How many are enough???

Discussion in 'Technical Analysis' started by bkhanna1, Mar 23, 2006.

  1. bkhanna1

    bkhanna1 New Member

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    I have often seen that tachnical analysts use all available tools to arrive at trading decisions.

    I'm not sure if they do this to show off or that they find actual value in doing this. What tends to happen is the trading call becomes secondary to the analysis and often leads to lossess.

    My question is to all the tachnical analysts out there. How many technical tools should one use to arrive at a reasonable decision about the market?

    I tend to be very simple in my approach and sometimes very minimilistic. It works for me most of the time but my problem starts when the market stops trending and moves sideways......

    So I guess my question is twofold. What is the bestway to trade a sideways market and what tools will help me make good trading decisions?

    Thanks!
     
  2. Traderji

    Traderji Super Moderator

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    ADX can be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and/or moves above 20, it is a sign that the trading range is ending and a trend could be developing.

    When ADX begins to weaken from above 30-40 and/or moves below, it is a sign that the current trend is losing strength and a trading range could develop.
     
  3. trader31339

    trader31339 Active Member

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    Traderji,
    can you throw some light on DIRECTIONAL MOVEMENT system? how to use it in trading.

    I have read somewhere on net that if ADX rises for 3 conescutive days from its recent lows then it trending stock no matter even if its below 20 .
    also tell us abt ADXR and the maximum use
     
  4. Traderji

    Traderji Super Moderator

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    The ADX gives important information on the market environment. Without being acutely attuned to the market environment you are doomed to fail. The ADX gives you market environment information par excellence. The ADX tells you if there is a trend present or not. It also informs you if it is early or late in a trend. The end of the most recent thrust of the trend is heralded by the ADX. It informs of a de-trending (correcting market), of reversal and renewal.

    Wilder calculated that markets trend for 30% or less of the time and were non-trending or range bound for the other 70% of the time. Trend following indicators are lethal in non-trending markets and oscillators suitable to non-trending markets are murderous if used in trending markets. So with reference to the ADX you can readily determine which of the two main types of indicators you should be using in the current market environment. The table indicates the appropriate type of indicator for different ADX defined market environments.

    ADX Score ADX Direction Appropriate Tech. Indicator to Use

    0 - 15 Up or Down Range - Use Oscillators
    16 - 20* Up Trend - Use Trend Following Indicators
    21 - 40 Up Trend - Use Trend Following Indicators
    > 40** Up Be Prepared For Trend To End
    > 40 - 25 Down De-trending - Use Oscillators
    24 - 0 Down Non-trending - Use Oscillators

    * J.Welles Wilder originally suggested ADX of 25 or higher to indicat presence of trend. This is often late in confirming trend entry. Trends emerge from non-trends. Whenever the ADX is in a range of 16 - 20(25), you have three consecutive up moves in the ADX prior to a DI entry crossover, then the DI entry can be taken with a high degree of success.

    ** The turn down of the ADX at these levels, when it above both DI lines, almost always means the end of that trend. It does not necessarily mean trend reversal, more likely a period of retracement and consolidation. Time to exit. Stand aside. Reverse only on other evidence of trend reversal.
     
  5. sudoku1

    sudoku1 Well-Known Member

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    :thumb:.....
     
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  6. mohan.nj

    mohan.nj Member

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    This quote from JOhn hayden of RSI might help us...

    "If asked, many seasoned traders will tell a novice trader that it is important to focus on truly mastering one indicator. It is essential to know when and why an indicator is about to behave in a certain way. Once an indicator is truly mastered, the trader is able to apply his own unique perceptions and rules to it. Many inexperienced traders want to believe that they have mastered an indicator simply because they know its particular trading "rules" governing entries, exits and stops. The reality is that they "know" no more than any other trading novice. Consequently, they have no "edge" versus other traders when using a particular indicator, which is one of the primary reasons that 99% of all new traders lose their money."
     
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  7. indianroadromeo

    indianroadromeo New Member

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    Sudoku1 Sir,
    Thank you very much for digging out such treasures in traderji.:thumb:
     
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