Parabolic SAR - that's all!

Trading Systems Free Forex Trading Systems
2079

Hello again,

Well I can pretty much guarantee that at the time of writing the book commodities were only tradeable during the relevant exchange times and I don’t think that this has changed (but maybe someone can help us out here). To the best of my knowledge the only thing that has changed is that WE now have this wonderful thing called ‘futures’ which are traded 24/7 and this is where the difference comes in i.e. with the ‘futures’ contracts, because they are traded 24/7 (there is a ‘break’ for an hour or two with some of them like the Dow ‘futures’ for example), we don’t really have a ‘close’ and an ‘open’ and this is why we get things like (Saturday???) Sunday bars which unfortuanately, I believe, are of great consequence when trading the TBP system. I ‘think’ you could ‘treat’ forex as being ‘equivalent’ to ‘futures’ for the purposes of the TBP system.

Look: I stand to be corrected on this.

I’d actually like ‘someone in the know’ to ‘chime in here’ if you don’t mind.

I HAVE noticed that at GCI where it is ONLY ‘futures’ ‘on offer’ things like Gold, Silver and Oil can be traded 24/7 BUT at Delta these same instruments are only tradeable at certain times and I’ve never quite figured out why. I don’t know if it’s because GCI (for example) only offers the Dow ‘futures’ (again for example) and Delta only offers the ‘full’ or ‘proper’ Dow. Could this have anything to do with it i.e. at GCI you’re trading the Gold ‘futures’ for example but at Delta you’re trading the Gold ‘what???’. What other types of Gold ‘instruments’ are there??? I hope I’m phrasing my question correctly!!!

One other thing that I have noticed NOT being mentioned anywhere in the book is the spread. Did they even have a spread in those days??? I know that commission is mentioned all the time but from what I gather this is NOT the same as spread. Nowhere in the book is the ‘bid’ or ‘ask’ price mentioned i.e. there is always just one price quoted. This also makes a difference with the TBP system (especially when you are trading something with a 9 or 10 pip spread i.e. your TP, TBP, and stops are going to be further apart. For this reason, again I’m lucky at Delta, I have all my charts set on the ‘middle’ price and then just ‘adjust’ my orders or whatever to compensate for half the spread either way). On the other hand, at Delta, you pay commission AND spread on CFD’s and Oil, and I don’t know if it was ALWAYS like this i.e. when the book was written, or has this changed because of our ‘technological’ advances?

2080

By the way, I must just tell you, that Wilder has never ‘raved’ about the TBP system.

I have read (many) articles relating to his work and seen many interview ‘transcripts’ and he has, on a few occasions, mentioned Parabolic SAR, ADX, DMI, and the Swing Index System and his ‘favourite’ (although in one interview he does say that he does not have one) is the Volatility System.

Here is an interview with him (it’s one of the ones that I read before):

Technical Analyst and Trader J. Welles Wilder Interview

I’ll try to find the others for you.

My ‘money’ is on the ‘Swing Index System’ and the ‘Volatility System’ (the ‘Volatility System’ unfortuanately requiring a lot of patience and discipline).

The TBP System DOES work, yes, but it’s ‘little nibbles’ of profit every day and while this IS working for me I’d also like to have some of those ‘other’ trades that stay with the trend for a while because that’s where the money is!!! Put it this way: If the TBP System ‘keeps me occupied’ on a daily basis, takes profit, and stops me ‘messing’ with the other trades, then it’s ‘a whole lot of system’ to me!!!

Take note of what he says about ‘how to read the book’. It’s real easy to ‘miss’ something I can promise you but I think it’s going to be worth the ‘slog’ in the end. I particularly like the part where he says that even if he were to rewrite the book today he would not change a thing. That says a lot to me.

2081

Hi - I’m new to the group this past week, and man have you guys been busy!

[B]First things first–[/B]
Real Name: Chris
Location: Carthage, Missouri USA (small town about 100mi south of Kansas City)
Drinks of Choice: Bourbon, English Ales (Fuller’s ESB tops the list)
Music: All over the place - classical, 60s, 70s, 80s, some 90s rock, some of the new stuff – I tend toward angry female rockers lately.

That out of the way, I will continue to lurk & maybe pop a question now & then, when I get a better grasp on what’s going on. Almost ready to fund an account & go live with real $$$. I will start small (500-1000 USD) and see how it goes. Ultimate goal is to make a living at it, but I’m trying to be reasonable!

Till later -
Chris

2082

Chris, welcome, and welcome again!!!

Your ‘intro’ is fantastic and refreshing!!!

I’m glad you ‘found us’.

There are some very good people that post on this thread and I’m sure they (and myself of course) will be only to happy to help you out if and when necessary.

2083

Thanks for that interview link Dale, I believe I did a google search on wilder a few weeks ago and I read a similar interview. You are right, it seems like the TBP system does take “nibbles” of profit, in the book Wilder says it has a 70 or 80% winning percentage on average but those profits are relatively small. Still, I can see how the system can be successful. I haven’t got to look at the swing index or volatility system yet, it took me a few hours to fully understand the TBP system so hopefully the other two aren’t too difficult to grasp :o Well, now I’ve got to study for an exam tomorrow morning, this school stuff is starting to get in the way of my trading :rolleyes:

2084

Hello,

Good luck for tomorrow with your exams. Take it from someone who knows: your education is far more important at this stage and nothing that you study ever goes to waste in life i.e. even although it may not seem like it at the time you’d be surprised how your knowledge ‘surfaces’ to stand you in good stead. I did my accounting degree when I left school (university part time) and then went into the computer field just as I had completed my degree and thought that I’d wasted my time studying. The irony is that I ended up selling and supporting accounting packages and fleet management systems (with integrated accounting modules) (amongst of course other things) and now I’m trying to become a trader. So much for not wanting to be an accountant!!!

Anyway, back to (this) business:

The Volatility system is ironically the ‘simplest’ of the lot to grasp, set up, and ‘maintain’ on a daily basis (ironic because it’s probably the most profitable of all of them LONG TERM).

The Swing Index System is probably the most difficult to grasp and set up but not too hard to maintain on a daily basis (even with Excel spreadsheets).

With all of the systems it really is just the initial set up that takes time i.e. once you’ve set up all your spreadsheets and captured (or imported) the first seven days (periods???) of data then all you do every day (night???) is add the current prices to the spreadsheet and perform the calculations and then you’re pretty much done (although like I said: trying to do this with too many instruments will eventually ‘get the better of you’ if you’re doing it manually)!!!

On the other hand: should I (we) even think to complain??? How would YOU like to plot charts manually like that every day. Let’s face it: he ‘worked’ for his money!!!

2085

Thanks Dale, I do take my education seriously, just been spending a lot of time around trading and the markets lately and studying has been a bit behind, but I caught up today… :slight_smile: I’m just finishing up my bachelor’s in finance, I have a little less than a year left. I haven’t decided yet, but I may stay in school and get my masters in business, but there are a lot of good jobs out here, and a lot of companies will pay for you to get your MBA. It’s nice living in the northwestern U.S. because there are so many big companies up here, would you believe that Nike, Adidas, Boeing, Hewlett-Packard, Intel, Xerox, Starbucks and Microsoft’s headquarters are within an hour or two from me? I actually live about a mile from HP’s headquarters, they hire a lot of grads from my school (Oregon State U). Anyway, I am going to read up on the volatility and swing index systems tomorrow after my exam, talk to you later.

2086

Hello,

Thanks for that info and, from what I gather so far, you have your ‘head screwed on the right way’, and I’d go so far as to say that you’re in the ‘right place’ and could very well ‘have it made’ if you ‘stick with the plan’ (it’s ‘strange’ how similar ‘life’ is to a good ‘trading plan’. I only wish I’d learned this earlier on in life i.e. I’ve so far managed to ‘f*ck’ up a good ‘trading plan’)!!!

I see your ‘qualifications’ are ‘named’ the same as ours i.e. ‘Bachelor of Finance’ (mine is a ‘Bachelor of Accounting’). I did not know that i.e. I thought your qualifications would be ‘called’ something else. You learn every day.

Strangely enough my ABSOLUTE WORST was Economics when I was studying. It was just too much ‘mumbo jumbo’ for me and if I think about it now that’s probably the main reason why I’m so bad at ‘fundamentals’ and why I need a ‘purely technical’ system to trade.

Anyway: good luck again for today.

I have some very important information regarding the Swing Index System which I will detail in a new post below (actually, from now on, I’m going to refer to the systems by abbreviating them. Those of you who have the book and are going to follow us will know what I’m taking about).

2087

Now, like I said, you live and learn everyday!!!

Once you start working with the SI System you’ll notice that he talks about a ‘LIMIT DAY’ and a ‘LOCKED LIMIT’ and a ‘LIMIT UP DAY’ and a ‘LIMIT DOWN DAY’ and I thought that this was just some sort of ‘multiplier’ or something to get the SI and ASI to within a certain ‘range’ for all instruments. Turns out I was horribly wrong (so ignore my ‘rambling’ a few messages ago where I thought I’d come up with the right answer regarding the ‘LIMIT’ ‘constant’).

This is where the little ‘subtle’ differences between trading commodities, stocks, and forex ‘come in to play’.

Take a look at these two links (there are many more but these two really explain the ‘LIMIT’ to which he refers in the SI System):

Limit move - Traderpedia

McMillan on Options - Google Book Search

There is some really excellent (and VERY SCARY) information there.

Anyway, needless to say, if you’re trading forex pairs with the SI System, you do not have to worry about ‘LIMIT MOVES’ or ‘LIMITS’ (a ‘plus’ for forex trading I ‘think’). I’d actually like to know if the Dow, S&P, and Nasdaq have ‘LIMITS’??? AGAIN: MORE EXPERIENCED TRADERS FEEL FREE TO ‘CHIME IN’ HERE!!! I do remember reading (or seeing on TV) somewhere that after one of the ‘crashes’ (1987???) a ‘rule’ was introduced (I THINK it was called the ’ the 20% rule’ or something like that) and the idea was to ‘curb’ the ‘sustained panic and automated selling’ (my words not a quote) of the Dow (for example). If I ‘read it right’ you could not short the Dow (on the same day???) for example if the price had dropped more than 20% (again - not sure) from the previous day OR if the price today had dropped more than 20% (or something like that) AND I also think that there was a move to ‘remove’ this rule not too long ago.

Actually: I’m gong to ‘bug’ John (‘rhodytrader’) to expand on or correct my information above as I am not too sure about it.

Anyway: how it affects the SI System is this:

When calculating the SI for forex pairs YOU TOTALLY IGNORE THE LIMIT I.E. YOU REMOVE IT FROM THE EQUATION!!! This results in you having an SI that NO LONGER FALLS BETWEEN +100 AND -100 which, for forex, is quite correct. Where it does cause a ‘variance’ is with the 60 point ‘TRAILING INDEX SAR’ i.e. you cannot simply take 60 points off the ASI to use as your trailing stop for the simple reason that if you take off 60 points from the ASI for AUD/CAD for example that puts the trailing stop MILES away i.e. it would never get hit and you would never be able to stop and reverse at the trailing stop resulting in either diminished profits or huge losses if you could only stop and reverse at an HSP or LSP. For AUD/CAD (for example) your trailing stop would be 0.6 points of the ASI NOT 60 points. See the difference???

I know (think) I’m ‘throwing things’ out here that nobody has ‘touched on’ yet but you’ll see what I mean when you ‘get to grips’ with the SI System.

Edit:

Heeey!!! I’ve just been able to use the ‘chat room’ for the first time (tried a long time ago but it did not work but it’s working ‘great’ now. It’s like getting a ‘new toy’!!! That’d be great for trying to explain things to someone instead of trying to do it in a normal post)!!!

2088

The short answer is yes. The stock markets do have limits, so to speak. There are all kinds of circuit breakers in the system - pauses at certain thresholds and the like. I don’t know all the specifics off hand. A look at the exchange website will provide that info, no doubt.

2089

Dale:

 Please start a new thread, perhaps called "Wilder's Methods".  The current thread, whose title suggests only Parabolic SAR is about 200 pages long.  This thread has now drifted to Wilder's other techniques (even if they are to be used together).

A new thread would be helpful to those joining for the first time (reading over 200 pages of posts is a bit daunting).

Barry

2090

huh? so para para sarah not working long term?? Man…but i see if manage to hold the drawdown… in the PS will still be the winner…

2091

Dale, just wanted to give you an update. I finished my excel spreadsheet for the TBP system, and I have decided to trade it with the three most popular pairs, eur/usd, usd/jpy and gbp/usd. I figured these three would “usually” be the least volatile as they are #1, 2, and 3 in average trade volume, so hopefully it will work out and they will “behave” more like wilder’s commodities. I only opened one position today, eur/usd long @ 1.4873. The target is at 1.4924, but the TBP is at 1.4919 so if it doesn’t hit the target today I will probably end up reversing short, that seemed a bit weird to me but I’m 99% sure my spreadsheet is right.

2092

Hello,

Now, not to ‘alarm you’, but I would not have taken that trade for the following reasons:

Mainly:

Stochastics are both above 80.
There ‘appears’ (to me anyway) to be a sort of ‘triple top’ formation on the chart i.e. MAJOR resistance around the 1.4900 area or so.

Also:

RSI is below 75 and above 50 (I like to wait until both RSI AND Stochs are at there limits before ‘giving the system a chance’).

Not so much of a criteria:

The ASI from the Swing Index System has started to ‘flatten out’.
ADX and ADXR are moving down and +DI is below -DI.

There are only two POSSIBLE reaons why I MAY have been in doubt and actually taken that tread:

The chance of a further FED rate cut (but this is a long way away).
The chance that the ECB will hold or hike rates.

Neither of the above two reasons are ‘technical’ in nature so I would have ignored them and not taken the trade anyway (because I’m always wrong when it comes to ‘fundamentals’).

Now don’t get me wrong: I’m not saying you’re right or wrong, I’m just telling you how I ‘play’ the TBP System i.e. I do not rely SOLELY on it’s signals.

One thing that I have noticed about it is that sometimes it will give you a signal to go long when the TBP IS ALREADY ABOVE YOUR OPENING PRICE and I ignore these trades i.e. the TBP System is telling you to go long because of the MF BUT the book is telling you to go short instead of long because your opening price is below the TBP. I don’t take these entries at all i.e. when the TBP System is telling me to go long I make SURE that the TBP is below my opening price (and of course visa versa for a short). As I explained above I also use RSI, Stochs, and ADX as confirmation.

Look: from using the system very often I have noticed that the TP target is hit anyway even if all the other indicators that I use are contradictory but I’m never in those trades (which is dissapointing but it’s also why, I think, my ‘hit’ rate is higher than the 70% quoted in the book). Put it this way: I think I have FINALLY learned to ‘stay out’ when I’m ‘not happy’ rather than just take a trade BECAUSE I HAVE TO BE IN (although this does go against my ‘grain’).

By the way: I just had a look at EUR/USD (daily) and the TBP System and exactly what I’ve described above happened last night i.e. there is a signal to go long (based on the MF) BUT the TBP is already above your opening price SO you should have gone short (according to the BOOK not the system) OR just stayed out like me. I think that’s why the ‘confusion’.

On the other hand: I hope I’m wrong and you are right so that your first trade with it instills confidence!!!

Let me know.

Edit:

Just a bit more help here (if you did not already do this that is): when I was using Excel for this I manually ‘punched in’ the prices from his worksheet in the book and MADE SURE that I arrived at EXACTLY the same figures and entries as he did before I started ‘plugging in’ my own prices and instruments.

2093

OK- I was wrong!!!

I ‘forgot’ about the US economic releases today (and THAT my friend is why I must NEVER trade ‘fundamentally’)!!!

Anyway: your target should have been hit quite nicely by now (on EUR/USD anyway - I have not checked the others).

Well done.

Having said that then you also have to take into account the fact that if there was NO US economic releases today or it was not as ‘shoddy’ then I’m not sure that the target would have, in fact, been hit today. See my point?

2094

Hi, everyone. I’ve demo traded this system;‘parabolic SAR’. I did’nt get nice results. I’ve had equal numbers of bad and good trades!

David

2095

If you followed my system today you would have made a possible 286 pips

Gbp/usd = 171 pips
Eur/Aud = 115 pips

Hope u all had a good week.

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2096

Thanks for clearing that up Dale, and yes I did hit the target anyway :o . I did plug in the numbers from the example in book and I got the right numbers so I know my spreadsheet is correct. The only thing that was a bit confusing to me was which TBP, target and stop to use, the ones of the day you enter (at the close) or the next day. I now know that you use what it gives you for the TBP, target, and stop on the NEXT day i.e. when your trade is actually going to see action. So for example I entered at the close of 1/30, I use the numbers for 1/31 for the TBP, target and close. This is correct, right? Also, I have been reading about the volatility system, and the only thing that I don’t fully understand is how to calculate the SIC point, is it just the extreme high or low of the last 7 days? Does that mean that it can change during a trade?

2097

Hello,

Like I said: I’m real happy for you (I was monitoring your trade yesterday and was getting quite excited for you)!!!

You appear to have the TBP System ‘under wraps’ i.e. the TBP, TP, and SL are always for the next day and you enter at the open (which for forex will always be at midnight at your broker i.e. at the close of the previous days bar).

As far as the Volatility System is concerned you appear to have it ‘right’ too but to be sure: you use the highest / lowest CLOSE not the EXTREME highs or lows and you need to start with at least seven days worth of data so that you can have enough data to calculate ATR(7). Thereafter it’s the highest / lowest close for ALL the previous days until you get an entry or are already in a trade and need to stop and reverse as indicated by the system. From that point on you are looking to go in the opposite direction and you would then start calculating the SAR using the highest / lowest close FROM THAT DAY ONWARD but you still need all the previous data for the calculation of the ATR. Also, yes, the SAR WILL move up and down every day i.e. it compensates for volatility i.e. the more volatility the further away it will move. I have not had an entry signal with this system yet but from what I can see the one thing that can totally kill this system is overtrading your account i.e. it is supposed to keep you in the trade ‘for the long haul’ so that means you have to be able to ‘ride the price wave’ as far up and as far down as the system needs you to do WITHOUT being margin called i.e. it may be a long time before you reach the SAR point but when you do you’re (hopefully) sitting on a HUGE profit!!!

Oh, and one other thing, DO NOT try and ‘second guess the close’!!! I was ‘training’ somebody the other day to use the Volatility System. They wanted to open a position on GBP/USD. I told them to WAIT FOR THE CLOSE ABOVE THE SAR BEFORE TAKING THE TRADE and they said to me: ‘but I can see that by tonight the price WILL close above the SAR so I’m going to go long NOW’ to which I replied: ‘OK, well, I’m telling you to wait for the close BUT it’s your money’. Do I need to tell you what happened??? The price DID in fact go WAY past the SAR but by midnight that night it had retracted all the way down again and the price has continued to move down since then!!! Needless to say they are now down about 300 pips and counting!!! DON’T SECOND GUESS THE CLOSE I.E. THE PRICE MUST CLOSE ABOVE OR BELOW THE SAR BEFORE TAKING THE TRADE!!!

What do you think of ‘THE man’s brilliance’ up until now??? Wait until you get to the Reaction Trend System and (my personal favourite and ‘money machine’ from tomorrow, the Swing Index System). They’re a ‘thing of great beauty’ I can tell you!!!

2098

Just the work that went into the systems is astounding, especially since he didn’t have excel to work with… hahaha. I just hope these systems work well with forex pairs too, as all of the examples in the book are commodities I believe. I think somewhere in the intro of the book he stated that the systems can work with any tradeable instrument, but obviously the markets have changed a little since the 1970s. So for the volatility system, let me get this straight… get previous 7 days of data to calculate ATR (7) and the first SIP is the extreme close (high close for possible shorts and low close for possible longs) which CAN change until you get an entry to get in. Once you get in, the SIP becomes the most extreme close from THAT POINT on, until your position reverses and it changes again, and the SIP once again is the most extreme close from the reversal on. I think I got it! :slight_smile: