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

[brendonvdh]

Howzit Dale

I just wanted to drop in and let you know I am still following all your updates with great interest. Thank you for keeping it up, I can see a huge change in your approach from the start of the PSAR thread and I am sure your successes will only increase. I am learning tonnes and hopefully I will get to a point one day when I can contribute in some way.

I still havent gone 'live' yet but my demo account is sitting at 130% profit so maybe it is time? I get real nervous though, especially the way everyone says demo means nothing and I am going to have some kind of psychological episode when I go live. haha.. Anyway I am going to start small so I guess I need to step up and start trading sometime.

The other thing that worries me is that my most successful trading is not a 'system' really. It is just intraday naked/candle stick trading on support and resistance levels with in trade management, no set rules, using a bit of scalling in ('martingale'ing) sometimes, and generally tight stop losses to keep risk low. I just don't like the randomness and uncertainty of it but it is working.

Trade well!
cheers
Brendon

[dpaterso]

Hi Brendon,

Thanks for 'popping in'. Nice to hear from you.

Yes I have to agree with you i.e. I think I've learned a lot since then and the way I'm 'operating' now is TOTALLY different for sure and it's paying off well and, more importantly, consistently. I don't think that, over time, Wilder's systems can be beat to be honest.

As far as demo accounts are concerned:

There are two MAIN problems with them one of which you've already touched on i.e. the phsycological aspect but that's not a problem if you have a 'system' in place. The other problem is the fact that (most) demo accounts are not 'time critical' but the only time this makes a difference is if you're trying to 'scalp' i.e. if you're trading the daily timeframes then this no longer a problem. I still believe that the best thing to do is open a small account (say with $500 or so) and trade small lots live. That way you're 'in the market' for real firstly and secondly IF you DO manage to 'wipe out' for some reason you'll have a FAR better idea of WHY this happened and the $500 could be considered 'tuition fees' (and that's a whole lot less than the prices charged for some of these forex trading courses which I'll wager for the most part are not worth the time, expense, or effort).

I know exactly what you mean when you say that you've made money by trading what is not really a 'system' and I understand well your comments about 'randomness' and 'uncertainty'. Bear in mind though that MAYBE what you're doing is indeed a 'system' in itself??? I mean just about EVERYONE will tell you that candlestick trading and trading chart patterns is the 'way to go'. If it works for you then you'll probably be better off than most; it just does not work for me though i.e. I NEED a 'system' where the consistency, realiability, and profitability of such 'system' is NOT dependant on my own personal 'judgement' or 'interpretation' of price action and that's what I get from Wilder's work. OK if the truth be told: after all this time I DO indeed find myself 'picking trades' and 'ignoring trades' even although I MAY have signals from Wilder's systems to place entry orders i.e. sometimes I'm just not 'happy' about the signal I'm being given and most times I could probably not tell you WHY I was not 'happy' with the signal or trade but for a while now my 'selectivity' has mostly been 'on the mark'. I suppose if you sit with this stuff long enough something HAS to 'sink in' eventually!!!

Anyway: keep in touch!!!

[dpaterso]

A word:

Gold is likely to close tonight below a Volatility System SAR which would indicate either a short new entry OR a stop and reverse on a currently open position (if you were tracking Gold long of course).

I've said this before (but I must say it again): DO NOT GO SHORT AT MARKET!!! Place a stop order 'a couple of ticks below the low'!!!

I saw it happen AGAIN TODAY on GBP/JPY and GBP/CHF: yesterday they both closed 'as near as made no difference' contrary to a Volatility System SAR. Had you gone long at market yesterday you'd be just a 'tad' irritated right now!!! Same thing with DMI System +DI/-DI crossings!!!

[randont]

Good evening everyone!

I'm still here. I've been studying the book quite a bit and I think I'm getting the hang of it now. On page 45 Mr. Wilder states that the DX concept is not the easiest concept to grasp quickly. I consider myself a turtle learner. I learn slowly but I always get it eventually.
Dale-
I want to start a live account with you through Deltastock. I noticed that on your fintrans site the minimum is 2k, I've got 1k is that ok?

Cheers
Randon

[dpaterso]

Hi Randon,

Thanks for the post.

I've got to tell you that I think I'm the same!!! When I first started writing computer software for instance it took me an ABSOLUTE AGE (longer than most) to learn and understand the language that I was first introduced to (CA-Clipper at the time) and then one day, after MANY MANY MANY late nights and 'no sleep' nights, 'the penny finally dropped' (I can even remember the day) and since then it's become ALMOST 'second nature' to me and I can usually grasp the concept (at very least) of most languages that have been thrown at me over the years!!! Same with 'the book'. I've read 'the book' so many times from cover to cover I've lost count but again, eventually, 'the penny dropped' (although I must confess that everytime I refer to it or sometimes maybe just need confirmation of something I find something new in it that I may either have missed or misinterpreted before i.e. some new 'Wilder gem or pearl of wisdom' that I may just not have understood correctly)!!! It's kind of like 'the gift that keeps on giving' (well for me anyway)!!! (I'm even thinking of buying a second copy for when this one 'wears out')!!!

As far as opening an account with $1 000 is concerned:

Look: at Deltastock you're fine to do this simply because you have control over the lost size and cost BUT I would not recommend nor encourage anyone to open an account with GCI (or any other broker that offers commodities) with less that $2 000. Also: always bear in the mind money managment rules. I personally believe that (if NOTHING else) I've found the 'sweet spot' as far as money management is concerned i.e. never more than 1.875% of the account's capital balance being used on a single position / instrument at any one time and never more than 15% of the account's capital balance being used as margin at any one time. On a $1 000 account this means that the maximum amount of margin that may be used on a single position / instrument is $18 (and I round it DOWN not up AND when I say $18 I MEAN $18 NOT $18.01!!!). All it means is that in the beginning you would only be able to trade one single lot of 1000 units of GBP/USD (for example) i.e. currently the margin cost of a single lot of 1 000 units of GBP/USD is $9.82 and although this does not sound like a lot believe me that in no time your capital balance will grow and it wont be long before two lots is now your maximum and so on and so forth (and I'm talking DAYS here not weeks or months). 'In keeping' with the 15% maximum this allows you to have between 8 and 10 positions open at any one time and this is very effective. Also: I'm surprised myself at how well these systems are doing on forex pairs now (again: I think I've found a couple of 'sweet spot tweaks' for forex pairs like the 'revised' 'Quote Price Factor' or 'QPF' i.e. the old 'PIPFACTOR' for instance). Money management is all important though. I now believe that had I only taken money management advice earlier (last year) there is NO WAY I'd have landed up in the situation I did last year!!! I truly believe that a combination of sound money management with Wilder's systems cannot be beat. EVER!!!

Anyway: I hope that answers all of your questions.

(Just to clarify though: the minimum of $2 000 as on our website is for accounts that WE manage i.e. WE trade i.e. with $2 000 you can generate some 'meaningful' profit for the client as well as make some decent comission of course).

[Sweet Pip]

Hey Dale,
That's interesting to know that you also programmed in Clipper...so did I ... I don't know too many that did/do.

Here's a little something fun I've hung on to for a long time and feel it relates a little to trading as well

*REMEMBER.prg
*Sometimes we forget...

*
Use YOURSELF
Set Talk Off
Clear
*
Do while ALIVE
    Store "LOVE" to HEART
    Store "HEALTH" to BODY
    Store "PEACE" to MIND
    Store "COMPASSION" to OTHERS
    Store "ESTEEM" to SELF
    Store "TRUST" to HUMANITY
    Store "FAITH" to GOD
 
    Replace NEGATIVE with POSITIVE,;
               JUDGEMENT with ACCEPTANCE,;
               RESENTMENT with FORGIVENESS

    Replace HOPELESSNESS with CHOICE,;
               CONFUSION with CLARITY,;
               PROCRASTINATION with PARTICIPATION

     Replace SEPARATION with CONNECTION,;
                LACK with ABUNDANCE,;
                SORROW with CELEBRATION

     @ ALL,TIMES say YOUR_TRUTH

      If ITS_TIME
         Exit
      Endif
Enddo

*

Save To ALWAYS
Clear All
Return
*
eof: REMEMBER.prg

[dpaterso]

That's fantastic!!!

Great 'code' (neat and tidy as well)!!!

Yeh: 'those were the days'!!! I started with Clipper 'Autumn '86' so that should give you SOME idea (I MISS DOS would you believe)!!! Like I said: it took me an absolute AGE to 'grasp' but I refused to 'give in' or 'give up' until I'd made this 'thing' 'DO SOMETHING' (pretty much the reason I'm still here to 'tell the tale' in THIS business I would imagine)!!! But it's a funny thing you know: once you've got the 'concept' and 'feel' for something then 'the sky is the limit' i.e. after 'those days' moving on to FiveWin, VB, VFP, Pascal etc. etc. etc. was (almost) 'a walk in the park' i.e. they're all pretty much the same if you REALLY look hard and I'm of the opinion that this can be related to the markets as well!!! And sometimes 'new' is NOT always better than 'old' i.e. I still have (had) some clients running an accounting package that was orginally written in Clipper and then converted to FoxPro (all for DOS) and to this day these people refuse 'point blank' to change to anything else!!! And again: this can ALL be related to the markets AND 'systems' I reckon i.e. does the year 1978 'ring a bell'???

Anyway: good on you!!!

Edit:

I just looked at your 'code' again. EXCELLENT!!! Thanks again!!!

[chirules54]

Hi Dale, just thought I would point out something that is kind of interesting that I noticed about the SI today. If you change your graph from candlesticks to a simple line chart and compare it to an ASI graph of the same data, it looks almost exactly alike... not sure if this is of any merit but I just thought I would bring it up.

I am (finally) almost ready to start trading the SI live. It's taken a while because there are 23 pairs I am setting up the spreadsheet for, and I am getting the data for the ASI from metatrader, and since I can't find a way to export indicator data to an excel spreadsheet, I am doing it manually, which is a bit tedious. Exporting price data is quite simple, but I don't even know if you can export indicator data, like psar or macd or asi. I am only going back as far as April 1 2008 though, so not as much work as it seems.

I had a question about your money management system. In the book he says to never margin more than 10% on one instrument, and never more than 60% total. Following these rules, you technically shouldn't have more than 6 trades open. This seems a bit too "aggressive" for me. In your last post, you said that your rules are to not margin more than 1.875% on one pair, and not more than 15% of your total margin for everything... so your lot sizes are quite small. Have you been able to keep up good monthly returns only using a max of 15%?

[dpaterso]

Hello Nick!!! (I was wondering what happened to you)!!!

How are things???

My money management rules are based on 'the old mans' rules if you look carefully. I've assumed that he was trading at something like 50:1 leverage so I've just 'converted' mine to what I believe the equivalent rules are / should be for 200:1 leverage (somewhere back I posted a table with this info).

Do you make good returns and profits??? HELL YEH!!! AND without the 'stress' created by overtrading!!! As an example (to put it in 'real monetary terms'): the account that I have open in front of me RIGHT NOW (I'm busy reconciling it at the moment to produce a statement) has a balance (with all positions closed) of $4 403 and it started the month with a balance of $2 742. That's CLEAR profit of $1 661 on a starting balance of $2 742. I THINK that's what you're asking!!! Good enough??? And that was made by ONLY following these money management rules, forex pairs ONLY, and a combination of the SI System, VS, and RT System trades. REMEMBER LEVERAGE!!! 'Handled' correctly it CAN become your 'best friend' as opposed to your 'worst enemy'!!!

Edit:

Actually: just expand on my answer (above) to Randon using this account as an example. within a calendar month the maximum margin used per position / instrument has increased from $51 to $82 and the maximum amount of margin to be in use at any one time has increased from $411 to $660. See how fast it CAN grow???

[chirules54]

Wow Dale.. you are doing great!! I must ask you, do you think the SI is the "bread and butter" system that is responsible for the majority of the profit? I have been looking into using the directional movement system in addition to the SI, and I am still using the TBP system with gold and eur/jpy with positive results, though nothing to write home about lately. It seems like a good combo to use would be the SI with the high adx/adxr pairs, and the RT with the low adx/adxr pairs, to simplify things.

I am doing okay lately, gold hit it's VS sar today and I am now short, but I had entered long at $945/ounce previously so I took quite a hit when I closed it out today. I am looking forward to finally getting in on the SI soon, but waiting for the initial entries where the ASI closes above/below a significant HSP/LSP might take a little while for the looks of things... Just from looking around a little bit, AUD/NZD had an OUTRAGEOUS adx(14) value yesterday, it's been in a strong uptrend for awhile and the adx was 55 or 60 according to my charts.

So your money management parameters are with 200:1 leverage.. that makes sense. With Oanda I'm only at 50:1 so my lot sizes will be bigger I assume.