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

[midulster]

Hi Dale,

I agree that some kind of multiplier is essential to bring the calculation back into line with book ie an SI values between -100/+100 otherwise the 60 point ASI SAR doesn't make sense.

As you've said before it was easier for Wilder because there were Limits in place on the market, 300 pips in the case of the book example, so it was easy to tell exactly the largest move a market could move in a day.

If we were to use the largest move over a period of history in Forex, say 4 months, it give some HUGE non-typical moves, but if we take the 3rd quartile moves we get values much more like your 100, coping with a range of volatilities which could be a good value for a KISS multiplier.

Anyway I've attached a sheet for the pairs that I'm following.

Though to be honest I've havent been using the SIS. What I have noticed though is that if you draw trend lines on the SIS chart, then watch for bounces off or breakthroughs those trend lines and then 2 or 3 or 4 days later it is confirmed by a DI cross it appears to be a very strong signal.

Just a few thoughts - and I promise I'm not trying to bust, mangle or otherwise mutilate any part of your anatomy.

[chdorry]

Hi all,

Been doing some studying of the RTS and TBPS systems and came across what I thought was an interesting little "coincidence".

For TBPS the profit targets are EQUAL to S1 & B1 from the RTS system. As Dale has already mentioned, these values are actually pivot points. Seems interesting that the two significant points are the same while the systems differ greatly. Would be interested in results of anyone who has traded both systems. Also, anyone care to venture a guess on what impact "combining" the two systems would do? (i.e. Entry not taken unless the criteria of both systems are met - not posting the criteria here as that is part of our "unwritten agreement" with the 'old man'.

Also, does anyone have any data/input/correlation of the "three-day-up-tow-day-down" phenomenon? Can't be as simple as applying it to the specific candles, so I was contemplating if this might somehow correlate to Elliot Waves. (Still working on a more definitive correlation/explanation, but Elliott waves move "three waves up followed by two down" and the up/down could be relative to your position in the trade as opposed to absolute chart movement.

Interested in any feedback as I'm trying to work these systems into my arsenal.

And up to this point I *thought* I had the SIS down, and Dale had to go and change the QPF/PIP factor AGAIN :-) Will be doing some additional investigation into the differences that has as opposed to the current QPF.

Just an update - my 'live' Delta account is setup and will start "live" trading July 13th (travelling on business next week so schedule will be too inconsistent to trade properly). Here's my approach that I *hope* will help me stick to the systems (as always, interested in comments/suggestions)

1. For any system I am going to trade, I'm going to have a "cheatsheet" typed up. This cheatsheet will be my own "rules" of how I'm going to trade the system. Will include Entry, Exit, Take Profit, Stop, Reverse, etc as *I* plan to apply them. I will keep these handy when I'm doing my "analysis", to ensure I'm as consistent as possible, and try to eliminate any deviations from having to "recall" the parameters - especially as there are 6 systems to remember the rules for.

Think of it similar to the red pages in the book but specific to my application of the system. These documents will have a revision number and date on them at the end (see #3 below for more on why)

2. Will keep logs of my trades on a per-system basis. (ie SIS logs, VS logs, etc)

3. If I make a modification to the way I trade a system, I will then print out the logs prior to the change and file it with the 'old' rules. From that point on I will be able to compare my current trades with the 'new' rules with my historical trades to see if the changes to the plan show improvement or not. This will allow me to determine if the new rules are "keepers" or if I should roll back to the earlier revision.

Not sure how much effort others are putting into this, but I feel that this type of filing system will help me keep historical records as well as force me to treat my trading as a business instead of a hobby. Hopefully this will help my trading, and might provide some good ideas to others. If there's anything that you feel is missing from the above "filing" system, please reply via the thread or a pm.

Thanks.
Craig

[dpaterso]

Good (Sunday) morning everyone!!!

Hey: I'm sorry to maybe have 'thrown everybody for a loop' but I'm afraid that after EVEN MORE thought on this I know I'm right NOW!!! Sorry folks but we've just got it get it right!!!

(Unfortuanately it's a major change to the Deltastock indicators as well i.e. I've just updated them AGAIN because the 'automatic SAR' i.e. the pink line just cannot be automated anymore otherwise you're going to be getting incorrect signals. I'll email you THE NEXT update just as soon as I've completed this post).

Let me expand a bit on WHY this 'came about' (well other than the fact that mastergunner99 asked me to explain the QPF that is):

Ever since my original 'coding' of the SIS there are two things that have concerned me BUT I just assumed that because it was forex pairs we were dealing with here that the the SI, ASI, and Trailing Index SAR would just not 'behave' in the same way as they would on commodities.

For example: I've always wondered just how come instead of getting SI values that range between -100 and 100 as per 'the book' my ORIGINAL SI (before this change) was giving me values WAY over those limits (and sometimes WAY under as well depending on the format of the price quoted for a particular pair). The ONLY time that the SI 'appeared' to fall within the 'correct range' was on instruments or pairs like GBP/JPY or Gold or Silver i.e. where the price quoted contained only two decimal places. It never really 'dawned on me' until last night that the problem lay with the SI and NOT the ASI (and in order to get some sort of useful Trailing Index SAR signals I then decided to introduce the QPF i.e. without the QPF just about every small change in price and therefore a change in the ASI would result in a Trailing Index SAR signal to reverse). By the way: you WILL find that even after this 'correction': sometimes the SI WILL STILL go above 100 or below -100 BUT this is now the exception and not the rule and you will find that when this DOES in fact happen it's because of the opening gaps particularly on a Sunday night.

Also: It has INDEED 'bugged me' why the Trailing Index SAR was ALWAYS the closest SAR point and NEVER either a HSP or an LSP IN SPITE of the fact that I'd introduced the QPF.

And furthermore: I've never really followed a SIS trade through to it's 'logical conclusion' (as you know I've been taking entries using the SIS but taking profit at one or the other RTS level). However: after taking profit as described above I have sometimes followed the SIS trade through to see what WOULD have happened had I stayed in the trade as per the SIS and MANY MANY times it's struck me that had I stayed in the trade as per the SIS I would have had to stop and reverse MULTIPLE TIMES at a loss before the nett result of all the trades turned to a profit.

Now: KNOWING these systems the way that I do (although it's clearly evident that I'm STILL learning myself) I've thought this to be strange i.e. with the exception of the TBPS and the RTS ALL of the other systems don't have much 'action' as it were i.e. they tend to keep you in these lovely LONG trades (for days, weeks, and possibly even months given enough 'personal restraint') as opposed to giving you signals to stop and reverse 'every other day' as the SIS has been giving me up until now!!!

The bottom line: all of these systems were designed around commodities the prices of which are quoted with two decimal places and that is why a pair like GBP/JPY never displayed this 'issue' BUT of course something like EUR/USD HAD to have a QPF or PIPFACTOR or whatever to make the Trailing Index SAR meaningful. Obviously: the introduction of the QPF to the SIS for forex pairs is the reason that it's worked up until now. I DO, however, have a feeling that NOW the SIS will be EVEN MORE profitable and will NOT give you any false Trailing Index SAR signals to reverse. As I DID say previously though: prepare for much bigger drawdowns and longer trades BUT ALSO be prepared for some HUMUNGOUS profits!!!

All I can tell you is that this 'feels right' now i.e. the Trailing Index SAR is now NOT always the closest SAR point which is 100% correct as per 'the book'. Remember that the Trailing Index SAR is ONLY there IF a price continues to go in one direction or another WITHOUT giving you some HSP's or LSP's along the way. Also: it 'conforms' to the same 'manipulation' that has to be done with the ATR in order for it to be 'compliant' with the CSI calculations for pairs where the price quotes contain more than two decimal places.

I LOVE it when a plan comes together!!!

[dpaterso]

Hear ye!!! Here ye!!!

Because of this MAJOR change I am going to make myself available from 14h00 South African time (we're on GMT +2) on YM ('fintransdbp'). I'd like to conference this session so as to TRY and alleviate the need for having to repeat the explanation multiple times. Please join me (us) if you can and let's 'put this SIS to bed now' once and for all.

[dpaterso]

Hokay:

I see I've got not takers for 14h00 South African time (remember: GMT +2) SO tell you what: let's make it at 17h00 South African time shall we (give people a chance to have read this message).

[dpaterso]

Hey,

It's still Sunday night here (or should I say very early Monday morning).

I've been at this the whole day and now (aside from having problems with the new updates not running on certain workstations which I've now sorted out) I think I may just have opened an even BIGGER 'can of worms' relating to the SIS Trailing Index SAR!!!

Since my 'change' I'm now finding that on certain pairs (like AUD/NZD for example) the Trailing Index SAR is quite far away which AT FIRST I thought was good i.e. I thought that was the way it was SUPPOSED to be and this is what the catalyst was for making these changes in the first place. BUT: I've NOW noticed that on pairs like USD/RUB for example the SIS Trailing Index SAR is REAL close again i.e. it looks exactly the way it used to look when I was using the 'Quote Price Factor' or 'QPF'.

NOW: something has started to worry me BIG BIG BIG time with this!!!

It's also just 'dawned' on me that the prices quoted for all the commodities in 'the book' are in USD. However: remember that the price of a forex pair is quoted in the SECOND CURRENCY of the pair. What's worrying me is this: the ASI is a function of PRICE!!! So 60 ASI points backward or forward on USD/RUB for example is a WHOLE OTHER THING from 60 ASI points backward or forward on EUR/USD for example!!! It's now fast starting to appear that these 'anomalies' with the SIS Trailing Index SAR and the CSI and the ATR and the SI (need I go on) have absolutely nothing at all to do with the number of decimal places in the price quote or anything else for that matter i.e. the 'anomalies' are being caused by the currency in which the price is being quoted!!!

OK: I cannot sit with this any longer today because I'm getting nowhere with it right now. I need some input on the above!!! Do you think I'm right in my assumptions above???

Look: this is pretty important to be honest. If I'm right about this then we have a major problem on our hands with ANY instrument or pair NOT quoted in USD!!! And if I'm indeed right about this: there IS NO EASY AND QUICK FIX for it!!! It involves a conversion SOMEHOW of the quoted price back to USD for these 'anomalies' to dissapear!!! OR: some or the other conversion of the 60 ASI points relevant to the price being quoted!!!

I sincerely hope I'm wrong here but I don't think I am!!!

[dpaterso]

Good (Monday) (normal time) morning all!!!

OK, well: after a sleepness night about this I think I have found the problem that 'appears' to be causing these 'anomalies'.

I need input on this though (oh and thanks for all the input on the above)!!! !!!

I may have been a bit 'hasty' in my assumption that the difference is being caused by the fact that all the price quotes in 'the book' are in USD. What I'm saying is that MAYBE it makes no difference i.e. the 60 point Trailing Index SAR will be relative to the ASI anyway so it should MAYBE not affect the outcome.

However: I AM of the opinion that there is ONE GRAVE MISSTATEMENT in 'the book' i.e. Wilder says that the SI will always be in the range +100 / -100. I have had another 'in depth squizz' at this and unless I'm VERY much mistaken this is in fact NOT TRUE i.e. it's ONLY TRUE IF the quoted price does not exceed $99.99 (or is quoted in that format). If the price DOES in fact exceed $99.99 (for instance Platinum is currently being quoted at $1 986.50 at the time of this post and Google closed at $536.94 on Friday and the SI for both of these instruments is WAY out of the +100/-100 range). This of course DIRECTLY affects the 60 point Trailing Index SAR OR RATHER the way it 'appears' (due to 'scaling') on the indicators and charts.

I know there are a few of you that have actually taken the time and gone to the trouble to draw up the work sheets for the SIS yourself. Please tell me if you've found this type of thing as well and IF NOT then please tell me HOW you've done your SI and ASI calculations. From this side (using the EXACT SAME Excel Work Sheet that 'agrees' with the SI and ASI calculations in 'the book'): if I 'plug' the Platinum price into the Excel Work Sheet that 'agrees' with SI and ASI calculations in 'the book' my SI is WAY over +100/-100.

Suffice to say: at this point my latest SIS update 'stands' until further notice.

[kaalilaatikko]

Dale,

Thanks for your Delta indicators! My account should show my initial deposit pretty soon, and then I should be able to utilise them live.

I had so far not studied SI, but you made a challenge about it in your recent posts, and I couldn't resist having a look at the SI calculations. I was able to reconstruct the worksheet calculations, and there is one factor that spotted my eye, the L. Wilder defines it as "Value of a limit move in one direction". All of his examples use the value 3 for this, and so does your formula. But nowhere does Wilder explicitly explain how he has calculated this value.

Here is my explanation. Firstly, Wilder lists 5 plus/minus factors that are to be used in the subsequent calculations. The next sentence is essential: "These factors were then weighted and evaluated relative to the highest or lowest possible value and defined on a scale with absolute limits." I'm quite sure that L is the factor that makes the result relative to this limit. If you look at the examples in the beginning of section VIII, the biggest limit is 3. This works well also with the daily worksheet, where the plus/minus factors do not exceed 3.

Now when we move to other commodities that may have completely different prices and daily volatilities, L cannot any more be 3. You should calculate it case by case by finding the practical maximums of the plus/minus factors. My quick tests with the worksheet seemed to confirm this.

Sorry, I cannot speculate about this any further right now, because this is about all I have studied about this so far. I am going to plough through this thread from the beginning for SI as well, and I'm sorry if I'm repeating something that has already been posted. Anyway I'm hoping that this makes sense and can spin further ideas about this subject.

J.

[dpaterso]

Good (Monday) evening all.

Look: I have to admit to 'the world' that I am 'stumped' here!!!

kaalilaatikko:

Hello.

It's funny that you started mentioning the 'limit' today again because I've been 'messing around' with that practically the entire afternoon today and I think you may be onto something there but I've still not come up with a satisfactory result for the Trailing Index SAR value as yet even with trying to manipulate the 'limit'.

Just one thing (for those of you who do NOT know this): certain commodities (not all) have a 'limit' imposed on their daily price movement. In other words: the price is 'limited' to moving a certain amount (USD???) during any given day. If that 'limit' is reached during a trading day then trading is suspended (in the one direction or the other depending on which 'limit' has been reached) until the next trading day or until whatever time period has lapsed according the the rules of the relevant exchange that govern the price movements of a particular commodity.

NOW this brings me to a question that I wanted to post today anyway (for all you 'mathematical gurus' out there): HOW WOULD YOU ELIMINATE THE LIMIT from the SI equation without affecting the 'intended purpose' or 'operation' or 'performance' of the SI (not sure what adjective to use). Would you make it a '1' (although I would imagine that you're saying that the 'limit' IN USD by the way is LESS i.e. 1 is less than 3) OR would you make it a '0' (in which case the the last portion of the equation i.e. 'K/L' becomes invalid because you're then dividing by zero so would you / could you simply leave out the last portion of the equation)???

Interestingly enough: in one of the MANY variations of the SI formula that I've seen to date someone removed the 'limit' simply by taking the '50' in the equation, dividing that by the 'limit' of '3' the result of which was '16.67', and then no longer using the 'limit' in the equation. Unfortuanately everything I knew about THIS kind of mathematics has been 'clouded' by YEARS of partying and and late nights and stuff so I'm no longer sure if this is indeed 'mathematically correct' or 'mathematically allowable' or what the effect on the SI equation is!!!

Unfortuanately this is VERY important for the correct operation of the SIS. Without the Trailing Index SAR you're setting yourself up to be in trades for long periods of time only to have the prices reverse on you and eat your profits away again to the point where if you're 'lucky' you'll EVENTUALLY get to stop and reverse at the Index SAR's as a profit OR at worst case you'll lose money on the Index SAR.

Now: I (we) could always revert back to my QPF idea BUT I just figured that seeing as I (we) have come THIS far in trying to adapt the SI equation 'anew' we may as well continue until it's right once and for all.

One thing that is STILL concerning me (even MORe so now that kaalilaatikko and I have been thinking about this 'limit'): the 'limit' is NOT a number of points or pips it is a USD VALUE which AGAIN starts me wondering about whether or not the 60 point ASI is applicable or rather a 'correct value' ONLY for instruments or pairs the price of which is quoted in USD and this is what the original SI system was based on or designed around!!! I mean to say: today I've EVEN 'toyed with' converting the 60 ASI points by a factor of the prevailing USD exchange rate of the pair and using the resulting number of ASI points to calculate the Trailing Index SAR with 'limited' (no pun intended) success!!!

I've even found myself wondering today is my QPF was INDEED coming 'close' to what I'm trying to 'fix' here. In other words: I'm questioning as to whether the spread is INDEED indicitive of expected volatility OR is it because the spread is being calculated on the price of the second currency of the quoted pair and THAT is why my QPF has brought me 'close' to a workable solution??? The problem arises AGAIN though with the many Trailing Index SAR signals given when using my QPF.

Put it another way: if we CANNOT fix this thing then I'd even go so far as to say to not use the SIS on any instrument or pair that is not quoted in USD and is not quoted in exactly the same format as commodities traded on the NYSE, CBOT, or CBOE!!! THAT is how serious this matter COULD be!!!

[kaalilaatikko]

Originally Posted by chdorry

Been doing some studying of the RTS and TBPS systems and came across what I thought was an interesting little "coincidence".

For TBPS the profit targets are EQUAL to S1 & B1 from the RTS system. As Dale has already mentioned, these values are actually pivot points. Seems interesting that the two significant points are the same while the systems differ greatly. Would be interested in results of anyone who has traded both systems. Also, anyone care to venture a guess on what impact "combining" the two systems would do? (i.e. Entry not taken unless the criteria of both systems are met - not posting the criteria here as that is part of our "unwritten agreement" with the 'old man'.

I was just yesterday looking at RTS signals for the first time, when I read your post. I first thought that it could be a good idea to combine signals from these two. But after having second thoughts, I ended up not mixing them, but rather treating them in isolation, just like I've been earlier advised in some other context. Firstly, RTS is clearly a system for ranging markets, but at least my backtesting has shown good values for both high and low ADXR values - but typically not for the same pairs at the same time, so I would say that they are not targetting at exactly similar market conditions. TBPS is based on momentum and you open a position targetting to a price, the idea being that the momentum is probably big enough to take you to that exit target. But RTS gives you an opening target, based on the expectation that the price will probably make a "ranging dip" to that price, and opening a position there should make profit when the pair returns from that dip. I would guess that it might even be possible that TBPS could give you a buy signal when at the same time RTS would be giving you S1 at the target of TBPS, and both trades could end in profit.

I guess that combining the systems would only rule out a number of otherwise good trades in both of the systems.

J.