The ADX(Average Directional movement index)

ash.investor · #11 9th January 2007, 10:49 AM

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

Quote:

Originally Posted by kkseal

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 · #12 9th January 2007, 11:28 AM

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 · #13 9th January 2007, 11:36 AM

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 · #14 17th January 2007, 03:22 AM

Quote:

Originally Posted by beginner_av

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.

Quote:

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 · #15 17th January 2007, 03:41 AM

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').

p_ashvin · #16 17th January 2007, 11:54 AM

Hi,

Can any one provide me the book : "welles wilder - new concepts in technical trading systems" orginator of ADX and RSI.

Ashvin

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