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

[kaalilaatikko]

Originally Posted by dpaterso

It would seem to me that using kaalilaatikko's now 'fixed' and 'smoothed' ADX/ADXR the only SURE FIRE WAY of KNOWING WITHOUT A DOUBT that an instrument or pair is trading in a range for the RTS is WHEN ADX IS BELOW BOTH +DI AND -DI (AND < 20) as per 'the old man'!!! Take a look see!!!

Doing work as told. Here is a quick walkthrough about all those pairs that have their ADX < 20 in my latest CSI rank. Disclaimer: I won't take any responsibility if anybody opens any position based on these comments. But I would highly appreciate any view on these, with or without the smoothed ADX indicator. The order numbering is from my CSI file. I don't consider here whether it would be a B, O or S day for RTS, let's leave it for the readers.

3. GBP/JPY ADX = 16.69
ADX is below DIs and going down, AC red and very close to 0, LRC is quite steep but the price has been quite close to the middle line.

6. GBP/USD ADX = 19.34
ADX above DIs, which may cross soon. ADX going down. Deep bear today. I would like to see the bounce before trading this with RTS.

7. USD/JPY ADX = 14.29
Much like GBP/JPY. AC red but a bit higher above 0.

8. AUD/USD ADX = 16.77
ADX is below DIs but almost touching. AC descending and red. Has gone below B1 today. Start of a trend, last 10 days look like that? Needs a bounce before entering RTS?

9. EUR/USD ADX = 15.19
Much like AUD/USD. LBOP broken today.

11. GBP/CAD ADX = 17.86
ADX is breaking above +DI, already above -DI. LRC very steep. AC green and ascending, but today has been bearish. Difficult to categorise?

12. GBP/CHF ADX = 17.85
ADX is between the DIs and rising, DI gap is widening. Has given a VS signal for me a couple of days ago to go long, but the price is now a bit below that. I'm considering entering VS here.

13. USD/CHF ADX = 13.00
ADX is below DIs but almost touching -DI. DI gap widening. LRC quite steep, recent 10 days look like start of a trend. HBOP broken today. Needs a bounce before entering RTS?

18. AUD/JPY ADX = 12.10
ADX below DIs and all of them going quite horizontal. LRC very gentle. AC has been long quite close to 0. The next reversal would be in the direction of a longer trend that has prevailed a while ago. This one I would rank as a good candidate for RTS!

19. EUR/CAD ADX = 16.00
ADX is between the DIs. LCR very gentle and AC close to 0. Do I dare to say that there is some resistance visible both above and below the current price? Despite of ADX I might see some potential for RTS here.

The rest of the pairs are below 20 in by rank. Selected pickings:

22. CAD/JPY ADX = 9.95
Big gap between ADX and the DIs. LRC very gentle and AC long close to 0. Good for RTS.

28. CAD/CHF ADX = 11.35
ADX below the DIs. AC close to 0, LCR rather gentle. At least upper resistance might be identified. Rather good for RTS.

30. AUD/CAD ADX = 14.04
Much like EUR/CAD.

34. EUR/AUD ADX = 11.57
Much like EUR/CAD. AC a bit more active.


My conclusion: For me it seems that if all or at least most of the following hold, then the pair is quite ranging and RTS should be a good bet:
- ADX is < 20 and below the DIs, the more the better. All of these should be quite horizontal.
- AC is and has been close to 0 recently.
- LRC is rather or very gentle. Signs of upper and lower resistance.

This was a more educating excercise for myself than I had hoped!

I have asked Dale to add the smoothed ADX indicator in his collection, so I hope his Delta clients will receive it in some point of time.

J.

[dpaterso]

Good (Wednesday) morning everyone!!!

kaalilaatikko:

WOW (again)!!!

Thanks for the post (and it's only 'befitting' that a post of that 'quality' is your 'number 50' post!!! From what I know you can now post and receive PM's AND you've been 'promoted')!!!

I've now had a look at some of those pairs as well as some of my stocks. All I can say is that 'I dunno'!!! Sometimes ADX as per the post above (and as per my previous 'note' with reference to ADX being below both +DI and -DI) 'works' and sometimes it does not. The problem of course is that ANY indicator needs 'time' to determine whether or not an instrument or pair has in fact now become 'range bound' and of course it also takes time for ANY indicator to 'figure out' that an instrument or pair has broken out of a range and has now started to trend. The end result of course is that you 'get in' late and you 'get out' late. I'm just figuring at this point that you just have to do the best with what you've been given is all and you're GOING to 'win some' and you're going to 'lose some'. So: if anyone has some better ('faster') ways of determining whether an instrument or pair is trading in a range or is trending then feel free to post. Unfortuanately this is again 'pushing me' toward the VS/VSTOPS again i.e. it's the only system that reallly does not seem to 'care' whether there is a trading range or a trend!!!

By the way: I'm truly and deeply sorry for anyone that was long the USD yesterday!!! I'm NOT the type of person to say 'I told you so' BUT: DO NOT 'bet' AGAINST the USD!!!

I am about to post out kaalilaatikko's 'smoothed' ADX to all my 'clients'. I'd like to publicly thank him for his work. It is worthwhile noting here that this he has done for us at no charge i.e. unlike me who is at least receiving IB commissions from the brokers for my 'trouble' he has done this 'out of the goodness of his heart' ast it were. For future reference however: him and I will negotiate some sort of compensation for his work as he has a lot to offer by way of 'automation' (of at very least daily listings of indicator values for all pairs). For now though: thank you.

Stock note:

STI - Suntrust Banks Inc (USA) closed contrary to it's VS/VSTOPS SAR yesterday (long entry). Also: watch NCC - National City Corp (USA) i.e. will probably close contrary to it's VS/VSTOPS SAR today. And: watch F - Ford Motor Co (USA) i.e. big move down this week so far and the stocks are 'cheap' so long entry using VS/VSTOPS (short) for SAR/TP signal.

[chdorry]

Recap: the initial upgrade to 4.0.10 software for Delta trading had issues with "middle" charts. Issue has since been resolved, if having problems download latest install files from Delta website and reinstall.

[chdorry]

All,

Been doing some investigation into the RTS system and reread the book on it. Couple of items stood out to me are as follows:
1) Wilder used the RTS system and would exit the position if B1/S1 wasn't hit
2) He was VERY clear that the B1/S1/HBOP/LBOP were good for the ONE day only

There also was a section where Wilder talked about *if* the market open, close, high and low were the same for many days straight, how the RTS system could still be profitable.

Taking that last point, and looking at some charts (see attached cadjpy.bmp and usdcad.bmp) I started noticing that our typical anti-trending (ADX<20) pairs would be rangebound by a somewhat defined high and low. Based on that I added the Keltner channels to my charts for RTS.

Now, based on that I'm changing my RTS approach slightly. Looking at the usdcad file, one can see there was a recent strong runup (which has been seen before). I can say that on at least two of those "green days" the S2 point was hit (indicating taking a short position). Now if you had gotten in at one of those points (I did) you'd have seen a drawdown up until now, and I anticipate a reversal soon and move past BE to a profit. If you look at the chart overall though, there seems to be resistance/top at the purple line (approximately 1.0275 on the chart) and support which isn't as neatly defined, but pretty consistently touching 1.0 or below.

My current thinking is that *NOW* is the time to be getting into USDCAD at an S2 point or thereabouts while its high in the channel and nearing its resistance. From there I should be able to ride this RTS all the way down instead of trying to trade a retracement within the channel retracement. Then when you start approaching the bottom (if short) I'd use a SL that is a few ticks higher than yesterday's high (or some value similar). Once the stop is hit, you can look at placing a stop buy up a little bit and plan to "ride" the return to the top of the channel.

At least that is how I'm going to try playing the RTS for the near future. While you'll never get in at the exact top/bottom, at least with this type of approach I think we'll be "swimming with the current" instead of fighting it.

In a nutshell, I'm looking at the bigger picture and trying to identify "B1" and "S1" based on the channel, and this is ONLY applicable to non-trending pairs. One other benefit is that *if* I'm going with the current (ie up from bottom of channel to top) if a trend breaks out long, I'm already in.

Also, quick look at CADJPY shows similar phenomenon with the blue (HBOP) and red (LBOP) lines as the "banks" of the channel.

Based on this, I'm gonna try to "channel surf" the RTS system over the next few weeks.

To me, this *could* be part of the reason why I (we) have been seeing RTS trades go red for a few days prior to turning green.


Would be interested in anyones comments, input, suggestions as I think this is a topic worth discussing in an effort to refine the RTS system to all of our benefits.

Edit - forgot to attach the charts :-)

[kaalilaatikko]

The first live trading month for me is about over. Not anything to boast about, 4.4% loss in my account balance. This was mainly due to a couple of DMS trades which I entered according to Wilder's extreme point rule. They then turned against me and started dropping heavily. Both hit SL. They would still be in loss, but slightly recovered. Then there is that USD/CAD that also Craig mentions. I got in as well and bailed out after a couple of consecutive losing entries. Though I had had a couple of almost schoolbook RTS trades before that, the USD/CAD experience made me much more careful.

My last trade of this month and the only one currently open is the VS trade GBP/CHF from the analysis in my previous post. I remembered the saying "the proof of a pudding is in eating" and opened the trade yesterday, not checking that today has been a news day for both of these currencies. And interpreting that the news were against me, I got out of the trade in loss. Quite immediately after that the short-term trend changed direction. So I waited until afternoon, reconsidered it and noticed that the indicators have not changed that much and I'd better keep that trade. I reopened the position when the price had stayed quite in the same area for hours, thinking that maybe the impact of the news was not that big after all. And 2 minutes after opening the position there is another dip of 50 pips #@&*@! This time I decided just to wait, and it's already slightly above BE.

Then there were a number of AUD trades as candidates for RTS yesterday. A number of them would have been executed, but this time I waited for the news and let the prices cross a number of pivot points, intending to enter with stop orders. None of these were hit, so no trades nor losses (or profits) here.

Some lessons learned:

- Opening 1.8% margin for each trade is too much for me. I'll cut that in half and consider the expected maximum loss when counting the trade size. For VS and DMS trades that will mean imiting the risk to somewhere around 1.5%, which seems to mean in margin something like 0.3%. I just cannot keep this bigger before I am able to show consistent profits.

- I've been on holiday and it has been possible for me to have a look at the positions during the day as well. This is good for setting TPs and SLs for trades that are opened in the middle of the day, but it is bad for making it too easy to overreact, which I still seem to do too easily.

- Dale has mentioned in some of the earlier posts that it is more a rule than an exception that the trades tend to dive after entering, possibly quite heavily. Now I have seen this happen with real money, and I have seen trades to recover from the dip as well. I think that this is a bigger obstacle in the road to success that what has been stressed in this thread so far. I think that this is something that you just need to get experience about and you cannot learn it from books. I don't think I am yet accustomed enough to this. You just need to trust in the methods - and yourself.

- No sleeps lost because of trading

J.

[chdorry]

Well, as the month draws near I can report results based upon my "month" of trading. Reminder - I started July 11th, so this is about 2/3 month for me. If I look at things from a "pro-forma" vs GAAP format (like the big companies do on the NYSE, except my definitions are different).

Pro-forma - Follow the systems, stay within money management rules, etc.
GAAP - Greedy @$$h01e affecting Profits

So pro-forma, I'm up between 5-6% for the ~3 weeks I traded this month. Overall I'd like to do better, but hey profit is profit and take it when you can get it.

GAAP basis (includes open positions) I'm about at BE for the month. Again, nothing stellar but a great learning experience.

As J just mentioned, learning and applying Wilder's systems is the easy part of forex trading. The hard part is staying within money management and keeping your trading mindset in check. Most of my "problems" came from trying to do any of the following:
- messing up money management (position is down so double it - BAD IDEA)
- panic selling of a position that you have no technical indicator telling you to do so. (I did do this sometimes to my benefit/delight though, as when positions via RTS moved my way 1-2% or more, I'd typically set a stop loss to "lock in" this profit.)
- revenge trading - when you just got taken for a ride, its common to want to "get it back" immediately, if not sooner.

Again, I'm pleased with my results for the month as I view this as a 3 week crash course in "mental toughness training" that will benefit me as I move forward into August. My goal for August is 10% profit on a GAAP basis (of course my second goal is to not have the mental lapses/screwups that caused my GAAP profits to lag).

So all in all, I can say that I've made a good start into this trading business, and plan to apply my new nuggets of wisdom to my trading. Honestly, I can tell anyone considering this that its 100% within your realm of capabilities, *BUT* this is the markets not an ATM machine. By that I mean you have to study the systems, learn how they work, observe the markets some, and apply yourself. There isn't any "holy grail" out there where you just sit back and watch the money roll in, but with some effort the future trading Forex looks bright (at least to me).

Craig

[dpaterso]

Good (Friday) morning all!!!

Well: I figured seeing that everyone ELSE is posting results I may as too!!!

(Before I start I'd like to note here than in my results there are a few lessons to be learned. I'm also going to make some general comments after posting these results as there are a few things that I really believe need mentioning).

Right:

As you are all FULLY aware I am still 'stuck' with AUD/NZD which is not really going anywhere. The loss, however, is just too big to realise. Having said that though: I do not believe that there is any reason to realise this loss and to not trade it away 'slowly but surely'. I have successfully been able to trade at least three other large losses (RTS trades I must just mention) to break even or better using my 'Enron' system ('dumped' lots then bought / sold them 'back' when given a signal by a system). It was NOT easy and required LOADS of 'patience and restraint' (but I'll 'touch' on this later).

So: on my 'main' trading account the gain for July was only 1% (yes 'one' i.e. not a typo)!!! In spite of this, however, the % gains on capital on my client accounts (managed accounts) range from 50% (for an account opened in the last week of April) to 72% (for an account opened in the third week of April).

Not good I'll admit BUT I have to note this:

I do NOT consider the above to be a true reflection of my trading nor the profitability of the systems and here is why:

I have ANOTHER account (let's call it my 'personal' account) which I have been actively trading (I'm almost at the point where it's balance covers the AUD/NZD loss on my 'main' trading account so if 'push comes to shove' I could actually realise the loss on AUD/NZD and cover it with this balance which as I've said, however, I see no reason to do so at this stage).

Now: my % gain on my 'personal' account for the month of July is 61%. As you are all aware, however, I have started to 'move over' to trading stocks again so that 61% is made up of profit on stocks as well as on forex. If I discount the profits made on stocks then the % gain (forex only) is 35% for the month of July.

I CONSIDER THE % GAIN ON MY 'PERSONAL' ACCOUNT TO BE A TRUE REFLECTION OF MY TRADING ACTIVITIES (and the 61% gain for me thus far since trading these systems is 'in line' with previous performance).

(Now this is PROBABLY a 'boast' but hey - I've worked for it!!! My TOTAL % gain on the money that I started trading with at the beginning of the year is 1259%!!! (Yes: 'one thousand two hundred and fifty nine percent'!!! Again not a 'typo'!!!). OK: that DOES INCLUDE all commissions as well i.e. brokers commission, commission earned from managed accounts, and of course profits earned AND YES: I did not have that much to start out with to be honest after the previous year's 'fiasco' BUT it (the % gain figure) is REAL and it's obviously POSSIBLE to make these type of gains given a good 'business model'. Actually: this goes to 'back up' my theory that the big financial institutions are 'fleecing' the public at large!!! If 'lil ol me' can do this then BELIEVE ME those traders that have been doing this all their life are CERTAINLY capable of making gains like this and they're 'dishing out' the 'scraps' to their clients)!!! I make a promise to you all today: once I have paid all my creditors next year I will give you access to my live trading accounts so that you can pull the reports that you need in order to 'verify' my 'story'!!! But trust me for now: do not wait until then. Master the systems and trade is all you have to do.

Having said ALL of that: it has NOT been a good month. I made an UTTERLY STUPID mistake on a client's account purely because of not concentrating and being 'over tired' i.e. I had 'Enron'd' a position on the account (USD/RUB) and I then was given a signal to 'buy back' the 'Enron'd' lots. Instead of 'buying' I 'sold' in error thus immediately realising the loss and opening a position in the wrong direction (which of course I immediately closed BUT had to pay spread / commission AGAIN as well). In spite of this error (trading stocks) I've managed to trade the account back to the point where the % gain on capital is still 50% since opening the account. However: still a very 'dumb' thing to do and you really need to 'watch out' for this as it can happen REAL easy!!!

Oh (to avoid any 'issues' with anybody): ALL amounts stated above INCLUDE currently open positions (all of which are sitting in losses at the moment). HOWEVER the MAXIMUM current drawdown on ANY account is no more than 10% of the account balance. I included currently open positions whether in a loss or a profit for the simple reason that I DO NOT realise losses i.e. I will hold them and trade them to break even as you know.

Now for my comments:

I have to say that it is concerning me DEEPLY that nobody (it would seem) is making the % gains that I am and I would imagine that because of this my integrity could possibly be in question OR the integrity of the systems could possibly be in question OR the integrity of both me AND the systems could possibly be in question.

Now let me say this:

I ASSURE you that I am only trading the system in 'the book'. I have no other 'tricks' up my sleeve that I am not disclosing or anything like that.

I monitor my 'self trade' accounts as best I can and I assure you that it is NOT the trading systems in 'the book' that are causing losses or resulting in less than 'stellar' gains.

These are the reasons that I believe that others are not making the same % gains as I am:

- Overtrading the account i.e. 'throwing money management to the wind'.

- Trying to 'get back' at the market because a positon is sitting in a loss and the trader is trying to minimise the loss as soon as possible by adding to the position (and in most cases violating money management rules once again).

- Not being able to excercise 'patience and restraint' and therefore not being able to accept the fact that you WILL have losing positions open MOST of the time before they turn to profit.

- Using stop losses. Stop losses I do not believe are necessary unless AGAIN the account is being overtraded and money management is being violated. Stops are there to make money for the brokers and the banks.

- Getting frustrated because the position you opened five minutes ago has not turned to a 1000% profit yet.

- Panic buying and selling.

THOSE my dear friends and fellow traders are the things that are causing the losses or resulting in less than 'stellar' gains NOT the trading systems.

Please DO NOT 'get me wrong' here either. I do NOT 'know it all' I can promise you that. It is, always HAS been, and will remain, my intention to help others to NOT lose the money that I have already lost in this business. I am NOT trying to 'boast' about my % gains. All I'm trying to tell you is that there is ABSOLUTELY NO REASON for you to NOT make the same % gains as I am IF YOU STOP DOING THE ABOVE!!! And there are no 'ifs' or 'buts' about it!!! If you CANNOT STOP DOING THE ABOVE you WILL NOT MAKE IT!!! You HAVE to FORCE yourself to go 'against your own grain and make-up as a human being'. It's NOT easy but it's NECESSARY!!!

Sorry: I know I'm probably coming down 'hard' here but as they say in the classics that 'sometimes you have to be cruel to be kind' (OK: if the truth be told I also have a MAJOR hangover this morning so that's probably making me 'mince my words' a bit less)!!!

I WANT YOU ALL TO MAKE MONEY THE WAY I AM!!! It is NOT 'rocket science'!!! You have 'the map' in front of you!!! All you have to do is follow it!!!

Right:

After all that:

Thanks to everyone else for their input and hard work this past month!!! Thanks to everyone who 'keeps me company' on YM during most of the trading day!!! Thanks for all the input and ideas!!! Thanks for putting up with my 'BS' and the occasional 'late night drunken phone call'!!!

This is an ORDER:

HAVE A GOOD (AUGUST) TRADING MONTH!!!

[chdorry]

Originally Posted by dpaterso

Good (Friday) morning all!!!
Sorry: I know I'm probably coming down 'hard' here but as they say in the classics that 'sometimes you have to be cruel to be kind' (OK: if the truth be told I also have a MAJOR hangover this morning so that's probably making me 'mince my words' a bit less)!!!

I think I just found the missing link to my trading - I need to drink more! :-)

Congrats Dale on a great month, I'm hoping to be joining you with those types of returns soon!

[dpaterso]

Very funny Craig!!! LOL!!! (But thanks)!!! (At least I know that YOU know that it doesn't 'come easy')!!

[dpaterso]

Good (Saturday) morning all!!!

Now: 'Here ye, here ye'!!!

I'm having another one of those 'I'm just so excited I could sh*t' moments!!!

For those of you are 'hell bent' on only trading the RTS I THINK I've found a solution to ALL your problems (aside from recommending that you only trade the SIS, DMS, or VS that is)!!! (Sorry: that was a bit of 'tongue-in-cheek' there)!!!

OK: The way I see it using ADX to determine which system to be trading is letting you (us) down. It's unfortuanate and I don't know why this is (particularly as everything ELSE of 'the old mans' is working absolutely perfectly). I mean to say: either we're NOT understanding the use of ADX OR things have indeed 'changed' in the past thirty years or so as far as market movements are concerned. Either way: using ADX to determine whether or not to be using the RTS or TBPS is NOT working out I don't think and do you (we) have the time or the capital to necessary to work out 'why'? I know I don't!!!

Now:

I have attached two charts (YES they are both stock charts but it makes no difference I assure you). 'BK' is the daily chart of 'Bank Of New York' and it was because of THIS chart I've started having my reservations about ADX as a 'system selector'. Take a look at the chart and the ADX (both the 'smoothed' and the 'unsmoothed'). The way I see things: this stock has been traded in ranges for most of the period being displayed on the chart and IN SPITE OF THIS BOTH ADX's have for the most part had very high values. Obviously this is a problem because had I even ATTEMPTED to use any one of the trend following systems (which is exactly what both of the ADX's would be have been signalling) I would have had my 'a*se fed to me on a sliver platter'. AT VERY BEST CASE, using one of the trend following systems in 'the book', you would have only broken even on every single trade (ESPECIALLY using the SIS) (but OBVIOUSLY at this point I must re-iterate that the VS is excluded from this as it would not have been affected). Obviously at WORST case you would have taken a loss on each and every stop and reverse as indicated by the SIS.

Now for the 'magic bullet':

Take a look at the last indicator on the chart. It's the 'Vertical Horizontal Filter' developed by a chap called Adam White (I'd never HEARD of him until this morning). Anyway: take a look at see if YOU see what I see!!! I've taken the liberty of drawing red lines at the 0.25 level (for no other reason other than the fact that we have been looking for ADX values of below or above 25). Now YOU TELL ME: is it not VERY clear that when the VHF is below 25 the instrument is trading in a range and is it not VERY vlear that when the VHF is above 25 the instrument is starting to tred??? It's VERY clear to ME anyway!!!

Now just in case you think I've made this up: take a look at the link below (and if you want to know more just do a Google search using the words 'vhf adam white').

MarketScreen.com - Technical Analysis from A to Z

Personally: I believe this will breathe new 'life' and 'profitability' into ALL of the trading systems in 'the book'.

Now as I said before: I KNOW it's not 'Wilder' but unfortuantely we have to make use of whatever tools are made available to us to maximize profits and reduce risk and losses so to 'the old man': I DO apologize but I'm sure that you'll agree with me on this one!!!

(I included a chart of 'AMD' as well for comparison purposes i.e. AMD have traded in ranges and trended so you can see how this indicator works).

I HOPE THIS HELPS ya'll!!!

(Now there is NO excuse for the RTS and TBPS to NOT work for you OR ME)!!!

(By the way: the VHF indicator is under Delta's 'standard' list of indicators).