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

[dpaterso]

Oh and another 'by the way':

Something else I've noticed (been noticing for a while actually):

I've seen a few posts on 'why the markets are so quiet'. Well I don't have the reason BUT I've noticed that in doing my Daily ADX ADXR AO AC Work Sheet that when the markets get 'quiet' the ADXR values are lower than 'usual' e.g. on my current work sheet the highest ADXR value is 55 odd whereas 'normally' there are (many) readings WAY about 60, even 70, sometimes over 80 or 90. Could this be???

[midulster]

Hi Dale,

Here are the values I'm getting from my Excel spreadsheet and the custom indicator for Metatrader (not the standard ADX indicator which I agree is totally bonkers and bares no relation to the real calculation), both on Alpari data.

As you can see the pairs are in (rough) agreement in terms of order by ADX though mine don't seem to reach the highs and lows yours do. Perhaps that is the result of the smoothing effect in the calculation?

Derek

[dpaterso]

Hi Derek,

Thanks for posting that information.

I had a look at YOUR MT4 indicator (and somebody else also emailed me another one some time earlier today which I looked at). Granted: YOUR MT4 indicator is a LOT closer than MT4's 'standard' indicator but I still don't see why the huge discrepancies AT ALL. As I said earlier: the 'smoothing' certainly does not make THAT big a difference (I tested it with Delta's 'standard' indicator as well as with some 'smoothed' moving averages and the differences really are negligable). The value of ADXR does not worry so much i.e. it's just an attempt to 'level the playing fields' as it were between the different instruments or pairs and I'm assuming that even if the calculation is incorrect you're still comparing 'apples with apples' as it were. Of MAJOR concern of course is the fact that there are such vast differences in the ADX values. Those differences could very well cause you to be trading the wrong system for the present market conditions and that is obvioulsy a problem. In my opinion this is 'pure mathematics' so WHY the obvious HUGE differences??? Anwyay: all I can say is I was ELATED to find out that Delta's 'standard' indicator was not THAT 'far out' from the book but I do feel more comfortable knowing that mine is now 'spot on' (and thanks to you to be honest i.e. I would probably just have gone on thinking that this was one of the indicators I checked last year and that it was 'spot on' with 'the book'. On the other hand of course I'm pleased that Delta's was not that 'far out' otherwise I'd probably not have made the $$$ I've made so far)!!! I don't know what to suggest. As I explained to somebody else earlier: I cannot honestly tell you that I have the time nor the inclination to code these systems for MT4. Although it's a GREAT package (no question) it's the broker that's BEHIND the platform that is important to me and I've never had ANY problems at all with either Delta or GCI so unless something 'untoward' happens I'll just be 'plodding along' with my current brokers.

[midulster]

Originally Posted by dpaterso

On the other hand of course I'm pleased that Delta's was not that 'far out' otherwise I'd probably not have made the $$$ I've made so far)!!! I don't know what to suggest. .... so unless something 'untoward' happens I'll just be 'plodding along' with my current brokers.

Hi Dale,

It probably would be best to suggest to me that I stop being so a**l about these things when the indicator is close enough to be used as a filter with systems that are robust enough to take the odd knock. Its time for me to stop analysing to the nth degree and do some 'plodding' of my own. If I can get half the results you have I'll be a happy man, so for now I'll just shut and trade.

Thanks again

Derek

[randont]

*takes a deep breath*

Another week over and done. And boy has this trading week been crazy. So here's the good the bad and the ugly.

Sunday,
I started out good then through it away due to impatience and eagerness to enter the market. Closed out my USD positions for mediocre profits, all went on to nice profits after I closed them, isn't that the way of it though. Made some stupid trades trying to enter SIS trades early and lost my gains I closed out on USD pairs.
Monday,
Not much to say. None of my RTS entries hit.
Tuesday/Wednesday,
Finally got the SIS signals and did some scalping on them. Set small profit targets and reentered once it had retraced. No RTS trades again! Since the market was so quiet I figured that I'd narrow my RTS entries. Also I was up for the huge GBP rally and got in short a little early, still entered at the S1/B1 or S2/B2.


Thursday/friday,
Here's where it got intresting. Alot of my RTS trades got hit and unlike I expected GBP had continued the rally. I got up at 4am to check my trades. I was sitting at a 15% drawdown from the 105% so a net -10%, I had 10 trades open at 1.5-2% margin each, a little more than expected. Unlike last week though I hadn't violated my MM rules and didn't panic. I continued to monitor closely my trades throughout the day and finally during the asian session things started to reverse. I stayed up till 5am and closed out a 13% gain, slept, and woke up to close out another 2%.

A pretty stressful week but very rewarding. I did alot better following the system and mm rules. Dale, is it normal to have 10% drawdowns each week or is that more of a once everyother week to once a month thing? I also was wondering what the ADX was on AUD/NZD , about 10 pages back you were sitting at a lose on it, when you took it.

One things been kinda bothering me. I don't have a set rule for exiting a trade that's gone against me and that isn't going to reverse. When do you finally say thats it and close out at a huge loss. I know it's rare but sometimes fundamentals just can't be overcome for a reverse.

I'll probably get tired of doing this but here's my trades for the week:
USD/JPY +12 pips
EUR/JPY -87 pips impulse, entered SIS early
CHF/JPY -45 pips impulse, entered SIS early
NZD/CAD +20 pips
GBP/JPY +28 pips
EUR/JPY +28 pips
USD/JPY -7 pips mistake, so exited quick
EUR/JPY +21 pips
GBP/JPY +25 pips
GBP/NZD +8 pips went against me for a few days so took profit quick on the reverse.
EUR/AUD +16 pips
EUR/CHF +10 pips
GBP/JPY +76 pips
GBP/BGN -60 pips
GBP/AUD +50 pips
CAD/JPY +20 pips
CAD/CHF +22 pips
GBP/CHF +110 pips
EUR/USD +87 pips
USD/CHF +65 pips
EUR/CAD +107 pips

Net pip gain +513(this week) didn't keep track of last weeks pips
15% gain on the week
17% gain since I started last week
Real money too

As you can see as the week progressed and we got some volatility I started letting my trades run. Hope everyone else had a great week. Any advice or questions are appreciated.

Just wanted to add one more thing. I don't think I've had a more stressfull two weeks in my life. I never understood just how much psychology played a roll in trading. It has taken LOADS of self restraint, constant vigilance, and major self scrutany to follow the systems and mm rules to a T. I would be nowhere without self correction whenever I've started to vary from my trading strategy. On a more positive note though It's getting easier. This week wasn't nearly as stressful as last.

[Sweet Pip]

Originally Posted by randont

One things been kinda bothering me. I don't have a set rule for exiting a trade that's gone against me and that isn't going to reverse. When do you finally say thats it and close out at a huge loss. I know it's rare but sometimes fundamentals just can't be overcome for a reverse.

Net pip gain +513
15% gain on the week
17% gain since I started last week.
Real money too

That's awesome (to me anyways) Randont....good gains!

Now that I've had my Friday evening ****tail(s) and feeling smarter than the average beer...I mean bear... and since the RSI is a "Wilder" indicator, I just wanted to throw out an idea that might be a consideration for the stoploss dilema.

I've been experimenting with drawing trendlines on the RSI and the only exit rule is to close when the rsi breaks it's own trendline. In theory it should prevent any major losses if it's a true reversal, and a minor inconvenience, which you can reenter on, if it was only a mild retrace (i.e. let profits run, cut the losses short )

[randont]

Thank you for the reply Sweet Pip. I'm definately going to check it out.

One thing I'd like to point out though. RTS will inevitably have drawdowns that in other systems would hit s/l's, if I'd used them I'd be sitting at a big fat loss right now. Following the RTS system I've had several trades go against me 100-200+ pips and still turn around for a profit. I haven't had any of those trades not come back to the entry point, knock on wood, so I don't think cutting your losses short would work in this system. I'm counting on having to take a pretty big loss if I don't think the trade will reverse in my favor. I just want a better way to recognize when It won't come back to me.

Maybe that will clarify what I'm looking for. I've also been considering a fundamental answer to the problem. Like if the trade goes against you 200+ pips and then news keeps coming in to strengthen the move.

[dpaterso]

Good (Saturday) morning everyone!!!

WOW. It's great to 'wake up' to some positive posts!!! Well done Randon. Well done and I'm really pleased for you. It's worth a mention that not even once has Randon contacted me or anything like that for 'support' i.e. he's done this purely on his own.

Derek: don't beat yourself up TOO much about wanting the values to be 'exact' i.e. I'm like that too and to be honest I'm glad that you brought the subject matter up because I now am feeling really good that I have 'exact' figures too.

Now to some 'subject matter':

Randon: I assume that you're talking about exits on the RTS??? The RTS DOES give you clear exits in 'the book' BUT it's assuming that you're following the 'BOS' sequencing of course (which as we all know none of us, for the most part, are following 'to the letter'). One idea that I came up with (although I've never actually had the heart to 'enforce it' i.e. to ACTUALLY realise a loss on a position) was to place your stops at 'LSTOP' level closest to your opening opening level. The problem with that is that I find myself buying or selling at those 'LSTOP' levels and not using them for stop losses as I intended i.e. sometimes the 'LSTOP' level is the first level inside the LRC. Maybe THAT is a better option i.e. use whatever RTS level (which normally would be one of the 'LSTOP' levels) is the first 'LSTOP' level OUTSIDE of the LRC. Just a thought.

As far as AUD/NZD is concerned: 'you don't wanna know'!!! I've attached a chart for you to look at (the orange line is my BE point by the way). Believe it or not I'm still not too concerned about this trade. The MAIN reason for my saying this is that is you look closely you'll see that the VS SAR is 'creeping up' very nicely and steadily to the current price and I'm figuring that once I get a close contrary the SAR I'm gonna 'hammer it' to get to BE or maybe even a VERY tidy profit given the amount of lots I have on this postiion!!! For now I'm just riding it out. FORTUANATELY for me I'm earning interest on the position (at first I thought I was PAYING interest but it turns out it's the only AUD/??? position where you are earning interest on a short position) and it's 'quite a bit' on a daily basis given my position size and it's DOUBLE on Wednesdays!!!

I've also attached a chart of my current GBP/JPY VSTOPS trade for those interested. I'm also long GBP/NOK now based on the same system and both positions are in 'tidy' profits right now.

I've also come up with a 'neat' little system based on what I started noticing yesterday after completing my ADX 'recode'. It's based solely on the DMS (for an entry) and Bill Williams' AC for an exit. It's REAL simple to follow and it APPEARS to have 'profitable merit'. The idea is this (I'm going to use a long trade as an example): when +DI crosses (up) over -DI you go long by placing a stop order 'a couple of ticks above the high' of the bar on the day of the crossing (after the close as always) IF AC is BELOW the zero line and green at that time. You then stay in the trade until AC turns red (again: after the close as always) and you then place a stop order 'a couple of ticks below the low' of the bar on the day that AC turned red (obviously again: after the close). This is now your TP and / or stop loss order which you DO NOT move until executed OR (if you're lucky) you're still in the trade and AC turns green again in which case you wait for AC to turn red again and move your TP or stop loss order using the same procedure detailed above. Needless to say the instrument or pair MUST have an ADX value above 25 and a high ADXR rating as this will not work too well (if at all) on an instrument or pair that is trading in a range. While this is not 'pure Wilder' it certainly does seem to have some merit. Take a look and tell me what you think. The reason it 'appears' to work to me is because I'm NOW getting my ADX signals ON TIME and AC is denotes when a movement is 'running out of steam' and as we all know 'no steam, no movement, no money'!!! AC is one of the best indicators around to denote increases or decreases in 'steam'!!! Please note that it is not my intention to detract from what we're doing here BUT it MAY just be another 'Wilder based bombshell' to add to your trading arsenal. The reason why I believe it may be an 'improvement' of the 'proper' DMS is because a lot of profit is lost when using the DMS while waiting for a +DI/-DI cross in the opposite direction to TP and / or SAR. This allow you to 'get out' with profit (most times from what I can see) and also gives you the option to 'get in again' at a better price on the same trade. It also afford those of you who are waiting for 'the book' to arrive to trade a 'part Wilder' system (but don't go rushing off to cancel your orders i.e. the 'pure' systems in the book are FAR more robust and profitable I assure you)!!!

I've also been 'rethinking my stance' as to whether or not to trade using logical orders ('hedges') at Delta when trading the SIS. My own 'jury' is still out on this BUT using AUD/NZD as a 'primo' example: had my initial position been opened using logical orders I could have stopped and reversed when the position went against me as signalled by the SIS WITHOUT realising the loss while at the same time freeing up margin. Then: when signalled to stop and reverse AGAIN by the SIS I could have taken profit on the 'hedge' and this would have had the effect of moving the average price of my position closer to the current price and so on and so forth. I have used logical orders / positions before with some success but not 'based' on any 'concrete or solid system'. As I said: 'my jury' ('my mind') is still out on this one but I'll obviously post my final conclusion when it's been 'arrived at' (feel free to post YOUR input here).

Anway: I sincerely hope everyone had a good trading week. I'm going to see what I can do about adding 'smoothing' to my ADX at Delta (I'm 'on a roll' again) although this will be attempted only 'to prove that I can do it' i.e. I don't believe it makes that much difference. I've attached a chart with two moving averages: one 'normal' and one 'smoothed' just so that you can see the almost 'minute' difference it makes. At the very bottom of the chart (USD/ZAR) I have two 14 period moving averages: the one in blue is the 'smoothed' moving average and the one in brown is the 'normal' moving average and 'from where I sit' I don't see any 'material' difference (or at VERY least I don't see how the lack of 'smoothing' could be the 'root cause' of such VAST discrepancies between MT4's ADX / ADXR and mine).

[thegeek]

In my last post I stated

"I’m sitting on over 1,100 in losses based on 1.875% money management rules. Even with large losses showing, I’m still up on the week, and up over 2k on a 5179.00 balance 3 weeks ago."

Well during the ensuing week and a half the losses accumulated to over $3900.00 in 3 heavy positions, some positions were multiplied by reinforcing orders as they tanked (I was not paying attention to the trades I had on the table as I was entering system orders for the day). The good thing about these trades was I was earning around 30.00 a day in interest (14 days @30.00 a day came out to 420.00 in interest).

All was going poorly and I thought I would not be able to trade for a while longer simply because 20% of my account was tied up in my current open positions, talk about boring... well Thursday 6/19/08 came along and the major trades that were tying me down suddenly turned!!! I ended up closing out 3 positions that were heavy, 1 that used 7.5% of my account, 2 that used 3.75% of my account each (15% in 3 trades) at $1,679.00 Profit on those three positions.

All said and done, the last 3 weeks of trading has me at a 39.687% gain on the month which is counting current red positions (if I did not have them in place I would be at 55.998% Gain). Either way the systems are performing.

Account Balance ending 5/31/08 $7,179.39
Account Balance ending 6/21/08 $11,199.16
Account Balance beginning 6/22/08 $10,027.46 (counting open trades)

I do not count pips simply because no pips are created equal, I count $ gains. And yes this is a real money account.

I reiterate my stance, proper money management and time, willingness to wait out a trade that has gone south and not bailing when things look bleak seems to be 40% of the answer, 60% is getting into the trade in the right direction so you do not have to wait!

Brian

[Bocajunior]

Hello Folks,
Wow, some greta debate and discussion regarding the ADX/ADXR indicators. After reading here on babypips I then went back and re-read the Directional Movement Chapter in the book and to be honets couldn't reallt shed any new light on the subject.

On the thing that I thought was worth considering was that Wilders method of computing the ADX after 14 days was done surely to ease his workload and not have to keep up with the last 14 days of data. Nowadays with modern computers etc, is it not possible that ADX(14) is just a staright average of the last 14 days? I dont know,, just a thought. Anyone?

Another thing considering ADX and ADXR. If ADXR is low,, then to me that is just saying that the instrument has been rangebound for a longer period of time than one that just has a low ADX.

i.e Low ADXR = the ADX is low today,, and it was low 14 days ago,, so has been rangebound for a good while.

But as Dale mentioned, It is no good to just be rangebound,, we need a little bit of up and down movement (ATR) so we can make a bit of money. So surely the ATR comes in to play here.. Low ADX/ADXR and a healthy bit of ATR , would be ideal (in theory) for a system such as the RTS. Thoughts??

Dale,
Thanks again for the updated indicators. Yet again, totally appreciate your hard work on this. Cheers