Directional Movement Indicator (DMI) with Average Index ( )
The DMI and was developed by J. Welles Wilder and is fully documented in his book "New Concepts in Technical Trading Systems".
Some high-level concepts of the DMI and ADX:
Equilibrium Point - When the +/- are equal
ADX - Is a measure of either up move or down move in a direction more that equilibrium point.
- A falling indicates a weakening of the trend indicated by either the +/-
- An that is below both +/-DI and/or 20 indicates no trend bassically and trend trading strategies should not be used
- If the has crossed up over both DI's and has begun to drop, then the current trend may be slowing down and some covering should be done
- +DI crosses up over long position should be considered (resistance->support)
- -DI crosses up over short position should be considered (support->resistance)
What I mean by resistance->support and support->resistance is that this event/trigger is important and the candle that is created now is either going to set a level of resistance that needs to be exceeded to take a long position or must be exceeded down for a short position to be taken. See more details below regarding the 'Extreme Point Rule'.
Note: If the is rising, is the in crossover incrementally increasing over time? The that crosses up over the other should continue to gradually increase in a possible as price moves in its direction.
ADX Extreme Point Rule
On the day that and cross, use the extreme price made that day as the reverse or entry point.
Per Wilder: If you are long the reverse point is the low made on the day of crossing. If you are short, the reverse point is the high made on the day of the crossing. Stay with this point, if not stopped out, even if the indexes (+/- DI's) stay crossed contrary to your position for several days (assumes you're looking at a ).
I'm working through an alternate to this that uses the close for the day instead of the extreme of the day.
When the crosses up over the , this period's close becomes an important event/trigger (resistance->support) line. It is resistance in that price must close up above this line to enter a long position. Once price does so, then the line will become support to watch for in the future. I let these lines flow from the candle out to the right for future reference. Over time, you may want to hide lines that are not close to price movement.
Likewise, if the crosses up over the , then the close for that day becomes an important event/trigger (support->resistance) line. It is support because price has to close below this line to enter a short position. Once price does, then the line will become resistance as price moves back up eventually.
I use the term day in places but it's the candle for that period. I think you can apply this strategy to 15m, 1hr, 4hr, daily, weekly, and monthly
I use the in conjunction with the to fine tune the entry and exit of trades (more info on can be found by a quick google search).
This will be continued in a second post due to size constraints.