The Adam Theory of Markets by J. Welles Wilder Jnr

Beginner Questions
283

Dale,

Are you lonely at the top…don’t be you will notbe forgotten, just maybe put on the back burner so to speak…just kidding. I do thank you for starting the Adam Theory thread as it has been enlightening. As for including other methods into Adam I think it is a stand alone theory if the rules are followed, but what I mean when I say using Supply & Demand along with S&R levels is for those levels to considered along with the Adam projections. That is just my view, but more research would certainly be needed.

The Adam Theory appears to be designed to keep you on track with the prevailing trend & warn you of a probable reversal ahead. I have read the book three times to completion & have read the section on plotting the theroy even more times & everytime I am amazed at how simple it all really is. Almost to simple. From my crude (acetate) way of plotting the second reflection it appears that Adam & what actually happens are together about 50-55% of the time. With the indicator that just might show an increase in accuracy. As for what time frame Adam should work on all time frames, but longer is probably going to be somewhat better. Maybe the indicator will shade light on that.

Dale a tip of the traders hat to you & Jedster for all you guys do & share with us. After many years of trading I am still learning everyday.

Everyone have a great weekend.

284

Hello.

Lonely at the top??? I dunno about that but it’s not quite as crowded at the bottom as one is led to believe I can tell you that!!! LOL!!!

Hey folks: only joking (about being ‘left out in the cold’)!!! LOL!!! It’s only my pleasure to share something that I believe has promise. And thanks for the nice posts everyone. They mean a lot to me chaps (you have no idea)!!!

Anyway here’s the thing:

I’ve just ‘solved’ Adam for both Silver and Gold and I’m SLOWLY starting to see how this works!!! BELIEVE IT or not!!!

Take a look at both charts (daily as of the close yesterday i.e. 02/02/2012). I think I’m wrong in my comments about the market having to make a ‘glacial move’. Using MY interpretation of Adam: you would have missed this WHOLE long uptrend. So here’s what I’m starting to see. I’d say to FIRST: ONLY stick to ONE time frame. SECOND: if you’re not IN an Adam trade you need to solve Adam every day (or period). Once you’re IN a trade only THEN can you stop worrying and ‘solve’ Adam when the market pulls back or reacts against your position. If you look at these charts and try to imagine where you WOULD have gotten long it’s plain to see what I mean. You’d have gotten long quite early on the way I see it. Alright: I think your initial stop would still be sitting below the most recent lowest low (on the actual chart i.e. the green part of the chart) BUT you’d now be waiting for a pullback or reaction after which you’d lock in profits (and probably add to the position). I’ve been a bit confused when looking at these charts because I’ve been thinking to myself ‘well what is the point of Adam if you have to wait THIS long to get into a trade’. Well NOW I THINK I ‘see it’.

I mean: looking at these chart with my ORIGINAL understanding I thought ‘but the Swing Index System would have gotten you long from around the second or third bar of this uptrend so SURELY I’m not understanding Adam Theory correctly’??? But I THINK I’m right???

Any comments and thoughts and input would be appreciated.

Regards,

Dale.

Just an afterthought (while I was uploading the charts). Which IDIOT decided to call GOLD ‘XAU’ and SILVER ‘XAG’??? I mean: wouldn’t it have been logical for GOLD to be ‘XAG’??? LOL!!!

xagusd_adam_daily_date_02022012.zip (28.7 KB)

xauusd_adam_daily_date_02022012.zip (30 KB)

286

Alright (and just to ‘wet your appetite’):

This is where I’m ‘coming from’ insofar as Adam Theory and Spot FOREX is concerned.

I’ve attached the daily charts of the Dow, S&P, and the NASDAQ (Daily Rolling Futures). Take a look at their ‘run up’. Not to mention that 20-day highs that may even be made today. Not to mention that once these new highs are made: a ‘decent correction’ (or crash???) COULD HAPPEN. The EU Indices are battling to ‘maintain’ (but I’ve not included them here). All I’m saying is: let’s see what happens. If these Indices ‘tank’: then Adam Theory is ‘spot on’ when it comes to EUR/USD and EUR/JPY.

Some additional note: trades on these indices I’m now going to start ‘maintaining’ on my forums (this IS AFTER ALL A FOREX FORUM AS WAS POINTED OUT TO ME THE OTHER DAY QUITE CLEARLY)!!! LOL!!! Also: my forums ‘deserve’ the input. On these charts (just ‘showing off a bit’) I’ve got price channels (for Turtle Soup OR Turtle Soup Plus One) AND my (Wilder’s) beloved and almighty Swing Index System.

I hope that all makes sense.

Put ALL of this together: and we could ALL be looking at some NICE trades. (And you know the story if you make money or lose money because of me …)!!! LOL!!!

Regards,

Dale.

us_fut_daily_rolling_03022012_1416.zip (195 KB)

287

Hi Dale,

Interesting charts.

FIRST: ONLY stick to ONE time frame

Not sure I agree with this, but I’ll explain why in a second…

SECOND: if you’re not IN an Adam trade you need to solve Adam every day (or period).

Not sure I agree with this either. The rules for Adam were to plot the 2nd reflection on 3 occasions

A Breakout
A Trend Change
A Gap or long range day

So for now on the daily chart, I would be waiting for gold to at least break above the 1820 level to break out of the highs from November.

That is when I think moving to the lower timeframes work. Moving from the Daily to the hourly timeframe tells us we have broken out for the highs of the 26/27 Jan. So now would be a good time to apply the 2nd reflection on the 1H chart.

Which IDIOT decided to call GOLD ‘XAU’ and SILVER ‘XAG’??? I mean: wouldn’t it have been logical for GOLD to be ‘XAG’??? LOL!!!

I like that… :slight_smile:
Gold comes from the Latin Aurum, hence Au.
Silver is something like Agentum, hence the Ag

288

So, to look at the gold further:

On the 1H Chart we have new highs forming so a 2nd reflection right now is this:

http://www.upl.co/uploads/Gold-1H-2nd-Reflection.png

(Ignore the MA, that was just on the chart…)

My take is that this is looking like a good trend.
Are there any big spikes? No.
Do we want to take the trade? Yes
We go long now and would place the stop at about 1838 below the low yesterday.

My obly doubt might be to wait for it to break above the high of today, maybe a pending order around 1763 as we are on a little pullback. Equally, that is looking at and using information other than Adam. If we like the trend and we like the trade, we just take it…

289

So, my take on applying this to the dow is as follows

The dow is at the highs of mid last year. This is big resistence. There was an earlier high in April (a little higher). Adam deals with this, not by calling it resistence but he tells us to wait for breakouts over all highs in the chart. So if/when it breaks that high from April, say around the 13000 - 13100 level, I would be looking to apply the projection. That said, If we apply it now:

http://www.upl.co/uploads/Dow-Daily.png

…it shows us heading up to heady heights not seen for 4-5 years and then a big correction.

ok, if we now turn to the 4H chart, it is much easier to see what to do (I think anyway).

http://www.upl.co/uploads/Dow-4H.png

We now only have the high recently formed last week to get over, and we are there now. So, once up to say 12950 (maybe 13000) we can already see how the projection will be looking good.

Now onto the 1H. It is a bit choppy of late. We have no real reason to draw a projection as none of the 3 reasons apply. However even if I plot it:

http://www.upl.co/uploads/Dow-1H.png

It looks like it might rise, then fall back to close to what we are at. I don’t want that trade (we haven’t broken through the high anyway), so I wait.

Note however, if the dow climbs further today or within the next couple of days, then it will break out over the 12880 high, and then that is a good time to do the projection. We can swee that means the the 2nd reflection would go higher, so the trade might be on.

So for the dow, my Adam status is wait for it to go a little higher on all timeframes. Or wait for a trend change. Looking very close to going long on the 1H.

What do you guys think?

290

Don’t think you’re doing this for nothing. I’m ‘taking it all in’.

But here is where it becomes ‘difficult to surrender to the markets’!!! So you’ve brought it up at a very good time (at least insofar as the Dow is concerned). It’s psychological I know. I just cannot see it making it to 14 000 or above (and let me add that the last time the Dow hit 14 000: it wasn’t too long after that that ‘life as I knew it’ came to a rather abrupt end). All I’m saying is that ‘surrendering to the markets’ is probably the hardest thing to do and when I look at your Second Reflection Charts it doesn’t matter WHAT they’re showing (phsycologically I mean): I cannot bring myself to ‘believe’ that the Dow is going to hit 14 000 before there being some time of MAJOR correction (or maybe WHEN it hits 14 000). As a matter of fact: I’ve just had a short order executed (Turtle Soup). In other words: not only did the Dow spike a new 20-day high, then retraced, then did a ‘neat’ move up again, and has now retraced again. What’s more: according to Bloomberg TV (as of seconds ago) this move is NOT with much volume behind it.

This IS NOT going to be easy!!! LOL!!!

I’m still looking at the rest of your stuff (thanks for posting).

Regards,

Dale.

291

One thing Adam does say is that you have to decide if you want to take the trade or not. I personally don’t want to take the trade long the Dow (or S&P). So I don’t think it is just a matter of surrendering to the market, but also wanting to take the trade.

292

Good point. The ony thing that worries me about that: that’s introducing a LOT of ‘subjectivity’ ‘into the mix’. That’s always been my downfall and the reason I need to trade trading systems that leave NOTHING to my ‘imagination’ (‘subjectivity’).

All I now is that this is GOING to be VERY INTERESTING!!! LOL!!! Aside from the money that’s possible: I guess that’s what keep this business of trading ‘alive and exciting and breathing’ let’s face it!!!

Regards,

Dale.

293

Alright but then to be sure:

Turtle Soup and Turtle Soup Plus One are by NO means trend following systems as is Adam. They’re basically counter-trend trading systems (that capitalise on the failings of the original Turtle Trading System). So there IS a difference between what I’m doing RIGHT NOW and Adam. These trades typically last two to three days (bars) and with them: you take profit as quickly as possible. So we’re not REALLY ‘comparing apples with apples’ here. That’s one way of looking at it anyway.

Regards,

Dale.

294

Yes, you have to want to take the trade, but the decision has to be based on what you see in the chart and nothing else.

Thinking that the dow “can’t possibly go that high” is not surrendering to the markets.

What I said on the 1H chart was, there is a possible trade there (after the breakout), but as it stands I don’t want to take it because it looks like the price will return close to entry. This is very similar to the first cotton trade example. The decision is based on nothing else but the price and the 2nd Reflection. This also makes sense. It is the wrong time to do the reflection as there has been no breakout. Within the next 2 days, if there has been a breakout then that will be the time to do the reflection, and I suspect the trade will look much better.

I think the subjectivity is only being introduced because we are simply doing the 2nd reflections at the wrong times. They need to be done at particular times according to particular rules, and that is what we need to practise and learn.

I am sure that, if we get a break above that high in the dow, then the 2nd projection will look good. It is all logical really. Think of all those stops just over the line at 13000. All those longs ready to sell out. The buying buyer needs to be huge to get past it which is why, if the break does occur, it will likely be a big one.

Just my opinion on what might happen…

295

Yep, Gold = [I]Aurum[/I] (listed as #79 and abbreviated [I]Au[/I] in the Periodic Table of the Elements, Silver = [I]Argentum[/I] (listed as #47 and abbreviated as [I]Ag[/I]).

I guess the prefix ‘X’ has been added to
a) make it a three-letter word, like all other currencies;
b) to clearly distinguish it from ‘normal’ currencies, the ‘X’ as first letter being quite eye-catching.

For those who are interested:
Aurum translates to (the colour) ‘gold’ or ‘golden’ from Latin.
Argentum translates to ‘grey’ or ‘shining’ from some other dead language’s word stem ‘arg’.

Okay, now that I’ve once again proved to be a smartass … :smiley:

… Cheers,
O.

296

Hmmm, I forgot how that works.
Wasn’t it something like, ‘[I]If you lose, don’t blame me; if you win, here’s my bank account details[/I]’? :smiley:

Cheers,
O.

297

Hi Jedster,

Daily chart shows that we can go long now or wait for the small pull back before taking a long position.

H4 chart shows a clear uptrend line therefore there is no need to solve Adam. Long position can be taken. Only when the trend line is broken then we need to solve Adam (as illustrated in the example of Japanese Yen at the end of the book).

H1 chart is choppy just like you said. However purely applying the theory, we would solve Adam because of the long range candle which satisfies Clue #3. Again long position can be taken.

So all timeframes point to long position. If we can “surrender to the market” we should not worry whether Dow will hit 14000 or not because whenever there is a pullback after our long position, we solve Adam and move our stops accordingly. So if Dow does not hit 14000, we get stopped out.

That’s my take. Hope to hear from all of you. I hope to learn and share through this type of discussion because solving Adam is the easy part, applying it is not so easy.

Regards,

298

I really like that post #291.

In my opinion, the hardest part of applying the [I]Adam Theory[/I] to actual trading is timing; assuming, which I do, that the indicator created by Jedster is valid and accurate, one then simply needs the courage to follow it.

One question regarding [I]Adam Indicator’s[/I] coding: Jedster, have you accounted for different timeframes needing different input values? Or is there no need to, in this specific case? (In case this sounds like a dumb question: as mentioned before, I am not yet familiar enough with either the Adam Theory or with MQL4 coding, so I thought I had better ask.)

Cheers,
O.

299

Hi Pips…

Interesting points. Ok, so I’ll prefix this buy saying, I’ve only got into this a few days ago, so I am absolutely no expert at all. Far from it.

With that in mind, my take on this is as follows:

Just because we are in an uptrend, we don’t just jump in. We need to follow the clues as to know when to jump onboard the train. So, Adam doesn’t know anything about pullbacks. The clue is that we need the break of the highs. The dow is a good example at the moment for many ways. If I just jump in now, the dow might not be strong enough to break through and hence will go down. That is why you are waiting for the break above previous highs before entering.

That is the wrong way round. You need to create the 2nd Reflection AFTER the break, then you know whether to take the trade or not. Otherwise you are just jumping on a trend at a random time, with no real plan.

I mentioned in the previous post why I wouldn’t take the trade on the 1H (not just yet anyway). The price looks like it will come back down to our entry.

300

Not a dumb question at all.

All we are doing is a mathmatical transformation about a point. It is exactly as described on page 40 and 41 in the book. I just coded up that transformation. So, the timeframe doesn’t make any difference.

It could be any chart, of anything, plotted against any timeframe. It could be a chart showing the average growth of bananas in feet per second. The transformation would still be the same.

Note that is is also the reason why Adam [I]should[/I] work on any timeframe. However, back in 1987, they would not have had access to ticks like we have today, so it is only with todays tools that we could consider trying this out on a 5 minute chart. Not that I have tried that yet, but it could be interesting… :slight_smile:

301

Hello.

Well: some more very insightful posts and still ‘digesting’.

By the way: thank you both (Jedster and Oliver1968) for the clarification (regarding the symbols for Gold and Silver). Although pardon me for saying so but didn’t we stop speaking Latin before the Dow was even born??? LOL!!!

Jedster:

Here’s an easier way for me explain what I was saying when I THOUGHT I’d had an ‘Adam Light Bulb Moment’. Or rather: given my Adam Second Reflection Charts for Silver (which should be the same as yours really) where would YOU have gone long using Adam Theory (if at all as yet)??? The reason I ask is because I know where the Swing Index System would have gotten me in long (and alright: Silver has moved up in pretty much a straight line so to date there wouldn’t have been any whipsaws and profit would already have been locked in. It’s not that I’m purposefully trying to compare the two systems. But I was either right the FIRST time around when I said that Adam Theory would ‘kick in’ when the markets made a sort of ‘glacial move’ or ‘paradigm shift’ OR you’d miss a WHOLE lot of points (pips) by not ‘solving’ Adam daily (every period) until Adam sort of ‘predicted’ it would be relatively safe to enter because of future pullbacks PROBABLY not being worse than your entry price. I hope that makes sense.

Put another way: here’s how the Swing Index System would have ‘behaved’ (YES this time I MYSELF will SHOW THE CHART) to date (right up until today) (and ignore the vertical and horizontal red lines on the chart i.e. those are what I use to ‘align’ my Adam Second Reflection Charts is all and I just didn’t feel like removing them).

NOTE: Removed chart and uploaded as attachment i.e. my charts looks ‘ugly’ when embedded as images!!!

See what I’m saying or asking??? Using Adam Theory: where would YOU have taken this trade (if at all) based on my (or your) Adam Second Reflection Charts???

I’ll tell ya this though: judging by the number of visitors to my forums since your indicator appeared I (we) may have discovered some ‘long lost secret’ or something (and I’m sending Wilder a bill)!!! LOL!!! Just wait until I ‘unleash’ the NEXT ‘Wilder offering’ that I have ‘up my sleeve’!!! LOL!!! Don’t worry: it’s not another trading system. It’s ‘WISDOM’ (that should give you a hint)!!! LOL!!!

Regards,

Dale.

xagusd_swing_index_example.zip (32.4 KB)

302

ok, let me go and find my AG chart and take a look… :slight_smile:

303

You know (and this if off-topic a bit I guess) but somebody mentioned 1987 (I can only assume it was in reference to the October 1987 crash). I also remember sitting watching the Dow ‘tank’ during sub-prime. I also remember watching Fund Managers going ‘green at the gills’ as the Financial Stocks went LOWER and LOWER and LOWER (and they were all buying on dips i.e. dips that were nothing really than ‘breathers’ on the way down). And it just struck me: if that crowd had Adam Theory (now matter how early or how late or how wrong you applied it - to a point of course) or if they had the Swing Index System (just examples of two trading systems among the other hundreds or thousands out there that would almost all have given the same signal i.e. THE STOCK MARKET IS CRASHING) then how could they ‘mess up’ so badly??? I mean: I know why it cost ME my ‘life’ i.e. no risk or money management and second guessing my trading system(s) (ONE of them IRONICALLY BEING the Swing Index System although I didn’t REALLY understand it at the time but I knew for sure it was telling me to go short the likes of GBP/JPY and EUR/JPY and USD/SEK or EUR/SEK to name but four pairs). The point is: one would THINK that all of these B-I-G name Fund Managers etc. would KNOW. I mean: I find it hard to believe that a small minority of traders like us find trading systems that would have made BILLIONS (given the capital these guys manage) and yet some are STILL recovering from sub-prime (and I just heard of one not a few minutes ago on Bloomberg TV who made BILLIONS on the way DOWN and lost most of it on the way up again). What I’m saying is that systems aside: given THAT type of responsibility and their positions they’d at least understand and implement risk or money management. But then: is THAT the difference between TRADING and INVESTING??? I reckon even last year: TRADERS must have made POTS of money (although the markets were difficult to trade toward year end). But anybody that INVESTED in (BOUGHT) the S&P 500 broke even for the YEAR. And another funny thing: Bloomberg TV did a comparison between buying each stock that made up the S&P INDIVIDUALLY and buying the S&P. Buying each stock INDIVIDUALLY outperformed the index by some HUGE margin (I just don’t remember the figure but it was BIG and that’s why I remember the comparison made).

Odd stuff.

Regards,

Dale.