Market Under Panic!

[AMITBE]

Hi Karthik, just a couple of observations following the discussion the other night.
Notice how in the ADX chart, the D1 and -D1 seem to crossover at the same levels as pointed by the various arrows.
As an indicator, the ADX seems rather a slow one looking at the rise in ADX between Oct 20 and Oct 21, where it has risen from 30.80 to 31.56.
Further, while on Oct 21 the ADX has risen with a corresponding fall in -D1, the D1 has dipped further, from 13.41 to 12.40. Strange isn't it...because for a reversal, D1 should be turning up and not falling further. Will be interesting to observe tomorrow.

For the same days the RSI has risen at a faster rate compared to the ADX, from 10.16 to 35.58. Meaning it is a faster, more sensitive indicator?
Also in chart RSI OCT21, the arrows point to the marks where the bottom-out was at the same level, around 10, from where the bounce came.

I have not yet been able to figure if the ADX can be used to take weely and monthly readings with accuracy.
Will catch up on this tomorrow.
Regards.

 

[karthikmarar]

Hi Karthik, just a couple of observations following the discussion the other night.
Notice how in the ADX chart, the D1 and -D1 seem to crossover at the same levels as pointed by the various arrows.
As an indicator, the ADX seems rather a slow one looking at the rise in ADX between Oct 20 and Oct 21, where it has risen from 30.80 to 31.56.
Further, while on Oct 21 the ADX has risen with a corresponding fall in -D1, the D1 has dipped further, from 13.41 to 12.40. Strange isn't it...because for a reversal, D1 should be turning up and not falling further. Will be interesting to observe tomorrow.

Regards.

Hi Amit

Interesting observations. This may be because the ADX, DI, -DI calculations depend on previous day's high, low and True value TR which again depends on previous close. If you notice the friday's hi-lo range is much smaller than the previous days hi-lo range. It will be interesting to discuss this further with you. Will get back to you after further study.

Mean while if you want look at the formula of ADX, Di and -DI following is a good lead..

http://www.linnsoft.com/tour/techind/adx.htm

warm regards

karthik

 

[karthikmarar]

Hi Amit

Thanks for bringing up this nice discussion. I would like to add something more on your ADX observation.

I am not going to look at the details of the formula as it is quite complex. But looking at the parameters used in the formula my observation is as follows.

The +DI value is depended on the current HI and Previous HI and True range, which is a measure of volatility. The +DI values increases if the current HI is above the previous HI and volatility is low and vice versa. So naturally when the stock is making higher highs the +DI increase. The increase is more when the volatility is less. In market terms the Bulls were more powerful in the current day as they tried to take the value higher.

In the same manner the DI is depended on the previous LO and current LO and True range. The -DI increases when the current LO is lower than previous LO. In other words the Bears were stronger as they tried to beat the value down to newer low.

The ADX is based on the ratio of the difference of +DI & DI and the sum of DI & -DI.
So the ADX does not look at the direction and is only reflection the difference between +DI and DI. More the difference, more the ADX. Looks Logically also correct. When there are more bulls compared to bears or when there are more bears compared to bulls the ADX is high. When the bulls and bears are fighting it closely the +DI and DI are criss crossing each and the ADX is low as in case of consolidation. The ADX reflects this fight of bulls and bears very nicely. isnt it? I am beginning to like this Indicator more.


So let us look at the values for the nifty for 20th and 21st.

20th HI 2463, LO 2363
21st HI 2447, LO 2384

The current HI is lesser than Previous HI. So the +DI is lower and dipped further.
The current LO is higher the Previous LO. So the DI is Lower.

Since the difference between +DI and DI is marginally higher and ADX has gone up marginally.

Looking back with todays move in mind the ADX was rather giving a correct picture, that the Bears still held a upper hand. The +DI dipped. The ADX move up. The DI moved down. Meaning the Bears became weaker but the Bulls were even more weaker and the down trend was still in force. As usual the Historical picture is so easy to interpret

And in my opinion we cannot compare the RSI and ADX. The purpose of these indicators itself is different. I would like to discuss that later with you.

Sorry for the verbose essayWould love hear your views on this.

Warm regards

Karthik

 

[karthikmarar]

Amit

Further to my previous post I am enclsoing the latest chart of the nifty. Notice the ADX and Di are flattenig out. -DI is still moving down. Indications of bears and hence the downtrend loosing steam. Ofcourse no reason for optimism . The situation is still a wait and watch. In case of he NIFTY Junior the DI and -DI have started to converge. Looks like we are in some sideways movement of the market in the near future. Would be interesting to know your views.

warm regards

karthik

 

[AMITBE]

This is great stuff, Karthik. Keep it up.
I haven't had the time to dicuss further, and will return tonight on this.
Great show!
Regards.

 

[avinash]

Thank you Amit,Karthik and Saint for so much education in this thread!!!

Avinash

 

[Saint]

Hi Amit

Thanks for bringing up this nice discussion. I would like to add something more on your ADX observation.

I am not going to look at the details of the formula as it is quite complex. But looking at the parameters used in the formula my observation is as follows.

The +DI value is depended on the current HI and Previous HI and True range, which is a measure of volatility. The +DI values increases if the current HI is above the previous HI and volatility is low and vice versa. So naturally when the stock is making higher highs the +DI increase. The increase is more when the volatility is less. In market terms the Bulls were more powerful in the current day as they tried to take the value higher.

In the same manner the DI is depended on the previous LO and current LO and True range. The -DI increases when the current LO is lower than previous LO. In other words the Bears were stronger as they tried to beat the value down to newer low.

The ADX is based on the ratio of the difference of +DI & DI and the sum of DI & -DI.
So the ADX does not look at the direction and is only reflection the difference between +DI and DI. More the difference, more the ADX. Looks Logically also correct. When there are more bulls compared to bears or when there are more bears compared to bulls the ADX is high. When the bulls and bears are fighting it closely the +DI and DI are criss crossing each and the ADX is low as in case of consolidation. The ADX reflects this fight of bulls and bears very nicely. isnt it? I am beginning to like this Indicator more.


So let us look at the values for the nifty for 20th and 21st.

20th HI 2463, LO 2363
21st HI 2447, LO 2384

The current HI is lesser than Previous HI. So the +DI is lower and dipped further.
The current LO is higher the Previous LO. So the DI is Lower.

Since the difference between +DI and DI is marginally higher and ADX has gone up marginally.

Looking back with todays move in mind the ADX was rather giving a correct picture, that the Bears still held a upper hand. The +DI dipped. The ADX move up. The DI moved down. Meaning the Bears became weaker but the Bulls were even more weaker and the down trend was still in force. As usual the Historical picture is so easy to interpret

And in my opinion we cannot compare the RSI and ADX. The purpose of these indicators itself is different. I would like to discuss that later with you.

Sorry for the verbose essayWould love hear your views on this.

Warm regards

Karthik

Great stuff,Karthik,as always!!Very nice.........

Saint

 

[AMITBE]

The ADX is based on the ratio of the difference of +DI & DI and the sum of DI & -DI.
So the ADX does not look at the direction and is only reflection the difference between +DI and DI. More the difference, more the ADX. Looks Logically also correct. When there are more bulls compared to bears or when there are more bears compared to bulls the ADX is high. When the bulls and bears are fighting it closely the +DI and DI are criss crossing each and the ADX is low as in case of consolidation. The ADX reflects this fight of bulls and bears very nicely. isnt it? I am beginning to like this Indicator more.
Karthik

Hi Karthik...to join the discussion again, what's written above is the same as saying if the difference between +D1 and -D1 is great and distinctive, the ADX is an indicator of this fact.
When the crossover of +D1 and -D1 moves past the whipsaw zone, meaning the area where a false signal may be expected (rule of points of extremum), and the trend firms up with the two D1s diverging sharply, the ADX will follow the upper D1 and will rise above it when the outer reaches of the trend is being reached.

What's interesting to see is, when the two D1s begin to chart the course of convergence from the two extreme ends, the ADX appears stranded still in the upper regions, 38-40-42 whatever, till the point of convergence is almost reached before it begins to move downwards. It will only turn around again to follow the trending, stronger D1. This is seen in the first Sensex ADX chart I uploaded a few days ago and redoing now.
The other aspect is the point at which the ADX will turn around. In the same chart above around the very end of August, if you see the two D1s converging but not crossing (this happens twice), the ADX has fallen much below it did currently, before heading up. Do look into this.
Will look at the Nifty chart now.
Regards.

 

[karthikmarar]

Hi Karthik...to join the discussion again,
What's interesting to see is, when the two D1s begin to chart the course of convergence from the two extreme ends, the ADX appears stranded still in the upper regions, 38-40-42 whatever, till the point of convergence is almost reached before it begins to move downwards. It will only turn around again to follow the trending, stronger D1. This is seen in the first Sensex ADX chart I uploaded a few days ago and redoing now.
Regards.

Amit

Fully agree with you. One more observation. The upper DI (wichever +DI or -DI) crossing above or below 30 makes the stronge moves. Just check out. May be I am Hallucinating..

The other aspect is the point at which the ADX will turn around. In the same chart above around the very end of August, if you see the two D1s converging but not crossing (this happens twice), the ADX has fallen much below it did currently, before heading up. Do look into this.
Regards.

Amit, In the first half this year the nifty's Larger trend was sideways. By May the ADX had dropped much lower. Then we had the uptrend and ADX has moved much higher. Maybe that is the reason for the difference in ADX low level in May and August. Yes..then what about Aug and Now? have to study this one.

One more observation wide range bars have large effect on the DI abd -DI. small range bars very little effect. In effect volatile days affect DI and -DI much more. So in individual stock charts freak HI and LO bars ( what elder called as Tails) have large effect on the DIs. I have just marked the effect of wide range bars in the enclosed chart. (marked - V)

Thanks Amit for this nice discussion.
warm regards

karthik

 

[rangarajan]

Dear Karthik,
Pl refer yr discussions on ADX,+D,-D,etc.To understand the subject,i had referred the previous messages in this thread,but unable to catch where it started & hence yr narrations of the same.Could you pl tell me where to look for it?
Also is there any site which ngives the "Implied Volatality"for Call & Put options free of cost for individual Indian stocks at the end of trading day.There are sites available for Nasdaq.
ranga