DMI/ADX consistently works ------nyc-hotshot

08-22-03 01:36 PM
I had mentioned the DMI in a Stochastics thread and got like 10 people mailing me about it, so I figured the best way to discuss it would be a new thread.

Anyway, I use the DMI/ADX almost exclusively (DMI is the Directional Movement Index & ADX is the Average Directional Movement Index ). The only additional indicator I use is Nasdaq futures. I have used this theory for day trading for several years and I consistently make money. I am profitable almost everyday, although I have had a few ( very selodom) net negative days when you count commissions.

DMI/ADX works great for any trading from day trading to swing or position trading. I combine the ADX/DMI onto one study. I make the ADX line white in color, the PDI line red, and the MDI line green. I use the PRO software offered by Realfasttrader. That software makes it real easy because it already combines ADX/DMI into one indicator. Although, I'm pretty sure most softwares out there also have DMI/ADX (it's very common), I think it's easiest to use when they are combined.

This is how I do it:

When white (ADX) crosses the other lines and is at the top and green (MDI) is at the bottom (red in the middle), it's a buy. White on top red (PDI) on the bottom (green in the middle), it's a sell. Often the simplest things work best and this seems simple and it is, but it works very good. I consistently make between .02 -.05 cents on 2000 - 5000 share trades. I usually go for more around the open (maybe .05-.10 or more). I ONLY trade widely traded Nasdaq stocks, like CSCO and INTC.

use a 1 minute chart and a 2 minute chart on the stock (obviously both have the DMI on them) and a 2 minute Nasdaq futures chart.The 1 minute chart generally makes the call and the 2 minute confirms it.

I ONLY enter a trade when ADX (white line) is on the top. I never trade when ADX is at the bottom or between the PDI/MDI lines. In my experience the only correlations that work are when ADX is at the top, then you just need to see which (MDI/PDI) is at the bottom to determine the call. It is best to enter just as ADX is crossing the other lines and heading up. Once it is already at the top it doesn't work as well, especially on the "scalp" type trades of .02-.04. The "scalp" move generally happens quickly once ADX crosses to the upside.

Seems like you're making it alot more complicated than it needs to be. IMO, the easiest way to look at the chart for ADX/DMI is:ADX on top, PDI in middle, MDI at the bottom = buy signalADX on top, MDI in middle, PDI at the bottom = sell signal

plot the DX indicator NOT ADX. Settings are 15 periods for everything. The only program that i can get this to work in is metastock professional,(i have tried esignal and prosuite 2000i with no success) check out the screenshot. It "seems" to work very well on the 2 min ES charts (note how it keeps you out of the choppy market). I am still experimenting with this set-up, if you take trades only when the DX line crosses over the 30 line with dmi+ and dmi- confirming, the chance of a better trade are greatly increased.