I had mentioned the DMI in a Stochastics thread and got like 10 people mailing me about it, so I figured the best way to discuss it would be a new thread. Anyway, I use the DMI/ADX almost exclusively (DMI is the Directional Movement Index & ADX is the Average Directional Movement Index ). The only additional indicator I use is Nasdaq futures. I have used this theory for day trading for several years and I consistently make money. I am profitable almost everyday, although I have had a few ( very selodom) net negative days when you count commissions. DMI/ADX works great for any trading from day trading to swing or position trading. I combine the ADX/DMI onto one study. I make the ADX line white in color, the PDI line red, and the MDI line green. I use the PRO software offered by Realfasttrader. That software makes it real easy because it already combines ADX/DMI into one indicator. Although, I'm pretty sure most softwares out there also have DMI/ADX (it's very common), I think it's easiest to use when they are combined. This is how I do it: When white (ADX) crosses the other lines and is at the top and green (MDI) is at the bottom (red in the middle), it's a buy. White on top red (PDI) on the bottom (green in the middle), it's a sell. Often the simplest things work best and this seems simple and it is, but it works very good. I consistently make between .02 -.05 cents on 2000 - 5000 share trades. I usually go for more around the open (maybe .05-.10 or more). I ONLY trade widely traded Nasdaq stocks, like CSCO and INTC.
I use a 1 minute chart and a 2 minute chart on the stock (obviously both have the DMI on them) and a 2 minute Nasdaq futures chart. The 1 minute chart generally makes the call and the 2 minute confirms it.
I use a smooth period of 15. I'm telling you DMI works way better than MACD and Stochastics in my experience. The DMI works on all levels of chart: 1 minute, 5 minute, 1 day, 1 month etc... When you look at the buy/sell call and the stock price it consistently works. I don't know why more people haven't been discussing this.
Do you just simply buy when the line is crossed... do you wait for some type of price confirmation. --MIKE
There is no price correlation necessary IMO. What you need to see is ADX (white line) break above the middle line (MDI or PDI) and whichever line is on the bottom MDI (green) and PDI (red) determines the call. I set them up like MDI (green) and PDI (red) because it makes sense in my mind. Green = Buy & Red = Sell It doesn't get any easier than that. Don't just take my word for it, look at a software that lets you combine DMI/ADX onto one study and back test it. Look at when DMI makes the call and what the stock did. The percentage of times that it makes the correct call is astonishing.
Many thanks nyc-hotshot. Is seems Elder (Trading for a Living) suggests that: While ADX at bottom, 1. MDI in middle and PDI at top is for buy signal? and 2. MDI at top and PDI in middle is for sell signal? Have you tried this set of signals, and what would you think?
You shouldn't have told TrendFader what chart interval you use when he asked if you use the 1min chart. In other words...it was a trap for later comments or he'll probably just ignore this thread now. NihabaAshi
I'm guessing from your post that you use the Nasdaq futures as a leading/confirming indicator. If you don't mind, could you provide some detail as to what exactly you like to see? TIA, Doug
This was detailed by LeBeau a little over two years ago and you're right, I don't know why more people don't discuss it. He uses 14; I use 10.