The Adam Theory of Markets by J. Welles Wilder Jnr

Beginner Questions
345

You know what: I just had a thought about Adam Theory (I have thoughts from time to time believe it or not).

What would you all say to this:

Let’s say you decided that you wanted to trade an instrument or pair. You decide on a time frame and STICK TO IT (I know you don’t agree with that Jedster but just bear with me here). You ‘marry’ yourself to that instrument or pair. By that I mean that’s the ONLY instrument you’re going to trade for a few months (or, alright, a basket of instruments or pairs). NOW: you start solving Adam from the DAY on which you intend to start trading that instrument or pair (or basket of instruments or pairs). In other words: you start with a ‘clean slate’ as it were i.e. as if there were NO history. From that point you then follow the Adam rules (or, in my case, most probably, a slightly ‘diluted’ set of Adam rules) for entry etc. (and solve Adam, in my case, on a daily basis).

The reason I’m asking for an opinion here is because it sure does help solve the problem of ‘how far back do you go’??? In other words: you’re starting ‘NOW’.

I mean: let’s just say that I’m right about the stock market. Let’s just say that it ‘tanks’ for whatever reason. I’m not going to get an entry until VERY ‘late in the day’ (just take a look at the S&P for example, the daily chart, and you’ll see what I mean). If I solved Adam for the S&P (or the Dow as I mentioned earlier): I’d have to wait a LONG time for Adam to project a probable pullback or reaction that would not probably take out my stop before entering (let’s say I was looking for a short). And HOW LONG I’d have to wait would be DIRECTLY proportional to how far back I solved Adam.

Comments???

Regards,

Dale.

346

Well, that’s interesting, I hadn’t thought of that.

I think that is going too far one way. Simply ignoring any history means that you are throwing away information that is there to be used.

The examples in the book show about 3-5 months of history on a daily chart. Assuming 26 daily bars per month, that is about 80 to 130 bars. I think you just need to roughly choose what you feel comfortable with. I don’t think there is any hard and fast rule, and I also think it will differ slightly on each chart.

I remember reading in the book somewhere, although I can’t remember where (and I can’t find it), that you just need to look back at the bars you have on the chart, no need to go further back. That is the rough rule I have been using. Now I know that modern platforms allow you to zoom, so you can show as many or as few bars as you want. You just have to find what you are comfortable with.

On the 4H and 1H chart, I include more bars as I feel I need to see what the trends were before hand, and some older areas of s/r. On the daily chart, I tend to have less bars, but still about 8 months worth. But, that is just what comes up when displaying them at this particular zoom level. If I want a bit more as I “feel” I am missing some of the picture, I just zoom out a bit.

347

Yeh but that’s what I’m saying.

Forget about Adam Theory for a minute. Let’s just take something as basic as a double top. Right now and with the layout of my charts: the only reason I’m feeling ‘good’ that the S&P is going to correct (and I am short the Dow and the S&P right now for the record based on what I’m busy telling you) is that I can clearly see we’re at the same levels as we were on 22 July 2011 and it’s at a criticial resistance point. If I zoomed my chart of the S&P in just by a factor of ONE then the 22 July 2011 would appear. In other words: I’d not be recognising or seeing the bigger picture and the reason why it’s moving down (technically that is). Do you see what I’m saying??? I mean: it’s only really ocurred to me today but how much or how little you charts are zoomed in or zoomed out could have a direct impact on a trading decision. That doesn’t give me a ‘warm and fuzzy and technical’ feeling!!! LOL!!! Alright: with other trading systems this wouldn’t be the case. That’s true. But if you’re trading double or triple tops or bottomr or support and resistance OR ADAM then that’s a bit of a ‘slippery slope’ wouldn’t you say??? Put it this way: even The Delta Phenomenon is more precise in that regard i.e. you know to be looking back at what happened four months ago. Nothing ‘subjective’ about that.

Regards,

Dale.

348

Yeah, but from having made a bunch by trading, rather than from having won the lottery … more satisfying. :smiley:

O.

349

You’d still have to wait for some time until an ‘Adam-friendly’ situation presented itself, after having started ‘at point zero’, wouldn’t you?
Then why not simply pick a nice ‘[I]Adam Setup[/I]’ from the (not too distant) past, and start from there?

Or do I misunderstand what you meant?

O.

350

Yeah, that’s the negative aspect of Adam … it’s damn hard to toe a line and say ‘[I]I’m starting from here[/I]’.

That’s what I was driving at in post #295 on page 30.

But give it some time and mutual effort, and we’ll figure that one out, too.

O.

351

Listen: £45 000 000 would ‘satisfy’ me no matter WHERE it came from!!! LOL!!!

Regards,

Dale.

352

No. You understand me 100% correctly. But just think of the ‘dichotomy’ here (fancy word that ‘dichotomy’ and I hope I’m using it in the correct context). Alright: think of the ‘contradiction in terms’ here is maybe a better phrase to use. Adam Theory is about the ‘NOW’ moment right??? And YET: you can introduce as much or as little history as ‘you deem fit’. And depending on how much historical data you introduce the further away from the ‘NOW’ moment you’re moving IN BOTH DIRECTIONS. I mean to say: at very LEAST case I’d say that the MINIMUM period (daily) to solve Adam would be to use four months worth of data (based purely on one of the rules of the The Delta Phenomenon i.e. that would be ‘Intermediate Term Delta’).

Put it this way: I have issues with anything where the words ‘think’, ‘maybe’, ‘feel’, ‘feeling’ etc. are applied to trading (although that’s pretty ‘rich’ coming from me given my ‘fundamental analysis’ furnished earlier today). Here’s a thought: if ‘starting Adam from scratch’ is not and option then how about cross-referencing it to the shortest term Delta that can be solved??? Let me take a look and see. I mean let’s be honest: BOTH come from Wilder and Sloman and BOTH REALLY are based on the same thought processes and logic. I never thought I’d say it but The Delta Phenomenon is more ‘rigid’ than Adam Theory by the looks of things. Sorry: it’s just me I know. Without a very clearly defined set of parameters (‘paint or trade by number’) I’m usually at a loss. So my ‘dogmatic psycho approach’ is to take EITHER the ENTIRE chart of the Dow (for example) since its inception and carry on from there OR start from ‘NOW’. Simply picking a look-back period that you’re ‘comfortable with’ doesn’t really ‘do it’ for me. I mean if you just take Wilder’s examples: had he solved Adam for a longer period then I’ll bet his ‘NOW’ moments and resulting trades would have been different from the examples in the book???

SEE???

Not sure. But I believe it’s ‘worth a shot’ (my method). Alright: it may take some time to ‘settle down’ until the point where you’re getting stopped out less and less and your trades are lasting longer. But I’m thinking that EVENTUALLY things will ‘smooth out’ and you can trade Adam Theory profitably ad infinitum.

Just my personal thoughts of course.

I’ll tell you this too: I’m REALLY starting to ‘get in the mood’ to take a GOOD look at The Delta Phenomenon again now that I’m aware that it’s not a TRADING SYSTEM but merely a ‘filter’ for want of a better word. I mean: what if you got confluence between Adam Theory and The Delta Phenomenon??? I’d say that’d be ‘pretty darn good confirmation of market direction’.

Regards,

Dale.

353

Yes, terms like ‘as you see fit’ always imply a lot of experience, which, at this time, we do not have … yet.

So I guess for the moment we have to content ourselves with working by trial and error … until we develop a feeling of what is ‘fit’ for Adam.

I guess that’s why it’s called ‘[I]Adam’s Theory[/I]’, not ‘[I]Adam’s Money Generating Formula[/I]’, hehe.

But I’m pretty confident that we’ll figure out the proper intervals and methods, over time.
Definitely not in a week, probably not even in three months … but by Christmas time I’m sure we’ll know exactly if Adam can be successfully incorporated into a trading strategy, and how to go about it.

It’s fun trying to get results from this, precisely because it’s so radically different from many of the ‘[I]well-known truths and facts about trading[/I]’.

O.

354

I understand what you are saying. If you are going to start afresh then I think you should just use Olivers method and go back to the most Adam friendly moment and start from there.

However, if I’m totally honest, I’m not really understanding what the problem is. We don’t need to quantify everything, that isn’t the point (and I normally try to ALWAYS quantify EVERYTHING). What is the point is to look at the chart and then look at the price. When the price moves higher than the previous high, you buy. That’s it, nothing else, no complications.

Then we have to find a pragmatic way of applying it. As I look at the GBPJPY daily chart in front on me (just happens to be the one I am looking at), it goes back to December 2010. I can see a big peak, then a massive downtrend from April 2011 to September 2011. Right now it is having some congestion. It doesn’t know whether to go down further, or whether it is going to go up again.

On a daily chart I will simply wait. It will either go down further, or to start going up and make new highs. I don’t mind which and I am happy to trade both. However, we could be waiting some time if it doesn’t break out somewhere…

Switching to the 4H chart shows me a completely different (well almost) scenario. It is much more tradable. I am not thinking about what it is, or how long it has been going on, I am simply looking at what is on the screen, nothing else. I therefore can’t be influenced by anything else. On the 4H chart, we are almost breaking into new highs, so is a perfect time to buy. Easy… :slight_smile:

Now, that is all with my Adam hat on. I must say, I don’t yet know whether this works or not, but I am trying to totally immerse myself in it, to try to get it right. It could take a while, and like you say, should be some fun to try it out. I like contrarian strategies, so if it is different from everyone else, I’m good with that.

If I took my Adam hat off, I am sure I would say something completely different. Something about the GBPJPY almost being at a historic low and it can’t possibly go any lower. Something about there being absolutely no way I would short it at the moment as it can’t possibly go any lower. But, at the moment, my Adam hat is well and truly on, so I am saying nothing of the kind and I am happy to buy or sell, as and when the chart tells me to…

355

Thought I would post something related to yesterdays price action.

I have realised that you do need to give the trades quite a lot of breathing space. The stop really does need to be right under the last swing low, and in most cases that is at least 100pips, and in some cases is 200 or even 300. Because of the price action yesterday I have come to see why. I have an AU and GU long. They were both doing ok, the AU was opened last Friday and at one point it was up about 60 pips. Then yesterday there was a big fall. Both the AU and GU tumbled, the AU about -80 and the GU about -130.

However, they are both in an up trend. My stop is way below those points and already it looks like they are back on the rise. This makes perfect sense. We know that in an up trendthe price makes higher highs and higher lows. Well, it looks like a higher high and then a higher low have just been formed, especially with the GU. Well, that’s what I’m hoping anyway.

Now, I do know this already about how trends form, etc, etc. But actually seeing it happen in front of my very eyes, and having set my stops with no real criteria other than “under the previous swing low”, it really has helped re-enforce Adams rules.

I have 8 trades open. 7 long (including dow and SP500!), 1 short. I have a buy stop on the EU at 1.3316. I have that EU long purely because of the chart. If I was considering all this stuff going on with the Euro and Greece, then no way would I be going long. But, I am not taking that into consideration, I am just looking at the 4H chart.

I really am looking forward to see how these all turn out and can’t wait to see what happens because, with the AU and GU, I basically bought right at the top. I didn’t wait for a retracement, I just liked what I saw and jumped on that train…

356

And another thing…

The BOE will announce their decision about further QE today.

Last October when they announced the QE, the GU spiked down nearly 200 pips, but then by the end of the month, it had risen by 700 pips!

If a similar pattern occurs, my trade will get taken out! Damn…

If they do announce further QE, do you think I should close my trade early?

357

Well, if a similar pattern really occurs, I guess you have two possible courses of action:

1.) Close the trade, so your S/L won’t be hit; if you are currently in the green with that trade (or not too badly in the red), this might be the most prudent course of action, since you’re still working out Adam.

2.) Move the S/L further down (even though that is something everybody, including me, will normally advise you not to do) and then make a real killing on the upward move.

Obviously option 2 could hurt you badly, if the final upward move isn’t as strong as suggested by the last occurrence; and as obviously, there is no guarantee that price will behave the same way it did before, even if the circumstances are very similar.

Personally I’d close the trade, if it uses a normal position size; if it’s a smaller than usual size, which won’t hurt you badly, I’d go with option 2, just for the heck of it.
And if it’s a demo trade, I’d definitely leave it open and move S/L well out of spike range … just as a way of testing Adam.

Cheers,
O.

358

Well this is all on a demo account, however I am trying to treat it as if it were live, so, setting risk and moving stops appropriately.

I was tempted to do 2), but, it is possible that the rally won’t happen, so I’m not keen on that. Also, it is one of the 10 commandments of Adam - “Thou shalt not move your stop lower”

The position is currently down a little and the price is about 1/3 to the stop.

I think what I’ll do is bring the stop right up, just for this one piece of news. That way I cut my losses if the move down does occur. If t doesn’t, I’ll put my stop back in place.

If the QE doesn’t get announced, there could be an opposite move up…

359

Yes, I’d probably have been tempted to go with option 2 as well, and then would have settled for option 1.

Moving your stop upward is the smart thing to do, I guess, even though it’s virtually guaranteed to be hit if a spike really occurs.
If no spike (or only a small one) shows, you can keep your deal open that way, without risking too much … so, don’t move it up too far, or you’ll just increase your loss as compared to closing the trade right now, without any prospective gain.

It’s one of those damn ‘as you see fit’ / ‘by the eye’ decisions again, which are so hard.

Good luck.

O.

360

Good you haven’t closed the trade completely, Jedster.

While GBPUSD lost a few pips at the time the BoE made their announcement, and in the hour after that, it has by now resumed its upward movement.

Dodged that bullet. :smiley:

O.

361

I wouldn’t be so sure of that!!! LOL!!!

When’s the last time you took a look at the daily chart of the S&P??? LOL!!

Regards,

Dale.

362

yes absolutely…

only, in fact, I accidentally mis-typed my SL and put in 1.5820 instead of 1.5802 (I wanted the stop just above the 1.58 level). And, guess what was the low from my broker…

…to the pip…

not even .01 lower.

and exact print of 1.5820!

Anyway, fortunately, because this is a demo account, and because this is a test, I just put in a pending order to re-enter at the exact same price as before. So when the price gets up there, it will be as if nothing happened :wink:

363

My Adam based sp500 long is currently +86, so looking good at the moment… the dow long is not far behind at +70

364

Ahem. And if I MAY be so bold as to ask: how far away are your stops???

Regards,

Dale.