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Some forget that ADX is part of Welles Wilder's DMI and is actually the
normalized ratio of the difference of +DI and -DI divided by the sum of +DI
and -DI. The DMI is designed to show direction and the ADX the strength of
the trend. The best analysis of DMI that I have read is in Chuck LeBeau's
"Computer Analysis of the Futures Market." He has done quite a bit of
testing of this indicator and is the list member most qualified to comment.
I have tested many different S&P day trading systems of my own, simple
design that employ ADX or a variation thereof (slope, slope acceleration,
absolute value, etc.) as a filter. None proved robust; maybe Chuck can tell
me why. I suspect that intraday data is too choppy and ADX too slow. I do
find it useful for intermediate trend stock trading, where the trading pace
is more contemplative and retracements don't make one quite as jumpy.
Another approach (again for intermediate term) is to use a high ADX value as
an overbought/oversold indicator together with an oscillator for entry. One
must be very careful with this approach as many oscillators will float in
and out of the overbought/oversold zones when prices are in a strong trend,
so only very high absolute values of ADX should be used together with some
short term momentum indicator trying to catch tops and bottoms. I have no
personal experience with this approach, but have heard it discussed
somewhere in my travels. I do remember the person discussing this was
wearing a pointed hat, so caution is advised.
JFB
Shaven Heads Trading NYC
-----Original Message-----
From: Robert W Cummings [mailto:rwc@xxxxxxxxxxxxx]
Sent: Sunday, December 13, 1998 8:11 PM
To: Omega-list@xxxxxxxxxx
Subject: Indicators
I'll start with one that has always mystified me but seems to be used a lot
by many.
Is this indicator seems to be designed for breakout systems or money
management exits. Anybody using this a different way or what ever?
ADX
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