DMI/ADX consistently works

I've been watching a few stocks for the last couple of days that showed the adx>dmi->dmi+ at the open(for me that is at 9:40) which indicates a short position is appropriate. For this very limited sample it was a valid signal every time. After that the signal is always too choppy for me and sometimes bass ackwards.

I,ve never made money daytrading with it, the conventional way, i.e., adx rising above 20 but its my favorite swing trading indicator with the stochastic.
regards
 
nyc,

This is an interesting approach. I've experimented a lot with ADX but I have never seen it used in a scalping (3-5 cents) style. I've watched the DMI on a few of the large Naz stocks that you mentioned for a few days and I had a couple of questions.

Do you have any requirements for the crossover to be valid? i.e. does ADX need to cross from under both DMI lines or is any cross taken? I noticed several times that ADX, on the way back down, would have a DMI line cross under it, causing a technical crossover, but with ADX pointed down. Also, other times the DMI line would whipsaw around the ADX after the initial break, giving several signals.

How do you handle crosses late in a move? I noticed that many times the initial cross would signal the start of a move, but once the ADX was high a cross would not have as much chance of success. It seemed like the best signals came when ADX was very low under both DMI lines and then broke above them.

What do you do if the DMI lines cross after the ADX crosses above them causing a buy signal to become a sell signal and vice versa?

I would also be interested in how you manage your positions, like stops, determining when to hold for more (like in your example trades that made more than the 2-4 cent goal). Is it just level 2 analysis or do you have more objective criteria?

Thanks
 
Isn't the ADX just the difference between DMI+/- ? So why would wait for the ADX to "cross" the DMI+ or - ? Now waiting for the ADX to be above 30 or 20 would indicate a +30 or +20 difference between the DMI+/- which indicates a strong trend. To make it more clearer, don't put the ADX and DMI together. Chart them in different regions. If the DMI+ is on top, look at the ADX , is it above 30? If yes, look for longs, etc.
 
Quote from WarEagle:

nyc,

Do you have any requirements for the crossover to be valid? i.e. does ADX need to cross from under both DMI lines or is any cross taken? I noticed several times that ADX, on the way back down, would have a DMI line cross under it, causing a technical crossover, but with ADX pointed down. Also, other times the DMI line would whipsaw around the ADX after the initial break, giving several signals.

How do you handle crosses late in a move? I noticed that many times the initial cross would signal the start of a move, but once the ADX was high a cross would not have as much chance of success. It seemed like the best signals came when ADX was very low under both DMI lines and then broke above them.

What do you do if the DMI lines cross after the ADX crosses above them causing a buy signal to become a sell signal and vice versa?

I would also be interested in how you manage your positions, like stops, determining when to hold for more (like in your example trades that made more than the 2-4 cent goal). Is it just level 2 analysis or do you have more objective criteria?

Thanks
More...

I'll try to answer your questions below, although in a different order than they were asked.

I usually only enter when ADX was either even with the other lines or below them and then it breaks out to the upside.

If the PDI & MDI lines cross while in a position, I bail out.

I generally don't use stops, I'm sitting in front of the computer, if necessary I do a market order to get out quick.

If the position is dropping or rising fast and the ADX/DMI still looks like a strong call, I usually let it keep going in my favor.
 
Here's a good example from today's SMTC gap win long breakout:

today I told my traders to go long at 20.25+ and to sell 21.4 in realtime, based on ADX getting over 40 at the entry trigger.

Note that the ADX starts to decline as the price goes flat, which is why I said to sell 21.4.

Using ADX getting over / under the 40, in combination with whole number support/resistance and volume, is very useful.

smtc_adxaug27.gif



Note I've drawn vertical lines to show when the ADX got over 40 for the long trigger, and when it started to drop down, as a sell (close open long) signal.

Here's the buy setup, explained in my eSignal article:
http://www.esignal.com/education/likepro/strategy/volume/buys.asp

any questions?

ken
 
Nice post Ken!

I would like to enter the ADX and DMI stuff into Excel, but I confess, I am way too lazy to figure it all out.

Does anyone have it already for Excel that they would be willing to give to this sloth.

Hey speaking of sloths, did you know the only time they come down from the tree is to go potty? (yes I have very young children) It takes them 1-2 days to get down the tree. The sloth, not my kids.
 
thanks -- it would be helpful, anything to automate, excel etc, agree...

that might be a good formula to code, if anyone's done that for advanced charts, in esignal, eg alerts you if the stock is taking out a 2d high/low And ADX is getting over 40 etc..


ken
 
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