Wilders ADX Indicator to trade Mini-Dow

Discussion in 'Trading' started by carltonp, Jul 21, 2011.

  1. Hello Traders,

    I've been doing a fair amount of research on Wilders DMI / ADX Indicator and I'm thinking of programming Excel to provide signals as described by the Indicator. My goal is to compile a program that will tell me when the majority of the stocks which comprise the DJIA have crossed over. By crossover I mean when the +DMI line has crossed over the -DMI line and the ADX is above say 40. The following is a brief description of the indicator

    General Overview of the Directional Movement (ADX / DMI) Tool

    The ADX-DMI combines three indicators that describe the relative strength of trends, as well as provide exit signals for exhausted patterns. Like stochastics, it is used in both entry and crossover exit trading strategies. The three components of the ADX/DMI include:

    The red ADX line, which indicates the trend of the market. ADX assumes trading significance once it gets over 40.
    The +DMI measures the strength of upside pressure.
    The -DMI measures the strength of downward pressure.
    Note that the Step Parameter may also be varied; the eSignal default of 14 is preferred. You may experiment with this value for curve-fitting purposes, much like the MA Step Parameter.

    A basic +DMI / -DMI buy signal occurs when the (green) +DMI line crosses up over the (blue) -DMI line.

    A basic +DMI / -DMI sell signal occurs when the (blue) -DMI line crosses down over the (green) +DMI line.

    In addition, the ADX is used to measure the relative strength of the current trend, known as the directional change. When the ADX is rising over 40, the issue is in a strong trend; when it is in the 10 - 30 range, the trend is weak.

    The aim here is to use the signals from the stocks to enter into a trade on YM.

    For example, let's say 24 of the 30 stocks have crossed over for the individual stocks and the ADX is above 40 for the individual stocks thereby indicating that at that moment in time we are in an very good trending environment. I will use that indication to gauge whether I should go long/short on YM.

    I intend to use to system to trade intraday.

    Before I go full steam ahead with programming Excel I would very much appreciate your comments on:

    A. Do you think it's better to use the indicator solely on YM and forget about combining it with the rest of the stocks on the DJIA?

    B. The advantages/disadvantages in using the underlying stocks in this way?

    As always, really appreciate your comments.


  2. Eddiefl



    keep us posted. I am always looking for diversification of strategies.

  3. Nice to see new fish with the ADX. Let us know how it goes!
  4. Chaps,

    I don't mind going to the trouble of programming an Excel formula and sharing it with you guys/girls, but I would like to know if you like there is any mileage in assessing the markets the way I described?

  5. Decent question.

    I will give you a shortcut for thinking. Look into risk management. When should you step on the brake, and when should you floor it?

    Only you have the answer to that.