Chapter 15 Computers and trading systems

Wells Wilder’s SAR, DMI, ADX SAR (Stop and Reverse) means that the position is reversed when the protective stop is hit. Wilder’s Parabolic system(SAR) is a trend following system. (Figures 15.1-4) As prices tend higher, the rising dots below the price action tend to start out slower and then accelerate with the trend. While SAR captures well during the strong trending period (which takes 30% of the time), it whipsaws constantly during the sideways. (later) DMI as a filter of SAR * Monthly (primary trend)/weekly SAR, ADX

Acceleration, whipsaw and buy signals

SAR is useless during trading periods(August-January) trending

Monthly SAR to track primary trend

Weekly SAR for buy and sell signals

DMI DMI (Directional Movement Line) has 2 lines. +DI measures the positive (upward) movement. -DI measures the negative (downward) movement. The parabolic system is more sensitive, means that more frequent and earlier signals are givens. [Tactic] A buy signal is given when the +DI line crosses over –DI line, and a sell signal when it crosses below the –DI line. *The parabolic and directional movement (as a filter) systems should be used together. (Figure 15.6 uses the above tactic)

* DMI as a filter for SAR When the +DI line is above the –DI line, all parabolic sell signals can be ignored.

ADX (Definition) The ADX line is essentially a smoothed difference between the +DI and the –DI lines. *A rising ADX line means the market is trending; a falling ADX line indicates a non-trending environment. (Figure 15.5) *Because the ADX line is scaled from 1 to 100, the trend trader could simply trade those markets with highest trend reading (有趨勢). Non-trending systems (oscillators) could be utilized on markets with low directional movements. [Example] The best time to use a trending system is when the ADX line is rising. (Figures 15.7-8) [Tactic] When the ADX starts to drop from above the 40 level, that is an early sign that the trend is weakening. A rise back above the 20 level is often a sign of the start of a new trend.

Trading range (non-trending): a downturn from above 40

Weekly ADX from over 40 and from below 20

Monthly ADX from over 40 and from below 20