so I will have to wait until monday to start it up..

Hey Nick,
Yep,, I was tracking Gold as well and it's closed above the SAR on mine as well.. Can it go to previous highs on 1000+?? Lets see eh!

Best Rgds
Boca

[chirules54]

Good stuff Boca.. are those spreadsheets helping at all? The one for the TBP is a little better put together I think, I could improve the VS spreadsheet but it works fine for now.

And Dale, I was going to ask you, how do you "lump" the forex pairs into common groups, such as gbp/jpy, aud/jpy, and chf/jpy, or gbp/chf, gbp/usd, and gbp/eur, etc. for the adxr values and choose the best from each group? I am trying to figure out a way to get the pairs divided into the best groups so I am only choosing the best of each one. I think the most important thing is to make sure there is no "overlap" like if for instance I was long both gbp/jpy and eur/jpy at the same time, because these two pairs have a very high positive correlation to each other, or gbp/jpy and eur/gbp which have a high negative correlation. I've found a nice chart detailing the correlation between what seems like every pair "known to man". Check it out.

Currency Correlations

[Bocajunior]

Originally Posted by chirules54

Good stuff Boca.. are those spreadsheets helping at all? The one for the TBP is a little better put together I think, I could improve the VS spreadsheet but it works fine for now.

And Dale, I was going to ask you, how do you "lump" the forex pairs into common groups, such as gbp/jpy, aud/jpy, and chf/jpy, or gbp/chf, gbp/usd, and gbp/eur, etc. for the adxr values and choose the best from each group? I am trying to figure out a way to get the pairs divided into the best groups so I am only choosing the best of each one. I think the most important thing is to make sure there is no "overlap" like if for instance I was long both gbp/jpy and eur/jpy at the same time, because these two pairs have a very high positive correlation to each other, or gbp/jpy and eur/gbp which have a high negative correlation. I've found a nice chart detailing the correlation between what seems like every pair "known to man". Check it out.

Currency Correlations

The spreadsheets were great Nick. Cheers. And thanks for that link for the currency correlations. Very interesting.

Thanks