Well done, Dale, is that for the week? No need to justify getting out early with those sort of numbers.
Hey Alistair.
Yip. I started opening those positions on the 7th and 8th.
Just looking this morning it seems like my logic was sound yesterday. This being said: getting out as advertised would have resulted in only a slightly lesser number. And of course it could have gone the other way and ended up being more. But yeh: given my current circumstances I did the right thing. Were this still a part time distraction I am pretty sure I would have just waited for the close as I have always done barring parabolic moves (such as the initial Brexit referendum for instance i.e. that more than doubled my account at the time and I had some pretty serious money in there at the time too so it was certainly a material amount at the time).
Anyways. Pretty much this system just plods along and somehow manages to rinse and repeat every other week or so.
That profit would have been a bit more had I broken one or two rules though (for the purposes of demonstration I did indeed follow everything to the letter on these first trades). I never scaled-in more on the Dow and Spain because just after opening the trades they both closed below their 200-day SMA. Normally I would have ignored this just as long as the S&P and/or the NASDAQ were still in the running. But this would not have resulted in anything that much more spectacular I guess. Every little bit helps though I guess.
I am going to make some adjustments though while I am out of the market. Not to the system but to position sizing and which are the best instruments to be trading. I have always just traded this system using the shotgun approach i.e. opening positions on any and all indices that generate a signal. I have never bothered to finesse this aspect. But now is possibly the time to do this. As an example: Australia yielded nothing worthwhile but I was still paying interest and using up margin to keep the positions open. Back to my roots: Wilder has a calculation (which I am sure you have) that allows one to calculate which are the top six instruments (in his case it was commodities) to be trading. It takes margin requirements, tick values, directional movement, and volatility into account. Essentially it works out which instruments are going to give you the best bang for your buck. For instance: one may think that trading the Dow is the best game in town. But given the tick value and the amount of margin required it may not be (and with these new margin requirements that I am subject too it is really something to consider). In other words: the calculation may show that it is more prudent to open two trades on the S&P and forget trading the Dow altogether. Could be that Italy and Spain are better candidates for all I know. We shall see i.e. I will post about all of this obviously.
Regards,
Dale.
Congratulations! 12% in a week is a good week! 
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Thanks. Yeh. Not bad. Reality though is that in $$$ terms it’s not that much as I’m not trading with the capital that I used to trade with. Probably represents about one quarter of my current monthly expenses (and I have had to scale down a LOT for the next few months or so). Still. It is better than nothing. Put another way: had I not ended up in this situation and was trading with my normal average capital and usual lot sizes well that would have been more than my usual monthly bills. So it is all good really.
Was slightly more than I anticipated though given those down moves. Usually this thing is good for around 5% or so per batch of trades. So if you’re really lucky and get trades every week well then the monthly gain is fine. Doesn’t happen like that in practice though unfortunately.
Whatever the case: sure better than losing money hand over first and on a weekly basis as I used to do those many years ago.
Well as promised here’s the first attempt at my finessing of this (and frankly it would apply to any other system).
Some may know that Wilder’s Average True Range is a fair measure of volatility (in the absence of a viable alternative as he notes). So a simple rating system would be to simply check the value of ATR(14) for each instrument and trade only the top six at any given time. Surprise surprise this underpins my findings of late. Australia a fine example i.e. ATR(14) is very low and that’s the instrument that really was a waste of time given the profits made vs. the margin being tied up for this batch of trades. Worse still: you’re paying overnight interest regardless of whether it actually moves or not. Compare this to the S&P 500 or Italy or Japan for example.
Australia 200 (ASX200): 62
Brent Crude: 161
Euro Stocks 50: 50
France 40 (CAC40): 80
Germany 30 (DAX30): 196
Gold: 110
Hong Kong 50 (Hang Seng): 499
Italy (MIB40): 293
Japan (Nikkei 225): 363
Nymex Crude: 150
SP 500 (S&P 500): 410
Spain 35 (IBEX): 124
UK 100 (FTSE): 88
US Tech 100 (NASDAQ): 140
Wall Street (DOW): 364
So no surprise here. The most profitable trade in this last batch of trades was the S&P 500. I was not trading Germany, Japan, or Hong Kong. Germany and Japan because there were no valid signals. Hong Kong because of the margin requirement (it’s HEAVY to say the least with these new ESMA rules in place). But based on the above: it would appear to have been prudent to have been trading the Hang Seng, S&P 500, DOW, Nikkei, MIB40, and the DAX if one were to only trade the top six most volatile instruments. Possibly trading double the position sizes on these as opposed to opening trades on all of the rest and having them go nowhere.
But wait. There shall be more. The above takes into account only volatility and ignores margin requirements and directional movement rating. It could very well be that even although the Hang Seng may be the most volatile (currently) it may not be the best bang for buck given that its margin requirements by far exceed those of the other instruments. That’s what Wilder’s Commodity Selection Index should tell us.
In addition and given that trades with this system seem to last around seven days or less on average: it may even be prudent to use a 7-day period for ATR as opposed to the default of 14-days.
Note that the ATR(14) values above have been normalized based on tick values.
To follow…
Regards,
Dale.
By the way and an ever so slight excursion here:
There is another trading system with which I have had a 100% success rate with. It is called “The Memory of Price” and it’s detailed in the e-book “High Probability Trading Setups for the Currency Markets” by Kathy Lien and Boris Schlossberg. It’s a very credible way to trade double tops and double bottoms. Only reason I mention this here is because I noted that there’s a double top forming on Australia and there MAY be double tops forming in the coming days on oil (Brent and Nymex). Double tops and double bottoms are so widely monitored that again: they pretty much become self fulfilling prophecies. The trick is to trade them correctly. The above may sound wonderful. Only problem is that they’re just about as elusive as the Yeti. So not something you could count on in order to make a living that’s for sure. Given my calcs. above though: not going to bother with Australia i.e. more important things to do with my margin.
Anyways. Just thought I’d mentioned the above is all.
(Oh and I’ve never applied the system to FOREX in spite of the e-book in which it is detailed).
Moving on and back to Connors and Wilder…
Regards,
Dale.
Oh and by the way:
Went long Gold this morning pretty much at the price it closed yesterday. Small position (if it turns to profit it may buy a box of cigarettes). As things stand right now: it’s in a loss obviously. Possibly a dumb trade given that if Gold keeps going down for just a little more it will hit a line of (apparent) resistance and bounce from there (at least for a day or two anyway). Unfortunately though: it’s one of those things that you just don’t know until you know. Price could have turned on a dime today.
Anyway and given as this thread really is proof of concept and details my little adaptations to the said trading system (not to mention being a personal trading journal and reminders to self): so now I’m long 0.1 units. Tonight at the close I will go along another 0.1 units as this will then be a valid as advertised TPS signal to go long. Will scale-in from there of course.
Regards,
Dale.
Oh WOW.
Something evidently went pear shaped in Italy!!! LOL!!!
Didn’t expect to get a signal this soon I’ll tell you.
Could they not have waited until I’d completed my CSI calculations???
Anyway. Safe bet to assume that Italy will be in the CSI top six. So if this move continues: long at the close (20h30 my time).
Hong Kong as well. Think, based on my calcs. of today thus far: I’ll go long (signal permitting) but with a smaller lot size (given the margin requirement).
(Both being the 1-day signals let’s call them from now on).
Regards,
Dale.
Oops. Missed Hong Kong. Forgot that it closes at weird times. So had to place a limit buy to be executed at the open on Monday.
Italy: genuine move down. It was so sudden I thought it could be a data error but called my broker and it’s genuine (something to do with companies in the index going ex-dividend) (whatever that means in my life). But good point. If you were long this index not even a stop loss would have saved your you-know-what. Nearly a 600 point drop in a single tick. So there you have it.
Regards,
Dale.
By the way also (just throwing out random things as they come to mind and that I’ve not mentioned):
One thing to bear in mind is that most (genuine) brokers will widen their spreads just before the close of an instrument (mine usually during the last five minutes precisely). So usually I will try and get my orders in a moment or two before. Not that it makes a material difference to anything really (although it does depend on the instrument i.e. some of them can widen quite substantially). Believe it or not: this actually gives credence to the methodology and logic here in some small way (in my opinion). If nothing else it should demonstrate the importance of the daily closing price. Brokers don’t just widen spreads for the fun of it but at a very precise time I’m sure.
Regards,
Dale.
Dale, in your use of TPS (let’s assume you use it by the book), are there any conditions or circumstances when you might decline to place a trade at a time when a totally mechanical application of the rules would go ahead and place one? If so, what situations would you try to avoid?
Hello.
Nope. Cannot think of any reason why I would decline to place a trade given an as advertised signal. Matter of fact: on the few occasions that I have indeed declined (simply because I’ve allowed myself to be influenced by some or the other bit of news that I’ve seen on TV or read somewhere) I’ve regretted it (possibly because it would have ended up being a great trade that I’d missed because of some stupid bias that’s been the result of such information or, worse still, I’ve not acted on a signal to get out).
I also make a point of seeing and trading each and every single instrument in isolation. By that I mean: I don’t look at all of the indices (for example) as a whole and try to get an overall idea as to this thing called market sentiment. Never been good at judging this (and on the occasions I’ve tried: I’ve always been wrong).
That’s it really. Really cannot think of a reason that I’d elect to ignore an as advertised signal. Not even an upcoming news event or some or the other geopolitical issue. Assuming that a person isn’t going balls to the wall and over trading their account: you’re pretty much immune to those inevitable stop hunts and everything that goes with such events. Maybe if somebody had the intelligence and the insights to make sense of such things they’d improve the profitability of the system and filter out trades that MAY be obvious to NOT be taking. Unfortunately I just don’t have what it takes to be honest. I am, and have always been, wrong on things like this.
Hope that answers your question and helps.
Regards,
Dale.
Yes, thank you. I agree about not being swayed by news. I try to avoid it as if it were poison as all it does is mess with my mind and take my focus away from my technical analysis.
The only case I can think of for declining a trade that was otherwise valid would be if price is approaching the 200 SMA and clearly about to cross over from bullish to bearish (or vice versa).In that case the system would call for a bullish trade, but we can see that the odds are on a short trade, rather than what the system is calling for.
I have little experience of this, so it’s just conjecture at this point, but as I have asked someone I know who codes EAs to have a look at this for me, setting a restriction on trading in “no-go” situations is of interest. But that’s some way in the future still.
Oh I see what you’re getting at.
In this last batch of trades I went long even if it LOOKED like price was going to trade (could possibly close) below the SMA. But in this batch: it happened once or twice where price traded below and then recovered so I then took the signal and scaled-in or whatever. This time: if it CLOSED below the SMA then I did not add any further. I really was trying my best to trade it as advertised. But (I think I noted this before): usually I would scale-in further or take a signal even IF price closed below the SMA with the proviso that at least one of the US indices (preferably the NASDAQ and at very least) was still trading above and closed above the SMA. I know that’s breaking the rules big time but it’s worked out alright thus far anyway. (IMPORTANT: this only for the three US Indices though i.e. I don’t take that chance on the others).
Well. It’s Monday morning.
For the sake of interest:
- Got long the Hang Seng i.e. 1-day signal.
- Am long Gold i.e. 1-day signal (which failed) plus as advertised signal (so 1+1 or whatever).
- Got long Italy just before the close on Friday i.e. 1-day signal (am also long Italy with a full lot but this only due to my taking an opportunistic trade on italy because of the extreme drop late on Friday before the close).
- Am short ASX200 with two full lots but this NOT based on the TPS but rather on the Memory of Price system that I mentioned somewhere earlier (this with fixed stops and TP levels).
Unfortunately: I’ve no way of separating these trades (do not have multiple trading accounts) profits made on Italy and Australia will skew the results (but in reporting TPS results on this thread I will account and adjust for these two trades).
Regards,
Dale.
P.S.
Should just mention that I now have a stop at break even on the full lot for Italy. Given that it’s a purely opportunistic trade and the lot size is greater than the TPS lot size there’s really no point in losing money on the trade if it goes south.
P.P.S.
Stopped out on full lot Italy for ZERO. Good call.
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Jeepers. What a lack lustre day.
New trades: long NASDAQ and EUSTOXX50 (1-day signals). In addition: long again Italy this now a valid TPS trade but carrying the initial 1-day position from Friday (so 1+1).
Scaled-in: Hang Seng (so 1+2) (or in my case 2+4).
It is days like today that will make this a very difficult system for most to trade unfortunately.
Later. As in tomorrow.
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By the way @Spudfan:
You asked the other day if there was a circumstance in which I would NOT take a signal. There is one that’s just occurred to me now as I was flipping through charts (something that I really didn’t think to mention when you asked):
Although i’ve noted that I trade all instruments in isolation: this may not be 100% correct. Prime example is that right now (and for the last week of two) Japan has been trading below the 200-day SMA but all of the rest (the other indices) are above their 200-day SMA. It’s unfortunately not a hard and fast rule of mine and some judgment may come into it as to whether or not I actually short Japan if/when I get a short signal while the rest are all still trading above their 200-day SMA. Given that these things move mostly in tandem with each other: it just seems counter intuitive to be trading one instrument short and the others long given their correlations. But as I say: it’s a judgement call. In this particular instance: Hong Kong (which I’m currently long on as you may know) is still trading about the 200-day SMA but only just. In all probability if Hong Kong started trading below the 200-day SMA then it would make me feel more comfortable shorting Japan on a signal. Not an exact science I’m afraid. And then it is well known that I have a long bias too which makes it a bit more difficult for me to assess and make a decision to short something.
Just something to throw into the mix is all.
Regards,
Dale.
Unhappy with content. Update to follow.
I’ve learned gratitude to this string Larry Connors has in all respects immovably turned around his view on stops. In Street Smarts, the accentuation was on continually having a stop-misfortune: all the more as of late, he hopes to supporting and so forth as lower cost “protection” - dependably makes me apprehensive. What are your arrangements in such manner Dale?
Hi.
My apologies but I don’t understand your question. Could you phrase is differently if you don’t mind.
Let me attempt an answer anyway though:
In Street Smarts he does use stops. But Street Smarts is a very general type book on trading. This trading system was developed for and tested on a very specific type of instrument namely an ETF. It will not work for FOREX pairs. And it does not use stops at all. Many have asked Larry about this and his answer has always been the same i.e. using stops with this system degrades its performance. The key to trading this system is the scale-in technique and one has to be extremely conservative re: position sizing. Overtrade this system and with a lot of leverage and you will lose terribly. It’s really not for everyone and this must be borne in mind. It also requires a lot of capital because of instruments being traded.
I am not sure if that answers your question. If not then please feel free to ask again.
Regards,
Dale.