Tuesday, April 25, 2006
New Concepts in Technical Trading Systems
This classic book published in 1978, is the original source for six technical trading systems from Welles Wilder. Writing this book established Wilder's reputation as a respected technican. In more recent years, he has become better known for his promotion of the Delta Society, the Delta Phenomenon, and the Adam Theory.
The main theme and message of the book is that a good technical trading plan consists of three elements: 1. Use of a good technical system 2. Use of this system on the right market(s) at the right time, and 3. Use of a good money management techniques.
Wilder advises that of these the third is the most important, the easiest to learn and the hardest to do.
Wilder's treatement of money management is very brief and concise. It is summed up by two criteria: Don't margin over 15% of total capital on one commodity, or over 60% of total capital at one time. The balance is the emphasis on the the difficulty of recouping trade losses, and how the percent gain required to recoup a loss increases geometrically with the loss.
Development of technical systems and a method of selecting the right markets are the primary topics of the book. Wilder advises that he has never seen a technical system which CONSISTENTLY makes profits in all markets. Trend-following systems typically make consistent profits in DIRECTIONAL markets, but sustain consistent losses in NON-DIRECTIONAL markets. Since markets are typically non-directional 70+% of the time, and directional 30-% of the time (Wilder's figures), the answer to consistently profitable trading would appear to discover a way to define directional movement and translate this definition to a rating scale within known perameters. The most important contribution of the book (in both Wilder's opinion and my own) is its development of the Directional Movement Index, which is (his) answer to this problem. Other important contributions are the development of Parabolics and RSI (Relative Strength Index). All three are still widely use today, and are standard inclusions in most stock and futures analytical software packages. The other systems in the book are not well known, and are of lesser import.
http://store.yahoo.com/stockcharts/newcointean.html
The main theme and message of the book is that a good technical trading plan consists of three elements: 1. Use of a good technical system 2. Use of this system on the right market(s) at the right time, and 3. Use of a good money management techniques.
Wilder advises that of these the third is the most important, the easiest to learn and the hardest to do.
Wilder's treatement of money management is very brief and concise. It is summed up by two criteria: Don't margin over 15% of total capital on one commodity, or over 60% of total capital at one time. The balance is the emphasis on the the difficulty of recouping trade losses, and how the percent gain required to recoup a loss increases geometrically with the loss.
Development of technical systems and a method of selecting the right markets are the primary topics of the book. Wilder advises that he has never seen a technical system which CONSISTENTLY makes profits in all markets. Trend-following systems typically make consistent profits in DIRECTIONAL markets, but sustain consistent losses in NON-DIRECTIONAL markets. Since markets are typically non-directional 70+% of the time, and directional 30-% of the time (Wilder's figures), the answer to consistently profitable trading would appear to discover a way to define directional movement and translate this definition to a rating scale within known perameters. The most important contribution of the book (in both Wilder's opinion and my own) is its development of the Directional Movement Index, which is (his) answer to this problem. Other important contributions are the development of Parabolics and RSI (Relative Strength Index). All three are still widely use today, and are standard inclusions in most stock and futures analytical software packages. The other systems in the book are not well known, and are of lesser import.
http://store.yahoo.com/stockcharts/newcointean.html
# posted by Cherie : 2:56 PM
