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

[chdorry]

Originally Posted by kaalilaatikko

I would say that at least do not do it for both at the same time! A factor of 2 simply does not seem to work alone for VS. I have been considering VSSTOP for exit only, and I have been thinking to do some re-backtesting by using VSSTOP as a trailing stop. It might be interesting to look at the entry as well, but personally I have the gut feeling that it would not be a good idea.

I'd agree that you wouldn't want to use them both at the same time, but then again Wilder even states you can tweak the constant as you see fit. While he recommends a specific range, there's no reason you *have* to stay with it (although I don't think I'm at a level where I should be making too many mods to his system unless I see something that's not working).

Jay - If you're using VSSTOP as a trailing stop, that would set it to a multiple of ATR. I was thinking that using ATR (or some multiple of ATR between 1.0 and 2.0) might prove beneficial in some of these trades as most losers go for you and then turn south before making it past the 3*ATR minimum in your direction to get you "locked in" by the VS system. My initial backtesting (using C=3) shows that things either go well for you, well against you or stay pretty flat. For you and flat don't hurt, but those moves against you really can put a damper on your profits (and your emotional mindset).

I'll try to do a little bit of backtesting (been using excel, not sure if you have a better way?) and look at using 3.1 for entry and then using the VSSTOP as a trailing stop, or just simplify it to be a flat rate based on ATR (again 1-2) on the day of the trade.

I just checked and you can put two different instances of the VS system on any particular chart. So I'd set one with a 1 (looking for long) and one with a 0 (looking for a short). This will give you the trailing stop you desire, now we just need to do some testing to determine what constant to use.


BTW - Anybody know what it takes to move from "Newbie" to whatever the next level is?

[kaalilaatikko]

Originally Posted by chdorry

I'd agree that you wouldn't want to use them both at the same time, but then again Wilder even states you can tweak the constant as you see fit.

Just making sure that we are talking about the same thing: "not to use them both at the same time" = not to use VSSTOP(2) for both entry and exit.

Originally Posted by chdorry

Jay - If you're using VSSTOP as a trailing stop, that would set it to a multiple of ATR. I was thinking that using ATR (or some multiple of ATR between 1.0 and 2.0) might prove beneficial in some of these trades as most losers go for you and then turn south before making it past the 3*ATR minimum in your direction to get you "locked in" by the VS system. My initial backtesting (using C=3) shows that things either go well for you, well against you or stay pretty flat. For you and flat don't hurt, but those moves against you really can put a damper on your profits (and your emotional mindset).

I think that we are on the same track here. The more I think it here the more I feel that you should use VSSTOP for exit only when it is locking a profit. My backtesting without VSSTOP showed that if you entered at every SAR, for some pairs VS was excellent but for some other lousy, the optimal C being around 2.7 ... 3.1 depending on the pair. A big question here is how to select the good trades, so that you could trade virtually any pair.

Originally Posted by chdorry

I'll try to do a little bit of backtesting (been using excel, not sure if you have a better way?)

I coded a program that imports the historical data directly from Delta, calculates the signals and vomits the analysis. C and number of days are given as parameters. I think this is a quicker way to test a huge number of parameter combinations with a huge number of pairs. But I suppose the same could be done with Excel, for me doing this by coding was much more straightforward.

Originally Posted by chdorry

BTW - Anybody know what it takes to move from "Newbie" to whatever the next level is?

I guess your 50th post earns you a promotion as a "Junior".

J.

[chdorry]

Originally Posted by kaalilaatikko

I think that we are on the same track here. The more I think it here the more I feel that you should use VSSTOP for exit only when it is locking a profit. My backtesting without VSSTOP showed that if you entered at every SAR, for some pairs VS was excellent but for some other lousy, the optimal C being around 2.7 ... 3.1 depending on the pair. A big question here is how to select the good trades, so that you could trade virtually any pair.

We're definitely on the same track here. I was thinking of using VSTOP when in a profit, but was also contemplating that once the order was executed, if you set a stop loss that is C*ATR (C is somewhere between 1 and 2) below below entry point, how that'd impact the big losers. I'd think that if it was gonna be a winning trade it would normally go your way before it drops too far, but this would provide a "safety net" in the event its going against you. I've gotta find some time to look at the data, but work is burying me this week. Hopefully after the end of July my load will lighten up and I can focus more on my trading.

At this rate, I might have a "trading holiday" next week as I'm going to be travelling and unable to have access to the web most of the day.

[kaalilaatikko]

This is some sort of deja vu. A couple of months ago there were some news that turned my demo trades red. Now the same has happened to some of my live trades. I swear I have not paniced now, but I'm still not in such a mental mode that I wouldn't feel a bit bad when seeing this. My only open VS trade went to loss, an RTS limit was hit without any sign of reversing and a stop was hit in loss. But I haven't closed the open ones yet, as the systems haven't told me that, although all of them are showing red right now. I could have avoided the biggest dip by not placing the RTS limit on a news day for that pair, but that's just being after-wise.

In the meanwhile, I wrote down the Beginner's Trading Laws of Nature that I somehow felt in place right now (well, the tongue a bit in the cheek..). Now I have these systems in real test. Let's see what happens.

J.

Edit -- Ok, I got a link violation by linking to another post of mine in this forum. Didn't know that that is not allowed, sorry. I thought that that would work as well as linking to the same thread. So here it is in the good old way:

1. Your first live trade will yield a profit.
2. Your next n live trades, where n is a big integer, will yield a loss.
3. Once you account balance has gone below the initial deposit, it is impossible to reach the initial balance ever again.
4. The bigger the size of your position is, the more probable it is that the price will go against you.
5. If the price of a pair is ranging and you try to predict the direction of the next breakout, your prediction will be wrong.
6. If the price of a pair is trending and you try to predict the turning point of the trend, your prediction will be wrong.
7. If you try to jump on a trend, the trend will turn almost immediately.
8. If something unexpected takes place in the market and you panic, all you can get is loss.
9. If something unexpected takes place in the market and you don't panic, all you can get is loss.
10. If you have a limit position produced by a system and there is market news coming, and you are not prepared for the news, your limit will get executed and the trade will invariably go against you.
11. If you have a limit position and there is market news coming, and you do prepare for the news, your limit will get executed and the trade will invariably go against you.
12. If you have protected your position with a stop and there is market news, the stop will be hit, after which the direction will immediately turn.
13. If you have not protected your position with a stop and there is market news, the price will go against you until you finally decide to act reasonably and close it and take the loss - after which the direction will immediately turn.
14. If you try to circumvent the previous rules and do just the opposite, your action will go wrong.

Only when none of the above holds for you, you master the zen of trading and may expect success.

[dpaterso]

Good (Tuesday) evening all!!!

Sorry I've not posted with my usual 'fervour' but I have a visitor here from the UK for the next two weeks (my best friend of going on 25 years now) so we've been 'catching up'. Of course that's NOT to say I'm not trading just that I've had less time to 'shoot the breeze' with everyone!!!

I've read through some of the latest posts and it would seem that Craig is 'on track' with my VSTOPS.

This is how I set it up and trade it:

(I'm going to use an example long position here for explanation purposes):

I look for an instrument / pair that has been trending down for at LEAST a 7 day period.
I put the 'normal' VS onto the chart with a constant of 2.8 and add a horizontal marker line at the value of the SAR (this is for referencing yesterday's SAR in case I'm not watching the close).
Once I get the signal to go long I enter and I then remove the 'normal' VS and add the VSTOPS with constants of 3.1 (for the SAR) and 2 (for the STOP).
The STOP is NOT THERE to indicate where a stop loss order should be placed. The STOP will only be recognised if I have a close contrary to the STOP AND the placing of a stop order to close the position 'a couple of ticks below the low' of the bar that has closed contrary to the STOP will, if executed, result in profit otherwise no order will be placed and I'll let the trade run as per a 'normal' VS trade.

Now:

It would seem that it does not matter HOW long you spend at this you're always learning something!!!

What I'm about to tell you is EXTREMELY important so 'listen up'!!!

Yesterday morning I placed a stop order to buy stock in a company. Due to some news data which I had NO IDEA was going to be released there was a MASSIVE spike in the price. My stop order was executed but 'slipped' by a HUGE amount. Of course: 'I threw my toys out of the cot' at the broker. HOWEVER: as it turns out it is I (ME) that up until yesterday obviously had no idea about the workings of one of the most basic of mechanisms that we use every single day i.e. the stop order!!!

You need to take a look at this and understand it WELL:

Orders

(Note: this is NOT information from the broker but from none other than the US Securities and Exchange Commission itself)!!!

Basically the term 'slippage' is a misnomer!!! You will find that on many websites where brokers are rated as 'scam artists' the number one reason for these less than complimentary ratings is because the broker has 'slipped' an order a couple of pips or points. Well, now, 'armed' with some 'new insight', I realise that the broker has nothing at all to do with 'slippage' and just because an order is 'slipped' it does NOT mean that the broker is a 'scam artist' or is trying to 'fleece' you!!!

The bottom line:

Stop orders are NOT guaranteed!!!

In other words: JUST BECAUSE you place a stop order to buy or sell at a certain price DOES NOT MEAN that the order will UNDER ANY CIRCUMSTANCES be executed at the price at which it was placed. Once the price of your stop order has been reached the stop order becomes a market order and is executed AT THE NEAREST AVAILABLE PRICE. So: if there has been a 'spike' in price for whatever reason then the NEAREST AVAILABLE PRICE (which will inevitably be the highest price reached by the 'spike') is where your stop order will be executed.

A 'real world' example:

I placed a stop order (as per the SIS) yesterday to buy a couple of hundred units of stock in a UK company yesterday. The stop order was placed at 0.82p (the price of their stock is quoted in GBP). Due to a take over offer on this company by another global investment company the price of the stock 'spiked' to 1.37 GBP and my stop order was executed at 1.37 GBP. Of course: AFTER this 'spike' the price immediately retraced somewhat resulting in the position turning almost immediately into a loss.

The point is this:

IT HAPPENS!!! It's something that you have to be aware of!!! It's just 'the market' and the way it operates and has NOTHING to do with the broker trying to 'scam' you or 'fleece' you. You DO however need to be aware of this potential pitfall is all. ONCE AGAIN: MONEY MANAGEMENT, MONEY MANAGEMENT, MONEY MANAGEMENT!!! DO NOT overtrade your account and think you're 'safe' because even although you are 'slightly overtrading' you have stop orders or stop loss orders to limit your potential losses and therfore your account is 'immune' from a possible 'wipe out'. IF THERE IS A SUBSTANTIAL SPIKE IN PRICE YOUR STOP ORDERS OR STOP LOSS ORDERS ARE WORTHLESS AND MEAN NOTHING!!!

DON'T SAY YOU'VE NOT BEEN WARNED!!!

Oh and speaking of MONEY MANAGEMENT:

kaalilaatikko:

I use my 1.875% 'per position rule' on any and all trades and just as long as I never exceed my 15% - 30% 'maximum margin being used' rule I have never had a problem with any of the systems. By all means: reduce the 1.875% for VS and DMS trades if you feel you must BUT just do not fall into the trap of being TOO conservative for the simple reason that it will do nothing other than frustrate 'the living hell' out of you because you will constantly be saying to yourself: 'now if I'd taken out a normal size postion JUST LOOK at the profits I'd be making now on this trade'. Invariably: you will INCREASE the 1.875% on your NEXT trade to 'make up' and thanks to 'Murphy and his law' it is THIS trade that will go against you!!!

See ya'll tomorrow!!!

[chdorry]

Originally Posted by dpaterso

G

(Note: this is NOT information from the broker but from none other than the US Securities and Exchange Commission itself)!!!

Basically the term 'slippage' is a misnomer!!! You will find that on many websites where brokers are rated as 'scam artists' the number one reason for these less than complimentary ratings is because the broker has 'slipped' an order a couple of pips or points. Well, now, 'armed' with some 'new insight', I realise that the broker has nothing at all to do with 'slippage' and just because an order is 'slipped' it does NOT mean that the broker is a 'scam artist' or is trying to 'fleece' you!!!

The bottom line:

Stop orders are NOT guaranteed!!!

In other words: JUST BECAUSE you place a stop order to buy or sell at a certain price DOES NOT MEAN that the order will UNDER ANY CIRCUMSTANCES be executed at the price at which it was placed. Once the price of your stop order has been reached the stop order becomes a market order and is executed AT THE NEAREST AVAILABLE PRICE. So: if there has been a 'spike' in price for whatever reason then the NEAREST AVAILABLE PRICE (which will inevitably be the highest price reached by the 'spike') is where your stop order will be executed.

C'mon Dale, you don't expect *me* to be held responsible for my actions, I mean every trade that has gone against me to date isn't *my* fault

[Bocajunior]

Originally Posted by kaalilaatikko

But now I am facing the question how to weigh the trade sizes against each other, when several systems are in use at a time. Dale has stated that none of his positions exceeds 1.875% margin of the total capital. This is a decent rule. But do you folks use this kind of a rule as a lower limit as well opening each trade with about the maximum margin? I have been thinking to use the potential maximum loss as another factor in counting position sizes. This would mean that longer-term systems, i.e. VS and DMS would be used with smaller position sizes than the shorter-term ones. In addition, those pairs that have higher volatility would be reduced in trade size. Does anybody apply these kind of money management rules, or how do you balance your trades? chirules54 presented his method in post #83 for weighing the pairs within one system, and I wonder if somebody has invented something like that for concurrently used systems.

J.

hello kaalilaatikko,

Rgerading the money management issue you mention I have been uisng a combination of the following:-

1, I set a position size so that if it goes against me and hits my stop (sometimes not easy to estimate as some of wilders systems do not have a stop), I only lose 1% of my account balance. You could change this % to suit your own risk appetite. At Oanda, one of my brokers, they have a variable lot system so I can fine tune my lot size here.

2, Set a position size so that it uses a certain % of my margin, as Dale has been doing with 1.8%. Personally I have been leaning to a figure of 0.75 - 1% of margin used per trade at the moment. This gives me a chance to open 1 or 2 positions on the same instrument if required (sometimes on teh RTS).

3. On systems where there are no real set in stone STOPS,, I will guesstimate a position size based on ATR x 3.. Similar to the Volatility system.

Hope this helps in some way.

Cheers
Boca

[chdorry]

Anyone tracking the AUD pricing?

Seems today everything AUD/??? is down and everything ???/AUD is up with ONE EXCEPTION - AUD/NZD.

Dale - care to comment on that one?

All I can say is I've got my VS honed in on that one, because I'm ready to ride that one when it falls, and I expect it to be a big one..

[kaalilaatikko]

Boca & Dale, thanks for your MM comments! I'm getting on the real ride now, having taken the courage to move from tiny lots to positions that matter for true profit. I.e. I have ended up now using using the 1.8% margin for RTS and about half of that for VS and DMS, as the latter ones tend to be open longer and have bigger potential drawdowns. Currently my open trades total about 8% margin. I made a small number play about the potential loss if all my positions turned against me and hit the rock bottoms that I'm ready to take. In that case I would loose 25-30% of my account. I think that this exceeds the advised total risk that you should ever take, but on the other hand I think that the probability in ending up in such a situation is rather minimal, as all your trades should skyrocket in the wrong direction at the same time. Maybe that "total max risk" could be some sort of advisory measure as well, maybe setting the limit up to somewhere as high as 50%?? Using the margin for MM calculations is at least quite handy, much easier than doing some sort of inter-system/inter-pair weighing that I originally thought.

Boca: "I have to agree Kaalilaatikko (That's a hell of a nickname by the way) regarding ..."

It's just an ordinary Finnish word, though perhaps not that common in this forum...

J.

[AkramMohsen]

Originally Posted by chdorry

Anyone tracking the AUD pricing?

Seems today everything AUD/??? is down and everything ???/AUD is up with ONE EXCEPTION - AUD/NZD.

Dale - care to comment on that one?

All I can say is I've got my VS honed in on that one, because I'm ready to ride that one when it falls, and I expect it to be a big one..

Hello chdorry,

As far as the AUD,ZAR,NZD concerned then before jumping into any trade which involves these currencies then u have to keep a good eye on the gold they r dam affected by the gold prices if the gold is up then they will go up if the gold is down then they will go down. just have a quick look on the gold u will see it is a love love relationship!!

due to the fall of the gold 2 days back u will find that AUD has been fall as well!!

Hope that this helped u in a way


Akram