| This system primarily uses Directional Movement | | | | showing strength, but I tend to wait for a |
| Index (DMI) and Average Directional Movement | | | | movement up through into the gap (also referred to |
| Index (ADX). In addition moving averages and | | | | as the zone) and going in an upward direction. |
| Bollinger bands are looked at for guidance and volume | | | | Conversely, if the DMI- crosses above DMI+ and the |
| to show conviction of the emerging trend. There are | | | | ADX moves up into the gap in an upward motion |
| plenty of articles that go into the technical side of | | | | then it is a bearish indicator and I would place a bear |
| these indicators and how they work but they are | | | | trade. The ADX moving up from a low and crossing |
| fairly complex and not easily understood (by me)! | | | | into the gap in an upward movement shows growing |
| This article focuses on one way to use these | | | | strength and I have found this to be a reliable |
| indicators and does not worry about the formula | | | | indicator for the trend to develop. |
| behind them. It is a very simple strategy and the | | | | I also look at the Bollinger bands and if the stock is |
| rules simple to apply. It is also very effective. | | | | up against one of the bands, there is a likely hood |
| There are several charting software packages | | | | that the trend may be coming to an end. I would not |
| available on the web, some charge and some free. I | | | | let this prevent me entering a trade, but I would |
| like to use the free ones and the one I use is noted | | | | keep a close look on it. Likewise, if the stock is |
| in my blog. Once you have the software that has | | | | moving up or down and about to hit the 20 or 50 |
| DMI / ADX indicators, set them as follows: ADX set | | | | day moving average then this may also stop that |
| at 5 smooth. DMI+ and DMI- to be set at 5 periods. I | | | | directional move. What I look for are trades where |
| also add onto the chart Bollinger bands set at 20 | | | | the DMI's have crossed over, the ADX is moving up |
| periods simple and also add a 20 and 50 day moving | | | | through the gap/zone in an upward movement and |
| average. The software should allow you to adjust | | | | that the stock has some distance to move before |
| these settings. | | | | hitting the moving average lines. I have found that |
| The DMI+, also shown as +DI on some charts shows | | | | this system gives a 70%-75% success rate. It's also |
| upward trend movement. That is, the stock has an | | | | a very conservative approach to use the DMI/ADX |
| upward trend. DMI- or -DI shows a negative trend. | | | | indicators. |
| One way to think of this is, if the DMI+ is on top of | | | | The last, and certainly not the least indicator I look at |
| the DMI- on the chart then the bulls are in charge. If | | | | is the volume bars. If the volume does not support |
| DMI- is on top then the bears are in charge. The | | | | the case being put by the DMI/ADX then I keep |
| DMI+ is often shown in green and DMI- in red. The | | | | away. IE if the system says a bullish trend is |
| ADX shows the strength of the movement. If DMI+ | | | | developing than I would expect to see higher volume |
| is on top and the ADX is low and going down then | | | | on up days and low volume on any down days in the |
| the bulls are running out of puff, or never had much | | | | recent trading. |
| puff in them in the first place. What we are looking | | | | I am now using this system to start from scratch |
| for is a cross over where one side is gaining ground | | | | with very little capital to demonstrate that it can be |
| and that there is strength building behind it, shown by | | | | used by anyone to grow a trading business. I have |
| an upward moving ADX. I use this system for finding | | | | tried the system over the last 6 months and am |
| new directional trades, but it can be used for | | | | now logging the journey on my new blog site. I do |
| sideways movements as well. But to keep things | | | | not sell anything and offer this information and |
| simple here are the rules for directional trading. | | | | everything on my blog site free of charge. I believe |
| When DMI+ crosses above DMI- and the ADX | | | | there is enough money to be made in trading and |
| moves up through the space between the DMI lines, | | | | information should be shared with others. I welcome |
| then this is a bullish indicator. It may be that the ADX | | | | feedback and appreciate peoples input. Happy trading. |
| is already above both DMI lines and moves up, | | | | |