Understanding and Apply ADX/DMI

Discussion in 'Technical Analysis' started by jstormbo, Oct 8, 2003.

  1. jstormbo


    I thought I'd open this as an open discussion towards understanding any applying adx/dmi to intraday futures trading. I've used adx/dmi on and off for about a year now and to be honest never really felt like it was of much value, seemed to me to be a really late indicator. That's probably because I'm using the indicator in an overly simplistic manner and need to look at it a bit deeper. Thus this thread, it's not a system or methodology so no holy grail here just some thoughts I'd like to get some feedback on, I know some of you know probably trade off this indicator.

    For some reason adx/dmi has some appeal to me so here's what I've been looking at.

    First off, personally I still use adx/dmi as a secondary filter, not a primary indicator to trigger trades, I've just never seen it as being useful for that. I base my trades primarily on trends and pattern recognition around those trends, so I rely heavily on various 1-5 minute bar charts. I do have adx/dmi configured on my 5 min chart with a dmi length of 8 and adx smoothing value of 8. Don't ask me why, just seemed to fit in with what I wanted to see.

    What I look for from adx/dmi to potentially filter a trade(assume long trade for sake of discussion).

    1)dmi+ rising and diverging from dmi-. If they're flat, close together and parallel they don't look good to me although they can be flat and parallel if adx is in an upslope but once both adx and dmi have flattened out I consider the current trending move may be running outa steam.

    2) adx - adding to comments in #1, I look for adx in an upslope, generally in the area of 20 or greater. if adx and dmi are flat and weaving back and forth amongst each other then I see no support for much of a move to be supported.

    I know this is probably a really elementary use of the indicator but it's all I've ever done. Anyone want to elaborate on where I'm off base or how they'd do it? Please don't post some convulted configuration that can only be done on one particular chart platform that nobody understands, I'm interested in understanding if the traditional adx/dmi indicators can be useful filters for intraday trading.

  2. Hi jstormbo,

    just read shortly over your posting. I found that using simple +dmi / - dmi crossover signals are a usable basis for a trading system in several european and american index-futures. as a pure reversal system it creates awfully big drawdowns - i added parablic stops to reduce whipsaws.

    hope this is a little help
  3. guitar-fire

    what is a parabolic stop? Are you talking about the SAR?
  4. jstormbo,

    yes the SAR.

    using it as a closing strategie reduces drawdowns significantly, but often you're not getting the trend