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

[dpaterso]

Hey Derek,

I have Alpari's demo (MT4) installed (I didn't realise this was the broker who you were trading with). I checked their 'standard' ADX with my ADX at both Delta and GCI. Alpari and GCI are 'closer' to each other I'll admit (but there is a big timing difference between them so they will be slightly different). What I find interesting when comparing Delta's to the others is that the ADX peaks appear to occur at roughly the same time BUT are far less pronounced and I have a very sneaky suspicion that it's because Delta does INDEED 'smooth' the moving averages and the others do not (GCI I'm SURE does NOT make use of 'smoothing' as per Wilder i.e. the function is just not available).

Just one other thing though (that I believe is worth mentioning): while I do agree with you wholeheartedly that it's imperative to have the correct calculations and agree the results with the results in 'the book' there are many variables that may affect the end result of the calculations (we've mentioned three already i.e. the different timezones, whether or not the moving averages are 'smoothed' as per 'the old man' or not, and the different price quotes). Off hand I can even think of one more i.e. SOME brokers show the 'gaps' (like Delta) and other do not (like GCI). ALL of this can make a difference to the end result of your calculations. Don't get too 'hung up' on this though. If you can make sense of the actual script being used for the calculation then just put it to the test on a demo account or something like that. The point I'm trying to make is that my % gains are being made using ADX/ADXR (used correctly or incorrectly as per my posts of yesterday) so even if Delta's is incorrect (which I'm confident it's not) then it's certainly working for me anyway. If your ADX/ADXR is indeed wrong at Alpari you'll very quickly find out by using it to to pick your systems and instruments or pairs to trade i.e. if it's right then you have to get roughly the same results as another trader using another broker. I know that's not the 'definitive' answer that you'd like to hear but there have been times where I've struggled to get the same or similar results as Wilder in the book and only with time have I figured out the reason(s) why but it'd not simply let it keep me away from trading the systems. Also: you should be able to see from the chart whether or not an instrument or pair is trading in a range or trending and compare that to your ADX indicator. You should also be able to see the correlation between the +DI and -DI crossings as well. I mean: I've just looked at GBP/JPY (daily) at Alpari and even although the actual values differ from mine the ADX quite correctly signals the end and / or the change in direction of the trend and I can also see that where +DI has crossed above -DI I would have / could have gone long (and visa versa for short trades of course).

Edit:

ON THE OTHER HAND (I really could have been a 'Chief Analyst' or 'Chief Economist' don't you think???):

I've taken some more time now to compare Alpari's ADX with Delta's (and GCI's) and I have to say that sometimes the values are very close BUT OTHER TIMES they really ARE miles apart and I can see how / why this could / would be frustrating. I suppose it's time for me to reconstruct my original DMI Work Sheet and do some manual testing!!! Put this 'to bed' (which is where I'm going now) once and for all!!!

[randont]

Dale,

I've been putting entries at S2/B2 or higher/lower. On 3/4ths of all the pairs this week and nothing's been hit. This market is very non volatile. The ADX/ADXR's are very low on almost every pair or very high. Not much in the middle ground.

[chdorry]

Hi all,

Just recently stumbled across this thread and am halfway through it. I have my book on order and hoping to receive it next week at the latest. Was wondering if anyone had some input/advice on where to start and what system to study first. Was planning to do a read through of the entire book, then return to study and (hopefully) master the trading systems one at a time. I'm looking forward to some of the mathematical equations and the challenge of learning the new systems.

Any input to where to start would be appreciated, and if its covered already in the thread I'm sure I'll come across it sooner or later as I try to review the thread while waiting for the book to arrive.

Would be interested in some folks take on the following question - as I'm reasonably new to Forex and as such haven't really studied/mastered any systems, etc - is that an advantage or disadvantage in this case?

I could argue both sides - no experience with other systems so I shouldn't have any preconceived notions of how things should turn, etc which *could* work for me. At the same time, not having that experience can also work against me. Would be interested in others ideas/thoughts on this matter.

Thanks in advance.

Craig

[sirkeen]

Chdorry,

Read the book, get a feel for the systems and see which system fits with your personality and trading style best. You may decide a system you originally discarded becomes more suited to your style the more you further your knowledge (and the more you read of this thread..)

Wilder's systems are fantastic, but there are many other profitable systems out there. If Wilder's work does not 'spark your fire' keep searching till you find a system you believe in. You certainly need to trust the system(s) you use, and if their concepts keep you mentally motivated, it is so much easier to keep to the rules and maintain the system!

My two cents...
Regards,
M.

[randont]

Craig-

Welcome the the thread. I promise you you will not be disappointed with these systems.

I gathered from your post that you're relatively new here. First off make sure you go through babypips school. Then open up a practice account at deltastock and find a basic system to start with unless of course by that time your book has arrived. Then just start with the book and find a system in their to start with. I've found the RTS to be my favorite and 95% of my trades are RTS.

In my opinion you'll want to get to trading very small but real amounts of cash as soon as you can ie after you've learned the platform and the systems. Demo trading just does not prepare you for Live. Just do not think after some great successes that you can throw your life savings in there. They systems are good enough but you won't be emotionally ready for that for awhile.

[chdorry]

Thanks Randon,

I've been through the babypips school, and have been doing some practice trading via ODL. To date I've been using some strategies I've found utilizing the Awesome Oscillator and Stochastics, but there's not much history behind the system (see about 6 months worth on babypips forum and then they went to "fee only" for actually seeing the trades to confirm (although to date this week I'm up ~$1500). I'm well aware this is *much* different as its *not* my $$ on the line, so emotions don't really factor in nearly as much.

One other noteworthy item, I recently read some of a book (was browsing at B&N) that was talking about the Turtles traders in Chicago. Long and short, they brought people in, taught them a complete trading system (everyone had the same training/system to work with) and were pointing out how some folks excelled, others were mediocre and some *lost* money trading on the exact same system. It is just more proof that believing in and following the system is paramount to your success (coupled with good money management). Of course that is easy to say, but I'm sure I'll struggle with the rest of the folks when it comes time to put my money on the table.

Will be filling out my trading paperwork to get an account funded in the near future and hoping to begin trading (*small* lot sizes) in the next couple of weeks. Want to get some time to study Wilder and a system that appeals to me, and then at least trade it for a short time in a demo account just to get comfortable with the signals, entries, etc.

Appreciate the support and guidance in this thread, and look forward to joining in the future discussions.

[kaalilaatikko]

Originally Posted by dpaterso

This 'Wilder smoothing effect' has indeed been the subject of many debates (not on the forums on this site but on the forums on one or two other sites). There seems to be no agreement as to which is the 'better' or 'more accurate' of the two. Many people are of the opinion that the only reason that Wilder did it that way was to save time (and the 'smoothing effect' was just a 'byproduct').

I started to feel the same way. Doing the calculations manually is a lot of faster if you use accumulation, but then Wilder just throws that this also adds some smoothing without any speculation why that would make good for us. I think I am the last person to argue which way is the best. If you say that you have been successfully following Delta's ADX, that's a strong criterion for me.

Originally Posted by dpaterso

Also: check Delta very carefully. There are two moving average functions (and I forget now which one does which): they are the 'SMA()' function and the 'MA()' function. One of them does indeed perform 'smoothing' exactly as per Wilder's calculations and the other does not i.e. the other only uses the last 'n' periods for the moving average.

I'm not at my brightest at midnight, so I had another look on Delta's formulas. And indeed:

TR14, +DM14, -DM14 are plain sums, no smoothing. (I doubt that there isn't any smoothed sum available anyway, didn't check that, please correct me if I'm wrong. If there isn't any, it might actually quite difficult, if not impossible to do this in Wilder's way with Delta's language.)

ADX uses MA, not SMA, so again no smoothing.

Originally Posted by dpaterso

I also saw you noted that you were unsure of the relationship between the ADXR and the CSI. The ADXR will show you which instruments or pairs have good strong directional movement. The CSI will show you which instruments or pairs have good strong directional movement AS WELL AS volatility (and of course volatility equals 'Average True Range').

Nothing to argue. But sorry for confusion, I did not mean relationship but correlation. I know that ADXR is one factor in CSI, but I have no idea how closely CSI follows ADXR. In other words, if the correlation would be perfect (=1), ADXR would put everything always in the same order than CSI, and there would be no difference which one to use. And the complete opposite for -1 correlation. I was just wondering if ADXR could be a good-enough replacement for CSI, i.e. whether it could select almost the same set of instrumets as CSI or not.

Derek: I'm interested in making comparisons between our calculations. I'll try to PM you soon.

J.

[dpaterso]

Good (Thursday) (late) afternoon,

It seems that we've finally got some 'action' today!!!

Now:

ONCE AGAIN I find myself 'hanging my head in shame' and having to apologize on the thread!!!

Why???

Because I've been looking over what everyone has been saying about the ADX/ADXR indicator being 'wrong' at ALL the brokers and GUESS WHAT: YOU'RE ALL RIGHT!!!

I could have SWORN that I checked this indicator last year but obviously I did not (I remember now that I had 'issues' with Parabolic SAR and the ASI last year but also thought I'd checked this indicator).

Anyway: I've spent the better part of today rewriting Delta's ADX/ADXR indicator and I'm FAR from finished and my brain is 'fried' from the concentration!!!

What I've indeed found is that the ADX/ADXR indicator distributed with the platform (Delta's and GCI's and MT4's) does NOT incorporate Wilder's 'smoothing' BUT EVEN SO (let's forget about 'smoothing' for now because it's open to debate as to whether or not 'smoothing' enhances the indicators performance or not but we'll get to that) the values are WAY out if compared to 'the book' i.e. with or without Wilder's 'smoothing' and I NOW do believe that the differences are 'material'!!!

I'll complete the indicator (for Delta initially) and 'ship' it to you (well my 'clients' anyway) as soon as I'm done.

Like I said: in it's current (erroneous) form it IS working for me (us) but I now find myself wondering if it's at all possible to be EVEN MORE profitable once the darn thing is giving the CORRECT information as Wilder intended!!!

[dpaterso]

Good (Friday) morning ladies and gentlemen, boys and girls!!!

Well: it's official!!! I've completed my 'recode' of the ADX indicator for Delta's platform.

On the attached chart of GBP/JPY (daily) you'll see the 'standard' ADX indicator (as supplied with the platform) (top) and my 'NewAverageDirectionalIndex' indicator (bottom).

Now here are my findings:

After completing the 'recode' and comparing my ADX indicator with Delta's 'standard' ADX indicator I find that Delta's 'standard' ADX indicator is not THAT far 'out' from mine (mine of course I agreed to 'the book'). There are INDEED some differences though which I believe ARE 'material'. The most NOTEABLE difference is the fact that in most cases the crossing of the +DI and -DI is being signalled by Delta's 'standard' ADX indicator a day late (sometimes even two days late). This of course is HUGE if you're trading the DMS i.e. using Delta's 'standard' ADX indicator you are in effect getting into the trade a day (sometimes two days) late and getting out a day (sometime two days) late. NOT good for the DMS!!! There are also differences between the values of ADX and ADXR although these differences will only be 'material' in a 'borderline' case i.e. when ADX is at / on or around 25 i.e. many times Delta's 'standard' ADX indicator will be indicating that you should be trading the trend following systems and my ADX indicator will be indicating that you should be trading the RTS or TBPS and visa versa.

The (my) conclusion after this excercise is that Delta's 'standard' ADX indicator is 'useable' although not 100% correct. For me of course this is good news as I was really worried that Delta would be WAY out which of course would have begged the answers to some more questions!!! But: Delta pretty muc 'came through' as always. HOWEVER: where this leaves those of you trading at other brokers I do not know!!! I again compared both Delta's 'standard' ADX indicator and now my ADX indicator with Alpari's for example and Alpari's is WAY different and therefore NOT EVEN CLOSE to the way the ADX is supposed to be calculated as per 'the book'. What's more (in the case of Alpari anyway) is the fact that there is perhaps one hour difference between Alpari and Delta so the differences cannot be attributed to the different timezones i.e. the differences are FAR too great given the small difference in time. Whether or not this applies to other MT4 brokers I do not know (although I suppose given the fact that MT4's 'standard' indicators as supplied with the software are developed by the same company I should imagine that they are ALL wrong and I know that's a HUGE statement to be making but I assure you that there is NO WAY that MT4's 'standard' ADX indicator is correct when compared to 'the book').

I'm going to start using my 'recoded' ADX indicator from today and once I'm satisfied that it's working 'error free' I will of course distribute it to my 'clients'. Please note that neither Delta's 'standard' ADX indicator nor my 'recoded' ADX indicator incorporate Wilder's 'smoothing'. To be honest: it's a WHOLE lot of work to 'get it right' and I don't believe it makes that much of a difference i.e. I experimented with Delta's 'standard' ADX indicator and 'smoothed' the ADX and then removed the 'smoothing' and the differences in the values and the shape of the curve really are negligable and as a matter of fact I'm of the opion that NOT using 'smoothing' the reaction times and accuracy of the indicator are greater.

(By the way: for those of you who are 'playing around' with Delta's scripting language: the MA() function is a 'simple moving average' and the SMA() function is a 'simple smoothed moving average' i.e. the names of these two functions are deceiving at best).

[dpaterso]

OK,

I've attached my Daily ADX ADXR AO AC Work Sheet. This 'new' worksheet was constructed using the 'recoded' ADX indicator. Feel free to compare it to MT4 and see what you get. I think you're gonna be in for a surprise (don't forget to name me as the IB when you open your account at Deltastock)!!!

I've also attached an order sheet detailing the orders that I've placed based on the work sheet (some orders have not been placed because I've probably already got positions on them).

(I've mailed 'you lot' as well with the indicator updates)!!!