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

[dpaterso]

Good (Thursday) afternoon eveyone,

Sorry I've not posted for a day or two i.e. I've just had some 'personal' stuff to take care of (still trading though, trades come first, things going well)!!!

Nick:

I'm ALSO pleased to hear that you sorted out your MT4 issue. I did see your post yesterday and it was 'bugging me' as to how you could relate the pairs and I don't have the answer (if there is one that is).

As far as your current post is concerned:

I've also thought about that at length. I would say to take instruction from the text i.e. when ADX(14) drops below 20 (and / or below +DI / -DI) then it's time to stop following a trend following system according to 'the man' so I'd say to NOT stop and reverse.

Let me put it THIS way: I have renewed faith in the ADX (with ADXR) indicator. I've done some 'monsta' RT System trades this week so far (and my criteria for selecting the instruments for the RT System has been that ADX is below 20). I'm also in a VS trade because BOTH ADX(14) and ADXR(14) were above 20. I'll have to make the same decision that you have to make with this trade, however, if and when the ADX drops below 20 i.e. will I stop and reverse or just TP??? I'm not sure if the same 'ADX logic' applies with the VS though for the simple reason that IT (the VS) takes care of (should anyway) the fact that the instrument is ranging or trending. So far I'm not in any DMI trades but watching and waiting!!!

(By the way: (if this does not encourage you then NOTHING will) as I type this post I am up 159% of my months starting balance on my own account due largely to the RT System trades and that's just trading forex pairs and nothing else. I did not take RT System trades on clients accounts because I wanted to prove the system to myself first but the client accounts are nevertheless stll up 50% or so so on the month using only the SI System so things are good).

[chirules54]

Thanks for the reply Dale, and I'm glad to hear how well you are doing, especially with the RT system. So if the ADX is below 20 OR if DI- AND DI+ are above the adx line you stay out? I knew about ADX being below 20, but I missed the spot in the book where he says to stay out of a trend-following system if the adx is below both di+ and di- lines, I now see it on page 48 though. I assume with the RT system you are using the reaction mode since you are following instruments with an adx below 20, if you hit breakout mode do you switch to that as well?

Also, I was a little unclear on my question last post, let me re-phrase it. Let's say you have an entry point for a SI trade with aud/jpy. The adx is 37, and you enter the trade. A week later, you hit your tisar, and the adx value of aud/jpy is now only 28. You are getting entry signals from a couple other pairs, gbp/jpy and eur/jpy, both of which have higher adx values than aud/jpy does now. Do you stop and reverse with aud/jpy or stay out because even though adx is still above 20, you have other pairs with a higher adx value? I can see how this "dilemma" might also mess up the money management system of never having more than 10% on one instrument and 60% of your account margined, which means you should only have 6 trades open at one time, unless of course you are trading say, only 5% margin with each one. If you get entry signals from new pairs, and you keep trading the ones with adx values that are still above 20 but are no longer the top rated ones, wouldn't you have too many trades?

Also I just wanted to confirm because I was a bit confused before.. you use ADXR to follow the SI trades, NOT ADX.. right? From the book I am getting that ADXR is just today's adx(14) plus the adx(14) 14 days ago divided by 2, correct? The problem I have is that both Oanda and MT4 call the indicator "ADX", but the adx curve appears to be an ADXR curve, because in the book on page 45 there is a graph with adx and adxr plotted on it, and adx seems to "form a sine curve on the adxr line" and the adxr line is relatively smooth, with fewer and less extreme "peaks and valleys" like a sine curve or the adx. In other words, the "ADX" indicator on MT4 and Oanda looks like it is really "ADXR".

[dpaterso]

Hi,

RT System trades:

I compile that Excel table every night at this time i.e. 00h00 Delta time. For RT System trades I sort the table by ADX(14) ONLY and then start from the bottom and work my up i.e. from the lowest ADX(14) value to the point where ADX(14) now exceeds 20.00000. Then I sort the table by ADXR(14) AND ADX(14) and start working from the top down for SI System and DMI System entries. In other words for the SI System and DMI System I'm looking for instruments where BOTH ADX(14) AND ADXR(14) are above 20.00000 AT VERY LEAST and of course the higher the better. Sometimes (depending on how tired I am) I will place orders for ALL valid signals and the moment that 6 - 8 of them get executed during the course of the day I cancel the rest. I will NEVER EVER exceed the maximum allowable amount of margin per position i.e. 1.875% of the capital balance at the time of opening the position or placing the order (at 200:1) leverage. SOMETIMES I MAY have 6 - 8 - 10 trades open BUT that's ONLY because of the 'rounding' that I'm able to 'fit in an' extra trade or two and not exceed my maximum allowable margin in use of 15% of the capital balance at the time of opening the position (in other words let's say that I can ONLY use $74 (1.875%) on a single position and when incrementing the number of lots for the order the margin cost gets to $74.03 then I DON'T take that amount of lots i.e. the amount must be EXACTLY EQUAL TO or less NEVER EVER more so in this case I'd place an order for one less lot).

I am not REALLY using the RT System EXACTLY as described in the book but 'loosely'. In other words: I am counting the 'BOS' days but not for two or three weeks back but just for the last 'small trend' up or down (I've always been of the opinion that going as far back in time as the book would have you do has little or no relevance to what happened yesterday or the day before at least not with the forex market). THEN instead of placing limit orders I wait for the price to penetrate either S1, B1, LBOP, or HBOP by a 'fair' margin and the I place stop orders so that IF the price goes back in between the lines the order is executed. I then set my TP as per the system and update it daily if it has not been hit. In my experience of that system (not trading it but following some of the trades through a while ago) I have never seen a 'trend mode' trade actually trend for more than one or two bars on forex and that's what go me to 'thinking'. I suppose if the truth be told I'm sort of using the RT System in much the same way as one would CORRECTLY use Pivot Points. It just seems to WORK a whole lot better for me than Pivot Points EVER did!!! I suppose if I read this post through then yes I am following the RT System closer than I thought. I think the main difference is the fact that I'm not buying or selling IMMEDIATELY as B1 or S1 but rather waiting for the price to penetrate these levels for a bit and THEN place an order so that if the price comes back to me I'm in the trade and if not then I don't have to worry about the 'trend mode' trades or being in a 'reaction mode' trade that is going to start trending and cost me money!!! One other 'trick' I've used this week which has paid off well is to do the same thing with HBOP and LBOP i.e. instead of 'assuming' that because the price has penetrated HBOP or LBOP that a 'trend mode' trade has started I place a stop order at HBOP or LBOP so that if the price comes back to HBOP or LBOP I'm then in the trade. I then buy or sell (close) at S1 or B1 as per the book. I suppose the whole idea is to stay OUT of trades that MAY come back to you and only get into trades once they HAVE come back to you if that statement makes any sense at all!!! Of course having said all of this I'm sure that if you followed the system in the book 'to the letter' it would still work well i.e. it's just the 'trend mode' trades that are concerning to me.

I see what you're saying about the ADX and ADXR values changing. It's up to you I think. I would say that the 'golden rule' would probably be that as long as the values for ADX(14) and / or ADXR(14) do not drop below 20 then stay in the trades EVEN ALTHOUGH there may now be better entries. There is a bit of thought required on this one though let's face it. I mean if you're sitting in a nice profit on a position that you opened when ADX(14) and ADXR(14) were very high and those value are now dropping then why not take the profit and open some newer positions with the higher values??? I have noticed that sometimes in the book there is information that is presented that is contradicted somewhere else but I think the 'trick' is to 'filter out' the contradictions and understand where he was trying to go with all of this. I mean to say that most of the systems in the book are trend following systems BUT the direction and placement of the ADX line is ALL IMPORTANT!!! In other words: you're in a trend mode trade with the SI System and ADX(14) is now at 13.89796 let's say. With a reading that low that position ain't goin' nowhere anymore so what's the point of staying in it and invariably just getting 'chopped up' after that??? See my point???

Concerning Oandas ADX indicator: I cannot comment BUT I'M ALMOST SURE that if there is an ADX indicator on the platform then you're looking at ADX and NOT ADXR. Delta is THE ONLY platform where I have actually seen the ADXR line mentioned (and in the book of course) so I would again say that based on this knowledge you're looking at ADX and NOT ADXR regardless of the shape of the line. And AGAIN: you HAVE the book. If it's possible then DO CHECK the formulae for ANY of the indicators on the platform. If there is a problem I can assure you that it won't be the first trading platform where there has been an error made in the 'coding' of an indicator!!! Sometimes I wonder if the programmers have ever SEEN this book or did they just go find the formulae from another Internet site where the owners have ALSO not seen the book and the errors just get compounded from there!!! As for MT4 I can only tell you that with all the MT4 demos (and one live account) that I've had in the past the ADX indicator IS ADX and ADXR does not appear anywhere. OF COURSE: if you can't look at the code or see the formulae then YOU DO HAVE THE BOOK!!! In other words: calculate ADX / ADXR MANUALLY with Excel and compare your values to the indicator in front of you. That's a 'sure fire' test I'd say!!!

[Bocajunior]

Morning all,

Dale, some valuable insights there. Thanks for that post. Very informative.

Nick, I agree with Dale that the values on Oanda and MT4 are ADX and not ADXR. But... what I noticed on Oanda, is that the ADX value always appears to be good bit lower than what appears on say, MT4, Delta and GCI. Just take a look and at any chart and you will see. Like Dale suggested, we could take the time to manually calculate it, but I haven't done that to date (lazy bugger that I am ). During the PSAR thread I think we had the same problem with the PSAR dot appearing on some platforms and I reckon the differences are due to the following:

a, Candle open/close times.
b, Sunday Candles, No Sunday Candles
c, Calculation is screwed up.

For what its worth, right now I am using Oanda just place my trades, but using charting at the other brokers.

Thanks
Boca

[chirules54]

Yes Boca, I agree with you about the differing adx values on oanda vs. metatrader. Oanda's daily candles close at 9 pm local for me, and MT4's at 3 pm local, so there is definitely a difference in price data for each day.

Dale, just for the record, I wanted to confirm with you.. ADXR(14)= Today's ADX(14) + 14 Days ago ADX(14) / 2. This is how it's calculated on page 44 of the book, I just wanted to make sure you are doing it this way as well before I get my spreadsheets set up.

On another note.. I am really getting hammered by gold right now. My long VS trade entered at $945 STILL hasn't hit the sar point, although if it keeps going the way it is now it probably will at the close tomorrow. Good thing the TBP system with gold is "keeping me afloat" for now, as the last two trades have been big winners. The ADX value on gold is pretty low now (around 19 or 20) so I think I am going to stay out of the VS for now, even when I get stop and reversed, unless the adx changes drastically. AUD/JPY is still doing well for me though, I think what I might do is use the VS for entry and a di+/di- cross for exit on the aud/jpy, as over the last year or so just glancing at charts it looks like it would work well. We'll see how it goes though, right now I am going to concentrate on the TBP with several instruments and the SI..

[dpaterso]

Hello,

Nick: that calculation is quite correct (for the ADXR).

As far as the Volatility System is concerned I'm NOT 100% sure that the ADX/ADXR values apply to it though EVEN ALTHOUGH it's a trend following system. The only reason I say this is because remember that it adjusts the SAR itself based on the ATR(7) so my logic tells me that when a pair is trending the SAR will move away and if it falls into a tight range the SAR will move closer. That's just my 'take' and I could be wrong. I currently have AUD/CHF open as a VS trade and I'm astounded at the results obtained with what really is the 'simplest' system in the book both in design and to maintain on a daily basis.

Look: (again something that needs to be mentioned): you have just proved the 'theory' that not all systems will work for all people (if I'm not mistaken it's either Wilder or Carter or both that actually re-iterate this point). What I'm saying is that any reasonable person would imagine that whether I followed the TBP System or you followed the TBP System the results should be exactly the same especially given the 'pure' mathematical design of the system but although the TBP System did work for me TO A DEGREE it's really nothing that I'd RAVE about whereas you are having unlimited success with the same system!!! The reason I say this is because maybe for you it's better to take profit when you're satisfied with the profit and move on to the next trade and if that works for you then 'go for it'. I mean to say my business partner would be FAR happier if I took profit or placed a trailing stop as soon as the profit showing has exceeded 100% of the margin used to make that profit (which tends to happen ALL the time and on most trades). I NEED to follow the systems 'to the letter' but I do find myself taking profit early sometimes when there is a 'nice big fat juicy profit' showing i.e. far in excess of the 100% of the margin cost. All I'm really saying is this: while we all love this business (well I do anyway) it is important to realise that we're doing it as a means to and end i.e. to make money at the end of the day. If taking profit early or using another one of the systems as an exit works for you then that's what counts. Because of this book we have 'sound' and 'reliable' and 'consistent' systems and just as long as we don't get too carried away with our OWN 'versions' i.e. as long as we don't mess with the 'core' of the systems then they will generate huge profits by the looks of things. My percentage gains are astounding me I promise you to the point where I STILL find myself thinking that they are 'too good to be true' but I have nearly three months of consistent high gains so at what point do you say to yourself: 'the systems are what they are and they work'!!! Maybe I'm doing things a little different from everyone else who knows??? Maybe without actually realising it in choosing trades or in choosing exits I have indeed gained some experience over the past eighteen or so months and without really realising it this experience (albeit limited) 'kicks in'!!! I don't have all the answers. All I know is that because of 'the old man' and this book and yes the hard work I've put into these systems by way of coding them etc. etc. etc. is paying off well and if things keep going the way they're going now it will only be a matter of months before I will be at very least HALF WAY back to the financial position I was in at the end of 2006. This is in STARK contrast to what happened last year of course.

One other thing though: I know you're obviously happy with Oanda but I cannot really help you out too much over there because I know nothing about their platform and I don't even think you have to facility to code indicators into the system (but I could be wrong). I would really strongly suggest that you open an account at Delta (and I'm NOT saying this to earn commission out of your trades I promise you) because then I can give you the stuff that I've coded and you'll be surprised how easy it makes your life i.e. not having to use Excel. It's really just something to think about.

Edit:

I have attached a Delta chart indicating all the systems that I use on a daily basis (excluding the TBP System but I never use that anymore but it follows the same 'lines'). Aside from the systems take a look at the ADX and the price action an tell me that it's not 100% accurate!!!

[dpaterso]

I have removed the content of this post because I am not happy that what I posted is accurate (the percentage gain on capital formula and variations thereof was posted here).

I am currently seeking answers to this problem and will post the 'correct' formula when done.

[Bocajunior]

Morning all,

Hope it was a good week for everyone on the trading front. Once again, Cheers for those posts Dale.

I've got to go to work for a week overseas and wont have a reliable internet conncetion so I've had to close all my open trades until I get back.

But keep up the good work chaps, and I'll be back soon.

Nick, Dale is right about Delta. Took me a while to get used to it but the choices and the indicators there are great. I'm planning on opening a live one there.

Cheers
boca

[dpaterso]

Oy!!!

For all 'Wilder fans' (that's us):

By my 'calculations' there are two Volatility System trades 'coming soon to a chart near you'!!!

Watch GBP/CHF and GBP/JPY!!!

(I tell you this because these trades are so few and far between it ain't funny)!!!

(And remember what I told you: DO NOT 'jump in at market' with ANY of the systems i.e. use stop orders or you WILL be sorry)!!!

and

AUD/NZD is another pair to be watched closely. ADX is JUST starting to level off so WATCH OUT (could be a great SI System trade or DMI System trade OR BOTH coming in the next few days).

[dpaterso]

Hello AGAIN today!!!

As you know I 'religiously' draw up my ADX(14)/ADXR(14) work sheet every day (night) and something occured to me just now:

From the time I started doing this (let's say from 1 April 2008) I've always had ADXR(14) values in the high / upper 60's / lower 70's but yesterday I noticed that the higest ADXR(14) value that I have is 49.8764 (AUD/NZD).

Now HAVING the kind of mind that I have I find myself wondering if this in fact means SOMETHING / ANYTHING relating to the (forex) market as a whole??? I mean what would happen / what would things look like if I for instance one day drew up the same work sheet and the HIGHEST ADXR(14) value on the work sheet was say 19 or lower???

I suppose in other words I'm just curious if the range of the ADXR(14) values as a whole at any one given time could be some sort of 'market barometer' and if so a 'market barometer' of WHAT???

Thoughts anyone???