The ADX(Average Directional movement index)

#11
Hi Kalyan,

Thanks a ton.

I will tweak the ADX with period that you have mentioned and will let you know my findings on it. Also can you please elaborate on Force Index. My TA s/w has this indicator and I would like to know whether this helps in determining whether the market is trending or trading, so that according we can implement trend following system or oscillator based system.

Thanks once again :) ...

Regards,
a$h.investor

Yes it's too damn lagging.

A better way to use it would be to use a pair - one for the short term & another one for the longer term, like say a 10d & a 30d ADX. So if the short term ADX is below 30 while the longer term is above it (with off course +DI above -DI), what we get is a short term pullback in a longer term uptrend that is still intact and may actually be a buying opportunity. Another way would be to have one on the weekly & another one on the daily and enter on pullbacks on the daily while the weekly trend is still intact.

Alexander Elder has also devised an interesting indicator called the FORCE INDEX. This one factors in both price & vol movements & can be pretty useful particularly for short term trading; but many TA s/w's do not have this indicator.

Regards,
Kalyan.
 

beginner_av

Well-Known Member
#12
hi,

my two bits...use the book adxcellence to see if u can get some good patterns for adx trading...adx is used to determine trends that are developing and are best used when it starts rising from 9 to 12 or 12 - 17 when it is below both the DIs...refer elder for a great take on adx...
ya adx is lagging, even when price has turned down..adx may continue to show its upmove showing continuation of trend...for ths refer chandes new technical trader...has a good discussion
as for mech trading system...i never use them based on one indicator..if adx is below 20, dear ash ur system should change over to oscillators..and as sh50 said u should have an arsenal of indicators...adx has many uses...u can use it to trade volatility also...when +DI and -DI cross each other and open its mouth like an alligator...volti has increased and price is moving...when it turns towards each other to come nearer...it reduces..square off. (A CRUDE EXAMPLE..PLEASE DONT TRADE IT BY READING HERE..U WILL LOSE MONEY)
ALL THINGS EXPRESSED HERE ARE OPINIONS ONLY..I HAVE NEVER USED ADX FOR ANYTHING EXCEPT TREND IDENTIFICATION AND VOLATILITY INTRADAY TRADING.
bollinger also says how to use bol bands for volatility trading...couldn't get it really...may be if some of u may know it...pls share it..not what he says, but how u implement it
 

beginner_av

Well-Known Member
#13
IN SH50'S arsenal of indicators please add large lot indicators like AD, momentum indicators for speed of trend...AND THE OVERALL MARKET CONDITIONS...THE BEST INDICATOR

refer oct issue of s&C
 

kkseal

Well-Known Member
#14
hi,

when it starts rising from 9 to 12 or 12 - 17 when it is below both the DIs...
That's interesting Never used it that way. That could actually remove a lot of the lag (if dependable).

As a rule, I don't buy when the 3 lines (ADX, +DI, -DI) are kind of 'huddled together' (but keep the stk in my watchlist if the ADX is rising). When the DIs start diverging the buy instinct gets stronger but it's only when the ADX gets above +DI and starts leading the way ('papa' ADX leading 'kiddy' +DI) that i enter the trade (all the while checking other indicators like RSI for confirmation)

When using an ADX pair you'll find that the pullbacks on the shorter period ADX will show just a brief 'kiss & hug' (then 'bye-bye') of the 2 DIs as long as the longer period trend is intact & strong. An 'extended hug' of the 2DIs or +DI going a bit too far below the -DI (as compared say to the previous meet) could indicate a weakening of the trend. This is when you should get alert & start looking for other warning signals.
bollinger also says how to use bol bands for volatility trading...couldn't get it really...may be if some of u may know it...pls share it..not what he says, but how u implement it
The band width is a good indicator for momentum building up. When the width starts widening from a preceding narrow range that would be a good juncture to enter a trade (long or short depending on which way the stk is moving. Whatever be the direction you are sure to get an accelerated move). Some s/w have a BB Width indicator With this it would be easier to spot the 'widening'.
There's a lot more to BBs than just volatility however.

Actually, there's no dearth of tools in TA to make an informed decision; but overreliance on any one could lead to miscalculations. It's always better to use them in conjunction to be as sure as you possibly can before putting in your precious money (this doesn't mean delaying your entry till the fag end of the move! Rather 'quick & sure' would be the aim).
Manual inspection of the charts is also important - at least to make sure you're not buying near a strong resistance zone (don't know if this too can be mechanized though; even if so there are many other things to look out for - patterns, candlesticks etc.)

Regards,
Kalyan.
 

kkseal

Well-Known Member
#15
The 'Holy Grail' is not to be found in any of the parts but in the sum The sum is the key. And the greater the no. of (worthwhile, value accretive) parts the greater the (value of) the sum (of parts).

Just as demerger (of worthwhile 'parts') lead to value unlocking, merger leads to increase of Net Worth (the 'sum').
 

sudoku1

Well-Known Member
#17
This portion is from stockcharts:-

J. Welles Wilder developed the Average Directional Index (ADX) in order to evaluate the strength of the current trend, be it up or down. It's important to detemine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.
ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.
ADX can also 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

ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).
When the ADX Indicator is selected, SharpCharts plots the Positive Directional Indicator (+DI), Negative Directional Indicator (-DI) and Average Directional Index (ADX). With the Red, White and Green color scheme on SharpCharts, ADX is the thick black line with less fluctuation, +DI is green and -DI is red. +DI measures the force of the up moves and -DI measures the force of the down moves over a set period. The default setting is 14 periods, but users are encouraged to modify these settings according to their personal preferences.
In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI. Be careful, though; when a security is in a trading range, this system may produce many whipsaws. As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.
ADX combines +DI with -DI and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might look for stocks with ADX that advances above 20. Conversely, an ADX decline from above 40 might signal that the current trend is weakening and a trading range may develop.

In my view, ADX is well explained in Alexander Elders book Trading for a living

The latest book by Ashwini Gujral("How to make money trading derivatives) also has a comprehensive table on what all to do when ADX < 20, ADX 15-25,ADX > 30, ADX>=45 and ADX declining below 30. I have not seen Adx explained so specifically anywhere else.
This is also interesting by some other author

The Extreme Point Rule
Identify a trigger point at the extreme price on the bar the lines cross. If it's a bullish crossing (+DI cross above -DI), you would wait for the price to rise above this extreme price (the high price on the day the lines crossed) on a subsequent bar. If it's a bearish crossing (+DI crosses below -DI), the extreme point is defined as the low price on the bar the lines cross. You would then wait for price to break below this extreme price on a subsequent bar before entering into a short position.

Since trending and oscilatting is all what we track, I would request traderji or other senior member to cover indicators like Aroon, CMO, CCI etcetc. Some books give the impression that they are mere substitutes. If they are for specific situations, kindly let us know.
:thumb:........
 

hik

Well-Known Member
#18
lol dont know why people still take the pain of searching 7 year old thread and replying :lol::lol:
I remember playing with this indicator trying to make a "perfect" system by combining it with renko charts. I thought i almost made a holy grail . :rofl:
but we know this indicator a lagging ****. oh for that matter every indicator is .......
 

Similar threads