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

[chdorry]

Originally Posted by kaalilaatikko

I have been thinking about the recent debate about closing a position vs. enroning and decided to do some math to clear it out for myself. This is what I got. Please correct me if there are errors in my reasoning.

I know we have to just "agree to disagree" on this one, but there are two things that I think haven't been mentioned on the topic.

First off, even if I reduce to 1 lot, if it continues against me I'm still losing money (although at a slower pace than full positions.

Second, the "carry cost" is another item to consider, as it could be costing you both in price movement and also interest every night (again small chunks but could add up if you get on wrong side of a long trend). Note: This could work in your favor as well in some cases.

So the two above adds to how much you need to "recover" when the pair finally turns your way.

At this point I think we've covered all the variables. Just like trading styles, system preferences, etc I personally feel the decision of whether you're "Pro-Enron" or "Pro-Loss" will vary from individual to individual.

[dpaterso]

Again I've gotta be quick here i.e. still ADSL/Broadband problems so using my mobile phone to connect.

kaalilaatikko:

One thing that I may never have mentioned on this thread: my lot sizes are set to 1000 and I increment the number of lots using this lot size to get to my % margin to be used for a position. In other words: I could have a single position open that consists of 400 lots (for example) so if I at any time 'Enron' the position I'm 'dumping' 399 lots so any more loss caused by additional movement against my position is based on the smallest possible number of lots. This would NOT work if you were using lot sizes of 10 000 (for example). In other words: if your lots sizes were set to 10 000, you had 4 lots open, and then you 'Enron'd' 3 lots, you'd STILL have a relatively large position open and, of course, you'd be losing a WHOLE lot of $$$ if the position continued to go against you which would obviously be defeating the object.

[kaalilaatikko]

GBP/NOK has given me a traditional VS signal yesterday. This is one of my preferred VS pairs. I'm already in by VSC1.

EUR/NOK did the same 2 days ago, but I noticed that only today. I'm planning to start following those preferred VS pairs systematically from now on, so I'm in with that as well.

From the other pairs EUR/GBP and GBP/BGN have given a VS signal yesterday as well. EUR/GBP would have been a good choice already a few days ago, but I did not take it. I won't take it any more, the reason being that the train for VSC1 already went and it is not a preferred VS pair of mine. BGN has inconvenient trading times for me, therefore ignored.

I've been hanging on AUD/NZD long because of a wrongly placed entry. Everybody else seems to have been following it to go southeast. Now it is up again. I'm still on loss, but very interesting to see how this finally ends.

At this point I think we've covered all the variables. Just like trading styles, system preferences, etc I personally feel the decision of whether you're "Pro-Enron" or "Pro-Loss" will vary from individual to individual.

I fully agree. I learned this best with RTS: what is good for somebody else is not necessarily good for you.

J.

[dpaterso]

Good (Thursday) morning all!!!

Well: SO FAR I've got ADSL/Broadband 'back' (but WHO KNOW for how long today)!!!

Anyway:

I know there are some that are following my trades so you need to know what I'm doing.

I closed out GBP/NOK, EUR/GBP, GBP/ZAR, and GBP/BGN at profit late last night. Now I know I'm taking profit early BUT here are my reasons:

GBP/NOK was doing very well NOT due to GBP strength but because of lower Oil prices. I'm not convinced that Oil is going to stay down where it is (at least not without a 'bounce'). If this happens I'll get back into the trade at a better price.

EUR/GBP was also doing very well but to be honest: I'm not quite sure where EITHER of these currencies are going in the near future.

GBP/ZAR was ALSO doing nicely and it's a shame to have closed it out because this was one of the 'monster' trades that I was waiting for. HOWEVER: Gold is hovering around $750 USD an ounce at the moment and from what I gather this COULD be a good buying opportunity. AGAIN: GBP/ZAR was doing well but NOT because of GBP strength but rather because of the drop in the Gold price. I'm figuring that a 'bounce' in Oil and / or Gold would have taken this pair back to a loss. Also: I'm VERY uncomfortable with the USD/ZAR price at the moment i.e. it's 'out of the ordinary' right now (for me anyway). In other words: if there is a huge drop in USD/ZAR then I can assure you that there will also be a drop in GBP/ZAR and EUR/ZAR and GBP/ZAR is one PARTICULAR pair that I DO NOT want to be 'wrong' on!!!

GBP/BGN was also doing well but again: I'm not quite sure where the GBP is going at this point and I see a lot of Mervyn King and Alistair Darling on Bloomberg and whenever 'Laurel and Hardy' get together and open their mouths the GBP tends to 'catch a cold'!!!

With ALL of the above I'll be watching what happens with EUR/USD and GBP/USD and Oil and Gold before making a decision to 'get back in' at better prices.

NOW:

I DO KNOW this is NOT waiting for a VSC(1) close to take profit and I DO KNOW that I COULD BE WRONG and my profits on these trades COULD BE DOUBLE AT LEAST. HOWEVER: the profit on just these four trades alone represented a gain of around 7.5% per account. Nothing 'shabby' about that (ESPECIALLY seeing that these four trades were only opened a few days ago).

Other notes:

To be honest: There is a 'common belief' that the market will very rarely give you between five and seven days of a single movement in the same direction without a 'pullback of sorts'. Now while this is obviously NOT evident on somethine like GBP/USD as the moment I do believe that generally speaking this 'common belief' has 'merit' (Bill William's talks about this). I'd feel OK with getting back into those same trades at a better price after a 'pullback'. If it does not happen: then too bad for me. The profit is 'in the bank' however.

AUD/NZD: I APPEAR to REALLY be getting a 'feeling' for THIS darn pair!!! Twice now, after shaving some BIG amounts off of the loss from 2 May, I've 'Enron'd' the position and on BOTH occasions I've done this at just the right time.

I'm still 'in' EUR/ZAR because that has not turned to profit and I will take profit if it's presented to me at this level for the reasons already metioned above. If taking profit does not become an option then I'll 'Enron' the position when signalled to do so.

Now for those of you who may still be in those same trades: I am NOT telling you what to do. If you're still in those same trades and you're happy with them then by all means follow the VSC(1)/VSC(3.1) 'systems'. I'm just giving you 'insight' into my 'thought processes' that go on daily and reasons as to why I do things and how I manage to achieve my percentage gains..

[chdorry]

Originally Posted by dpaterso

GBP/ZAR was ALSO doing nicely and it's a shame to have closed it out because this was one of the 'monster' trades that I was waiting for. HOWEVER: Gold is hovering around $750 USD an ounce at the moment and from what I gather this COULD be a good buying opportunity. AGAIN: GBP/ZAR was doing well but NOT because of GBP strength but rather because of the drop in the Gold price. I'm figuring that a 'bounce' in Oil and / or Gold would have taken this pair back to a loss. Also: I'm VERY uncomfortable with the USD/ZAR price at the moment i.e. it's 'out of the ordinary' right now (for me anyway). In other words: if there is a huge drop in USD/ZAR then I can assure you that there will also be a drop in GBP/ZAR and EUR/ZAR and GBP/ZAR is one PARTICULAR pair that I DO NOT want to be 'wrong' on!!!

Nicely played Dale. I am still in GBPZAR but I have set a stop loss. Yes, I know Wilder systems don't use them blah blah blah, but to me its really a "take profit on pullback" as I'm well into profit on the pair (4% on that trade along *IF* my stop is hit) So now *IF* GBPZAR keeps running, great, if not that's great too.

I personally sat out the EURZAR this round, as we've been seeing euro weakness and I have my own "personal indicator" that I've developed that has been showing euro deterioration over the last couple of weeks. Another reason was that I was in EURGBP short, and since I was expecting GBP strength over EUR, I wasn't overly confident in EUR vs ZAR as gold is down considerably from the 1000 per ounce days.

Interestingly enough, several weeks ago I jokingly told Dale gold was going to $500 per ounce. Well we're halfway there. If only it wasn't a joke and I actually had some valid reason to short gold that day :-)

As for USDZAR, I'm just eyeing that pair in amazement. While I know its outside of the "magic range", you have to remember what goes up, must come down - so we just need to keep our eyes on it and be ready to catch it when it does.

[dpaterso]

Nice work Craig.

OK: I'm 'out' EUR/ZAR (at profit) and 'in' long GBP/CHF as per VSC(1) entry yesterday.

Regarding the ???/ZAR pairs:

What I'm (we're) IDEALLY looking for is for all three to be at the upper end of their trading range to short them this time around. Normally all three are within their trading range but this strong move up in USD/ZAR has 'spooked me' somewhat so I'll wait around and see what happens.

Having said that: the GBP appears to be getting some traction now so I'm keenly watching pairs like GBP/USD and GBP/JPY.

[dpaterso]

Good (Friday) morning all.

One VSC(1) forex signal generated last night: AUD/CHF long.

GBP/CHF: great so far.

Another interesting thing that I've noticed is this:

Parabolic SAR (I never thought I'd see the day)!!!

Take a very nice good long hard look at a chart with the following:

VSC(1), SIS, and Parabolic SAR together on the same chart.

To my AMAZEMENT I noticed that ALL THREE of these trading systems generate the same signals at the same time IF it's a good trade. How about that!!! And so far this applies to all the profitable trades I've done to date / am 'in' right now using the VSC(1). This brings me to a point for TP i.e. you COULD use Parabolic SAR to track and lock in your profit BUT ONLY IF YOU'LL RE IN A PROFIT WHEN PARABOLIC SAR'S SAR IS 'HIT'. In other words: the VSC(3.1) is your OUTER LIMIT for 'Enronning' a position or closing a position at a loss NOT Parabolic SAR BUT you COULD use VSC(1) OR Parabolic SAR (whichever is closer) to TP. Note that this IS TOTALLY DIFFERENT from trading with Parabolic SAR i.e. your entry is STILL a close contrary to the VSC(1). On the other hand: could the VSC(1) be that 'elusive long sought after filter' for Parabolic SAR??? Anyway: Just some more of my ideas that are spurned by pure boredom!!!

By the way: some signals COULD be generated tonight for Sunday i.e. GBP and EUR are getting some 'lift'.

Regarding the ???/ZAR pairs: I've heard 'talk' on our local radio stations here that USD/ZAR could go to 9. I'm not convinced myself and these 'guesstimations' are from some local enonomists but hey: WHO THE HELL KNOWS!!! I know that our econmony is in GREAT shape in spite of the problems that we've had so how / why the ZAR is going to depreciate to that extent is anyone's guess.

And: I WAS kicking myself for closing out those GBP/??? positions early but I see that maybe my thinking was 'spot on' i.e. I see GBP/NOK is moving down fast and furiously, GBP/BGN is not climbing anymore at present, and EUR/GBP seems to have levelled out (for now anyway). BUT no matter WHAT happens: I have to keep reminding myself that 'profit if profit'!!!

I also see the USD/??? pairs dropping 'smartly' right now. Strange but true.

Later.

[dpaterso]

Here is some 'useless' information:

Well: it's only 'useless' to the likes of you or I (the 'traders') BECAUSE none of us would be able to restrain ourselves from taking profit too early!!!

BUT: for a LONG TERM INVESTOR just have a look at this:

Silver (as I type this post) is at $10.51. A position size of approximately $500 would buy you approximately 4640 units of Silver at Delta.

NOW: the ABSOLUTE MAXIMUM that a person could lose if Silver went to $0.01 would be approximately $50 250.

SO: if you HAD let's say $60 000, opened an account at Delta, bought 4640 units of Silver at $10.51, and JUST FORGOT ABOUT THE POSITION (THAT'S THE KEY) you COULD NOT LOSE YOUR MONEY AND depending on how long you wanted to wait you would 'clean up'!!!

Silver's HIGHEST HIGH was $21.37 on 2008-03-17. If that level was reached again the profit on this $500 position would be in the region of $48 900!!!

In other words: UNLESS Silver went to ZERO (which we all know would NEVER happen) you could not lose and, although you'd have to wait for your money and you'd not know for how long, you COULD make a small fortune!!! I mean: what do YOU think Silver is going to be worth in say ten or twenty years time??? A LOT more than $10.51 an ounce!!!

As I said: this would NEVER work for a trader BUT it COULD work for a long term investor with a pile of money (at least $50 000 - $60 000) who has a long term view i.e. has ten or twenty years to look ahead!!! I don't think you even need to do the math (although if someone felt like doing it then go ahead) to see that if you put this same amount of money into a fixed deposit at a bank that you'd come nowhere NEAR (I don't think anyway) these gains (but in order to be fair you'd have to find a way to 'predict' the price of Silver in ten or twenty years time)!!!

By the way: the interest that you'd pay on the position would be negligable because that interest is only based on the position size which would not be increasing other than in value and again, because of the leverage, would be of very little consequence!!!

[kaalilaatikko]

Originally Posted by dpaterso

Parabolic SAR (I never thought I'd see the day)!!!

Take a very nice good long hard look at a chart with the following:

VSC(1), SIS, and Parabolic SAR together on the same chart.

I have never placed PSAR on my charts in Delta's platform, well remembering your findings in the PSAR thread, one conclusion being that Delta calculated it plainly wrong.

Do you happen to know the status of Delta's PSAR indicator nowadays? Does it still compile the values incorrectly, or have they updated the math?

[dpaterso]

Hello,

Delta's 'standard' Parabolic SAR is not THAT far 'out' (but you can use mine under 'Wilder' as well to solve the problem). Having said that: EITHER one will suffice for the purpose for which I suggested earlier. The point is that the STRONGEST signals appear to come from the VSC(1) i.e. the others to a lesser degree. At this point I'm now long GBP/CHF and AUD/CHF BOTH of which are in profit right now. From a percentage point of view it means that out of eight trades: four I've 'cleaned up' on, two are still running, and two have been 'Enron'd' and are close to being 'Un-Enron'd' and will turn to profit I have NO doubt!!! This is the highest percentage of profitable trades I've had using any single 'system' (well I suppose that you cannot get higher than 100% now can you)!!! What I'm saying is that the ENTRIES that the VSC(1) gives you are 'top notch'. Where YOU decide to TP is up to you and, of course, you could just let the trades run their course.

Edit:

Let me put it another way for you!!! GCI's Parabolic SAR is 'spot on' with the book (no question i.e. checked and re-checked 1000 times) and even with me using GCI's Parabolic SAR last year I STILL landed up 'in the soup'!!! As things stand NOW: I do not blame Parabolic SAR BUT I would STILL not trade ONLY using Parabolic SAR. To be honest: it's the 'pshychology' of this business that I've got 'under control' and the fact that I'm using sound money management that's making all the difference not the indicators. (I KNOW this is a 'many times repeat' but for anyone else reading this I cannot stress the importance of good sound money management enough)!!!

Another edit:

By the way: those 'VIP' trades I've been waiting for may JUST be valid after the close tonight. Take a look at pairs like AUD/USD, GBP/USD, GBP/JPY (in particular as it is a high payer), possilby even EUR/JPY etc. etc. etc. Check them out (there are lots more too).