DMI/ADX consistently works

Quote from dbphoenix:



Look for divergences. Note, for example, that on the 0945 NQ bar there were divergences in the ADX, DM+ and DM-. Therefore, a short.
More...


db,
A few of questions for you:
1- 945, is that eastern ?
2- what chart, 1, 3, 5m ?
3- do you use premarket data or
start your charts at open?
4- divergence looking at the indicators
on their own, or between them ?

Finally, who is LeBeau and where can I
learn about him? Not the guy from
Hogan's Heroes I'm assuming :)

Thanks,
jd
 
Quote from JackDaniel:




db,
A few of questions for you:
1- 945, is that eastern ?
2- what chart, 1, 3, 5m ?
3- do you use premarket data or
start your charts at open?
4- divergence looking at the indicators
on their own, or between them ?

Finally, who is LeBeau and where can I
learn about him? Not the guy from
Hogan's Heroes I'm assuming :)

Thanks,
jd
More...

1. Always.
2. 5.
3. I start them about half an hour to 45m before the open, depending on when I get up.
4. "Between them"?

Chuck LeBeau. He wrote Computer Analysis of the Futures Market with David Lucas. He also puts out a free newsletter. I'd provide the link, but that might be considered spam. Just type "Chuck LeBeau" into your locator window and do a search. You can't miss it.

I should mention here that I haven't bought anything from LeBeau. I never buy anything from anybody. I rarely get ideas from what I read, but sometimes I'll get ideas from the best of it. Recipes have never gotten me very far. What I'm doing now is a combination of bits and pieces that I've picked up from a variety of people, even a few people from ET. So don't rush out and buy or subscribe to anything because of anything I've said.
 
Quote from dbphoenix:



1. Always.
2. 5.
3. I start them about half an hour to 45m before the open, depending on when I get up.
4. "Between them"?

Chuck LeBeau. He wrote Computer Analysis of the Futures Market with David Lucas. He also puts out a free newsletter. I'd provide the link, but that might be considered spam. Just type "Chuck LeBeau" into your locator window and do a search. You can't miss it.
More...

db,
Regarding #4, I figured you were talking
about DV looking at the ADX, the DI+/ DI- each on their own but wasn't sure.
I have the ADX on one pane and the
DI +/ - on another. I find it's easier to
see that way. However, using them
in this fashion prevents me from seeing
some of the stuff people are mentioning
about how the ADX is above, below or
in the middle of the other lines. I'll need to investigate this more.

I'll do a search for Chuck LeBeau. Thanks.
jd
 
Quote from JackDaniel:



db,
Regarding #4, I figured you were talking
about DV looking at the ADX, the DI+/ DI- each on their own but wasn't sure.
I have the ADX on one pane and the
DI +/ - on another. I find it's easier to
see that way. However, using them
in this fashion prevents me from seeing
some of the stuff people are mentioning
about how the ADX is above, below or
in the middle of the other lines. I'll need to investigate this more.

I'll do a search for Chuck LeBeau. Thanks.
jd
More...

By "DV", I assume you mean "divergence". And I do look at each on its own, but I also have them plotted in the same pane. And, no, I don't trade on the basis of where the ADX is in relation to the DM+ and DM-. If, for example, price is making a higher high or a double top (the higher high is better), I look to see if the ADX has rolled over and is making a lower high, if the DM+ is making a lower high, and if the DM- is making a higher low. This suggests exhaustion, and if there are a decent number of people trapped by that second attempt at a new high, there should be enough panic selling to get me to BE fairly quickly (news helped make this trade successful this morning). If I wait for anything to cross something else, the move may be over by then.
 
Quote from hit_n_run:

nyc,

what commission do you pay for 5000 shares?

thanks
More...

I pay $7.95 plus ECN fees for anything up to 10,000 shares (I think). I get that rate because I trade alot. I prefer a flat rate to a per share rate because I vary my trades from 2000 - 5000 shares and would get beat up on most per share deals on the higher share amounts trades. I generally use ISLD, when possible.

I use the broker Realfasttrader.com mostly because I like the way their PRO software shows the DMI/ADX. It makes it real easy to see the calls.
 
Quote from dbphoenix:



By "DV", I assume you mean "divergence". And I do look at each on its own, but I also have them plotted in the same pane. And, no, I don't trade on the basis of where the ADX is in relation to the DM+ and DM-. If, for example, price is making a higher high or a double top (the higher high is better), I look to see if the ADX has rolled over and is making a lower high, if the DM+ is making a lower high, and if the DM- is making a higher low. This suggests exhaustion, and if there are a decent number of people trapped by that second attempt at a new high, there should be enough panic selling to get me to BE fairly quickly (news helped make this trade successful this morning). If I wait for anything to cross something else, the move may be over by then.
More...

Yeah, I meant divergence when I wrote DV.

I don't know if you still use 1m charts like you mentioned in your march 03 thread about finding the trend of the day, but anyway.... looking backward today you could see a clear divergence of the ADX and also the DI +/- on my 1m ES chart this morning at around 650 pdt. The setup is pretty much exactly as you describe above. I've been watching the ADX and the Chaikin for these divergences lately because of the discussions here on various boards. I'm putting together individual setups that seem to work as a team, but my work is still in progress, therefore even though I saw the above setup real time at 650, I didn't get in.
That will come in time.

jd
 
No problem with paper-trading. That's what forward-testing is all about.

As for the 1m, trading volumes and trading ranges have contracted so much that I was forced either to give it up or get into scalping, and scalping has never yielded as much profit as trend-trading. So, for the duration, I've given up the 1m since the setups there aren't as "serious" as those on the 5m (I've also tested the 3).

This means, of course, that there are plenty of days with no trades at all. But then I rarely lose on my trades, either.
 
Regarding the Le Beau site that was previously referenced.

As a greenhorn backtester I was all over the place trying this entry and that exit in soooo many combinations. Then I read his bulleting #29 and that changed the way I do my backtesting. As an eod trader, I now always start with a setup and entry, and then hold for 1 to 5 days depending. If it don't make money right here, right off the bat, I don't even bother with exits. Next.

Bulletin #29
July 16,1999

First in a Series of Articles About Exits

Part one: Importance of Exits

The outcome of every trade is dependent on the exit. If we enter in a timely fashion and then exit poorly, the trade is likely to be a loss. If our entry happens to be poor but our exit is good we might still salvage a profit. The exits, not the entries, determine the outcome of our trades. This lesson about exits is easily demonstrated. Take any entry strategy and begin combining it with different exit strategies. You will quickly see that we can change the results dramatically by making only minor adjustments to the exits. In fact it becomes nearly impossible to tell if an entry is any good because the results are so exit dependent. Bad exits can make a good entry look bad and good exits can make a bad entry look good.

When testing the validity of an entry method it is best to begin by simply exiting the trades after a number of bars. If you do anything more creative than this simple exit you will find that you are really testing your exits, not your entries. If you change the exits while attempting to test an entry strategy the results will vary so much depending on the exits selected that you will find that you can not make any valid assumptions about the reliability of the entry. When combined with the right exit the entry strategy looks great. When combined with the wrong exit the same entry looks terrible.

The purpose of an entry is to get the trade started in the right direction. To test the effectiveness of an entry we simply measure what percentage of the time it gets our trade started in the right direction. For example if we have entry "A" that has 60% winning trades after five days it is better than an entry "B" that has only 45% winners after five days.

You will notice that we made no comparison of risk or profitability in picking the best entry. What if entry "A" lost money and entry "B" made money? Is entry "A" still better? The answer is "Yes" because the purpose of an entry is merely to get the trade started in the right direction. After that everything else is dependent on the exits. Entry "B" just happened to make more money because of the particular exit we selected for the test. We can easily adjust our exits and we will find that entry "A" will consistently make more money than entry "B" because it gets the trades started in the right direction more often. To maximize our profit we need to combine the right entry with the right exit.

In our book, Computer Analysis of the Futures Market, we tell an amusing anecdote about a trader who seemed a bit loony because he used a Coke bottle with a broken radio antennae sticking out of it to receive trading advice from other planets. This advice, like most trading advice, was only related to the entries. When the voice from the Coke bottle told him to enter a trade he would come back to my desk and want to put the trade on right away saying something like: "They are buying soy beans on Mars, buy some beans for me".

The other traders sitting around the board room would overhear these frantic orders and became quite interested in this strange trading advice. Naturally they were quick to make fun of the trader when he was losing but they didn't have much to say when he was winning. The trader with the Coke bottle eventually learned that to avoid ridicule he had to take his losses quickly and hold on to his winners as long as possible. His trading steadily improved and he wound up being a surprisingly good trader. Obviously, his reliance on trading advice from other planets had nothing to do with his success. His entries were no better or worse than random but he had learned to be very good at his exits.

We should do the same.

Note: If you haven't read it recently, now would be a good time to review Bulletin #22 which deals with the issue of "control". Controlling exits is much more difficult than entries.
 
God knows I don't want to get into another discussion over what constitutes "random entry". However, there are a few points in this that should be carefully thought over rather than accepted like bumper-stickers.

The outcome of every trade is dependent on the exit. If we enter in a timely fashion and then exit poorly, the trade is likely to be a loss. If our entry happens to be poor but our exit is good we might still salvage a profit. The exits, not the entries, determine the outcome of our trades.

On the fact of it, this seems like a "duh". But it is not. My primary quibble is the second sentence: "if we enter in a timely fashion and then exit poorly, the trade is likely to be a loss". Yes and no. If we enter in a timely fashion and then exit poorly, the trade may be more likely to be a loss than a profit, but a loss is not a lock.

This discussion hinges on the following: "the purpose of an entry is to get the trade started in the right direction". If the entry doesn't fulfill this purpose, the trade is less likely to be successful. If the entry is chosen without this purpose in mind, yes one can exit with only a small loss if the trade goes in the wrong direction. But the odds that such an exit will be necessary are less than if this purpose is made an important objective. To imply with the example of trading advice from Mars that one can make "random" entries and still be successful if the exits are good is to derail the piece from its more important points.

As I said, I don't want to get into another "discussion" of random entry. However, several traders may make certain assumptions regarding what this piece is all about depending upon whatever preconceived notions they may have about entries and exits. It is important, therefore, to be sensitive to seeming inconsistencies in the piece.
 
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