Hello, I've been following this recent journal. An ADX over 30 is not an indication of an extended move on any timeframe. Divergence or no divergence on an oscillator. Buying pulbacks, or shorting retracements by following price action will net more profits than the contrary. Looking at the ADX since the a.m. lows shows the 5min @ 47 and rising with the ES still going strong. The 15min is @ 36, and the 1min is @ 62, after having a prior peak @ 60. Extremes on the 1min are in the 60-70 range, on the 5min in the 40s-60, and the 15min can go well over 50. Using the Keltner bands measures impulse moves from low volatility, and when a move breaks outside the bands with a Rising ADX over 25, it's time to look for trades in the direction of the move. I know that Nopm and one other have had some success fading these moves. I would be curious to see the outcome from trading in the direction of them instead of fading. I believe the risk reward would favor greater net profits with instead of against. Good Luck and Good Trading Kelly
To stalk a short here now would be @ 1273.50 sell limit on the 5min, if filled stop would be HOD or a tick or two above depending on your risk in trade per contract. Stop raises under each green bar as it goes up. For 2b test it would be a poke out to new highs and back in. As I will admit it is getting quite extended, which doesn't mean it can't go higher, am looking for some profit taking going into the close. If filled here 1275 will be my stop price, and will just trail the stop down above each down bar, watching both the 1min and 5min. Kelly P.S. Filled @ 1273.50 now and stopped out here. 1274.75 would be the next one, I'll hold off the shorts are being squeezed massively here.
I read in a post in the previous journal that NPP uses an ADX > 30 (http://www.elitetrader.com/vb/showthread.php?s=&threadid=20761&perpage=6&pagenumber=2). At 10:35 this morning my 5min ADX(14) was around 39.
The 10:30 divergence only showed on a 24hours time template. Using an equity hours time frame (9:30-4:00 EST) changes the whole set of parameters.
Not sure we're talking about the same divergence. The one I pointed out happened at 10:35, right before the ES turned around. It was actually an excellent mean revertion trade. But I understand your point about comparing the ADX with the other extremes for the same time frame. BTW, when you say the 5min ADX tops are in the 40s-60s range, how far back do you check? I agree that volatility grows in the direction of the initial breakout but the idea of this system is to look for overextended trends. When price leaves a tight range the ADX is still low. I'd be curious too but I'm sure there are many traders making money trading mean reversion. Also it can be a good way to hedge an equity trend-following strategy.