DMI/ADX consistently works

Anyone has any comments on the followings:

Q

Conversely, when the ADX line moves below both DIs, Wilder recommends staying away from trend-following systems.

In summary, it is possible to set out a series of rules as expliciitly proposed by Wilder:

1. Trade only trend-following systems in securies with a high ADX rating. The ADX level reflects the degree of directional movement, not the direction itself.

...

Market Momentum (by Martin Pring)

UQ

 

I ONLY enter a trade when ADX (white line) is on the top. I never trade when ADX is at the bottom or between the PDI/MDI lines. In my experience the only correlations that work are when ADX is at the top, then you just need to see which (MDI/PDI) is at the bottom to determine the call.

It is best to enter just as ADX is crossing the other lines and heading up. Once it is already at the top it doesn't work as well, especially on the "scalp" type trades of .02-.04. The "scalp" move generally happens quickly once ADX crosses to the upside.

 

It looks like your system will lose $ in a trending environment and make $ when its choppy.

--MIKE

 

.05 move is too little for me...even on 5K shares. Plus, too much risk for not enough reward.

But hey, if it's making you money, more power to you.

-FastTrader

 

Thanks! Appreciate your efforts very much!

Happy trading and have a nice weekend!

 

I'm curious, what kind of stops do you use ?

 

I use it to swing trade rydex funds and it works ok. i can't seen to make it work daytrading.

 

With this particular system, perhaps. LeBeau's tactic is to wait until the ADX rolls over, which means that the distance between the two DMs is narrowing, then wait for the DMs to cross. He also suggests waiting until the market has actually begun to move in the desired direction. This may mean jumping the gun a bit on the DM cross, but that's up to you.

This particular tactic is designed to take advantage of trending markets.

 

Just curious, if you can make .02 to .05 cents based on derivative indicators, couldn't you make a bit more just reading the price action of the stock itself? What percentage of a typical move do you look to capture? Thanks.

 

So you just gave away the biggest trading secret of my friend. Or almost the biggest... Yes, you are absolutely right. This works much better than MACD and stochastics (if you know how to use it) and that's one of the reasons why my friend thinks that the whole Jack Hershey's thread with all his crappology is a total bogus. My friend uses two more elements in his trading (one of them being a very creative application of stochastics) to pinpoint the entry and exit more precisely, but that's another story. In any case, what you said is certainly worth taking seriously unlike much of the other stuff here.