I believe Alexander Elder calls it something like "right edge effect". When you watch an indicator (divergence, crossover, etc.) in the middle of the chart it makes a lot of sense, but when this happens at the chart's rightmost bars, and you have no clue what follows, things are not that clear anymore.
Yes, I agree in principle with Dr. Elder, however part of the problem is the way that traders study charts. If you only look at a completed intraday chart, you will get used to seeing a fully developed signal and resulting move or failure. Seeing it on the right side of the chart you have no supporting information to help your decision making process, AND you have to overcome the automatic scaling process that changes your visual perspective. For those reasons, I suggest that traders never study completed charts. Instead it helps to either print out partial charts and use them like flashcards, or if your software permits, step through your charts one bar at a time, stopping just long enough to make your "decision" based on the indicators you are using. If you can't make good decisions on that basis, how will you make any better judgements during trading hours? As regards the use of the ADX/DMI, I think people should take the time to read the literature and become knowledgeable about the indicator. After that it is up to the trader to use his brain. You can make use of indicators IF you understand their strengths and weaknesses. For example, if one were to put the most important market sectors on a screen, you could use that information as a confirmation of a change in the DMI crossover signal. Using some variation of that input, you could wait for sectors to move above some threshold, and then as the DMI signalled a trade you would have percentages in your favor. Studying this you might learn that certain sectors need to be moving in your favor in order to have a high percantage long trade in a specific stock. Remarkable to me that you folks debate just about everything but the important issues that define your trading environment, and for some reason, most of you are unwilling to actually read documentation and try to synthesize some approach to the problem. Good luck Steve
Thanks Steve. I'm actually here to learn, so if you have anything to share I'll keep my eyes and mind open. I read about DMI/ADX and tried all the recommendations I found, but none of them convinced me so far. I heard / read several people claiming that this is one of the best indicator they're using, just I couldn't figure out how. If you're willing to share anything more I would appreciate it.
Hi: In the comments that (presumably) you just read, I offer a suggestion as to how the ADX/DMI might be used. You will need to read and think about how it may work for you. It may not come to you right away. The problems with the ADX/DMI indicator as used by NYC-Hotshot have to do with the fact that he is using the indicator to trade the open, AND there is a lag built into the indicator. IF you read the posts CAREFULLY, you will see that there is a workaround for that. If I were going to use that indicator, one of the ways I would try to get around the lag would be to use tick charts instead of bars or candles. I think I have offered a couple of ideas that you folks might work on. Good luck Steve
Interesting to look at DMI+/- just before the '87 crash There's a spreadsheet called VDX-Plot.xls to play with, here http://www.gummy-stuff.org/Excel/ It'll tell you when to Buy-Sell-Hold and it's guaranteed to make you a million (assuming you start with $2M). The spreadsheet (and associated stuff) is described here: http://www.gummy-stuff.org/EMA.htm It's interesting 'cause you can download prices from 19xx to see how well (or unwell) the strategy worked. (The VDX is ADX with volume-weighting.)
Actually if you could consistently do this (go from $2 mil to $1mil, not mostly because of slippage and commissions), sometimes you can "just do the opposite" (Seinfeld's George Constanza's trade mark ) and turn it into a profitable method .
LOL I see you have discovered what we all have about steve46 ! Actually I will say that I thought his comments about trading the right side of the chart and backtesting where pretty good advise and I will give him credit for that, now maybe if he lost the arrogant, belittling attitude people might actually like him.:eek: cnms2 I used this system but in order to make it work you had to have the speedtrader charting software as they where the only ones that calculated the equation correctly. I don't remember why that was but check with them on it and they will tell you. I traded it for about 1 month and paid a ton in commissions so I stopped because net net it wasn't that profitable and seemed to got through difficult cycles. I do recommend you try it though it may be more suited to your style. Good trading to you.
Yes, through the course of the thread it was determined that the way I use it is somehow differnet in how my software plots the ADX (DX) line. It's the software offered through www.Realfasttrader.com . If you try the free demo on their site, it may make more sense if you follow my orginial instructions at the beginning of the thread. Also Realfast has fairly high rates listed on their site, but if you call the office or email they do come down to similar rates as offered by most other brokers. I pay a pretty competitive rate thru them.