Scribd Logo
Upload

Welcome to Scribd!

  • Adx - Trend

    Uploaded by

    pderby1
    3 views16 pages

    Original Title

    adx- trend

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    3 views16 pages

    Adx - Trend

    Uploaded by

    pderby1

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    of 16
    Identify The Start Of A Trend With DMI Improve on certain directional movement index signals such as idenafying the start of.a trending move and picking market tops and bottoms. by BC Low, MT 2012 * Tecnica Anus of STOCKS & COMMODITIES irectional movement index (DMD isalo accepted and popular technical indicator created by J. Welles Wilder to establish theexistence of atrend ina market using three lines — ADX, +DI,and-DI. This article shows that the same three lines can be used to significantly improve on certain DMI signals toiidentify the start ofa trending. move and to pick market tops and bottoms. Thenew variations in this article feature clusters of three ADX lines, three +Dllines, and three -DIlines instead ofthe al three lines. ADX signal: Average direc- tional movement index (ADX) signals a trending market when the ADX (14 periods) is above Tevel 20 and rising. But ADX itself does not indicate whether the market is trending up or down, That signal is provided by +DI and -DI. After ADX has risen to the 50 level and turns down, its decline represents aretracement.Lfthere wasn uptrend previously, then the declining ADX signals a correction down. If there was a downtrend previously, then the declining ADX signals a cor- rection up. When ADX declines tobelow 20 again, the market is. non trending until it rises above 20, Then the market trends again (Figure 1), +4+DI& -DISignals: The +Diand DI indicates whether a market is trending up or down, When the ADX is rising above 20 and if +Dlis positioned above ADX and rising, then the market is trending up. If ADX is rising above 20, and -Dl is positioned above ADX and alsorisi the market is trending down. Basically, when price rises, Direc Moverent ADX (16.000), ec Mowenan +D(32.0000), Dect Movement 2.0000) BRSRERS ‘USA. SAP 0 Ine (142.12, 1457.02, 11 48, 1.40792, 46.0006) a hath hw Wing Sp Or ayeytit na 0 ilo) | bitso bio wheter the markt vendo up or dwn, Tat ial proved by sD aD. +4DI will rise but -DI will fall. When price falls, -DI will rise, and +DI will fall In other words, +DI and -DI are mirror, images of each other. Inastrongly trending market, because thetwo DI lines mirror each other, the DI Lines will move in opposite directions, thus ‘opening up a sizable distance between them. In a congesting, ‘market, however, as price does not move strongly in either lirection, the DI lines do not move away from each other; in fact, they tend to end up crossing each other (Figure 1). ‘TAC-DMI CLUSTERS Although Wilder created the DMI and is due all credit for it, added the acronym “TAC” to the name of this new techni- cal tool to reflect the following modifications T incorporated. into it: 1m The TAC-DMT clusters feature three clusters consi ing of three ADX lines, three +D1 lines, and three -DI Tinos each plotted separately. © The triple ADX cluster (3x ADX) gives the timing that signals the start of a strong trending move be- fore it actually begins, and also the end of a trending. 1 Together with the tiple ADX cluster, the triple +DI cluster (3x +DD) can provide the timing signal for an intermediate or major bottom of a trending move, = Together with the triple ADX cluster, the tiple -DI cluster (3x -DI) can provide the timing signal for an intermediate or major top of a tending move. FIGURE 1: BASIC DM SIGNALS: ADK, «Dl -I.ADX ira aendng art when he ADX (14 pros) is ebove level 20 and sing, Bt ADX se does rotnicate three, four, and five periods so as to have greater sensitivity Ina strongly trending market, because the ‘two DI lines mirror each other, the DI lines will move in opposite directions. 3x ADX CLUSTER ‘The structure of 3x ADX: The three ADX lines are based on You read our publications. Now @ write for them, too ifyou are Imovledgeable about technical indicators, charting, tracing eysteme, money ‘management, intraday vading, tracing psychology, optons, cycles. and more. we'd ike to hear rom you Seo hpi iraders convindexphp/sontae-us/edtori- department or rare iformatn, [Nove 2012+ Technical Ans of STOCKS & CONMODITIES * 13 BRBRSASASRAISESR ® lw 35 ao ] ‘ Senda sora ter i LENROUSD (2s660, 120.0, Law, Tze, UMRAO | any haat en Ag A ‘ee Ny A uf ney” ayes 3 i FIGURE 2: START AND END OF TRADE. Whon te x ADX csr converges below 0 ad urs up, ital toca oa ond When te Sx ADX cst peaks above ‘Thardus down, signals the odo th mov, in the indicator. (Original formulation used 14 periods.) The = All 3x ADX lines converging at one point basic Y-axis reference levels are 30 and 70, while the critical, 7 % _ ee . ies ADX lines turning up after converging at one Signal 1: Start ofa trend when 3x ADX cluster converges The 3x ADX cluster turning up from 30 after converging. below 30 at one point represents a good signal for the start of a new ‘Asa market congests, the 3x ADX cluster drifts down below _ trending move (see Figures 2 and 3) Tevel 30, Once below 30, the signals to watch for are: Ifthe 3x ADX cluster falls to <20 and turns up from <20 Diet Movement ADK (1.0000), Dect Mevemert ADK 28 000, Dect Movement ADX 286000) ie seeseseeas | ff \ h/ iit \ alt TU AL fa thy Sep Get Nev bee ane Hep Ware yn Sg ep FIGURE 2: START AND END OF TREWD OM THE NYMEX LIGHT CRUDE. The vn tans wn ex AD ctr coors abn 30 nus p Tho eer gal shows eno Be nove en 3c ADK ctr pats above 7 ad urs own. A+ Novem 2912+ Tce nays of STOCKS & COMMODITIES BUILD A BUSINESS BY LETTING PEOPLE TAKE PART IN YOUR ACTUAL TRADES. SHARE YOUR TRADING SMARTS WITH THE TRADING CHALLENGED. ‘There are thousands of people who don't have time to follow the market and would love to find a way to be part of it. With Ditto Trade, you can let others be part of the actual trades you make for yourself ‘This is possible because your followers join you in a block trade. xyou know like family and friends. You can set it up so anyone You ean do all this with existing. can follow you, or just people services or createa new one. TRADE THE WAY YOU ALWAYS HAVE. Having people following you doesn’t affeet how ‘won't even be aware when they're following you, aie ‘you trade. You just trade as always. In fact, efore Alter PICK A WAY TO GO. LOW COMMISSIONS? BOTH WORK FINE. SURE. BUT HOW ‘BOUT NO COMMISSIONS? $0.00 ‘You ean choose to let people ee sions. At Dittc Trade, the more followers you have, the less you pay for eommissions on stock and option trades.* So, with enough followers, your commisstons could be 80.00. That's zip, nil, be part of the actual trades you're making, Many like this because it allows them to mirror your results. Or you ean eet up your service to just send out alerts similar to a newsletter. Your choice. DITTOTRADE > [MEMBER FINRASIPC SET YOUR OWN FEES. KEEP 100%, ‘You have the option to charge people fees for following you. ‘You keep 100% of any fees you do charge. Ditto Trade doesn’t take any part of them, If you're trading for family and friends you can skip the fees altogether if you choose. Your mother-in-law will love that. SUPPORT THAT'S | SUPER, MAN. Lead Traders Mui all have a living, breathing concierge of their own to leap tall buildings ifneed be. This ensures that you have what you need to trade and build your business. I's unusual, but we want your experience to be epic. We trust you feel the same way too. ————————— ‘athe appeal of something like Ditto is obvious’-Businessweek Discover how you can take ‘your trading, to the next level and build a business. Visit DittoTrade.com or call 877-99-DITTO. www.DittoTrade.com See us at The Traders Expo Las Vegas Booth 307' INDICATORS Dred Moverent ADX (&,000),Orecbi Moreert ADK 400000), rece Mevement ADK (1.000) b<— SKAdK castes, above 70, sang endotmove fr SBP 500 | = sep $00 doos not arta trond hon pate cineg Stoner dos damage of a strong trend for S&P 500 USA S&P 500 index (7432.12, -1,497.92, 1,431.45, 1,437.92, +8.80005. t FO eh ae, tet hme grooms ee, rage 80 “ " ott hie ‘0 ae = 1 _ be pe _ a ns) ie Hi ea &» "IOURE 4: LACK OF TREND. The SEP 60 dosnt tara werd whan Sx ADK cuter does rot comerge aon pit There can he situations when ‘the 3x ADX cluster turns up below 20 or 30, but without converging. These situations tend not to result in good trending moves. after converging at one point, it signals the stat of an even stronger trending move. ‘Note that when a trending move starts in any of these situ- ‘PlmesiProfits Get Powerful Charts for better Trading - FREE ‘Analyze Stocks / Mutual Funds W Video Tutorials | W/Buy & Sell signals | Free Memberships Visit InvestProfits.com today! ‘Sqn upnow, fsFee 16+ Noverier 2012+ Ta Anais of STOCKS & COMMODITIES ations, the market is not ata low or high point; itis normally at an intermediate level. ‘There can be situations when the x ADX cluster turns up either below 20 or 30 level, but without first converging at ‘one point. These situations tend not to result in good trending moves (see Figure 4). Signal 2: End of a move when 3x ADX cluster turns down above 70 ‘When the market is wending, the 3x ADX cluster is above 20 and rising. After the price has made a sizable move, the smallest ADX Tine (three-petiod) will rise above level 70. ‘When the ADX cluster peaks and turns down above 70, the signal is for a retracement ofthe previous trending move, or even the end ofthe move (Figures 2 and 3). [the marketisinan exceptionally strong trend, the 3x ADK cluster may resume up after dipping below 70. This can ead. to yet another 3x ADX peak before it ums down again. Also in an exceptionally strong trend. the 3x ADX cluster will reach 90, whichis a strong signal fora tum ofthe previ- ous trend (Figures 2 and 3). 3x +DI AND 3x -DI CLUSTERS ‘The structure of 3x+DI and3x-DI clusters: Both +DI and -Di lines are based on five. eight, and 1d periods. Five and eight are Fibonacci mum- bets, while 14 is the original DMI parameter used. The basic reference Tevelsare 10nd 50, hile the critical reference level is 5, race Mover 41 (1000, Osco (80000, Draenor 0150000) SA Dw os ree 50x 95072, GIT TO TESTS, TOD TAO, ‘3X ADK pak around90, and +01 botom ‘curd Seer snl bom in DJA yet aad au I Se aw! ot aliyrebs, ite vee Nov Dee 212 3x +DI CLUSTER ‘Signal 3: Signaling market bottom with +DI at Level & In a downtrend, the 3x +DI cluster declines. When the cluster reaches the basic reference level of 10,itisasignal that a market bottom may be reached ‘soon. When the smallest of the 3x +DI cluster lines reaches level 5, it is a signal that a reversal up is imminent, This reversal is confirmed when the 3x +DI cluster actually turns up from level 5 (Figure 5). ‘Signal 3: Signaling market bottom by combining 3x +DI cluster with 3x ADX cluster ‘The 3x +DI bottom signal described hereis doubly confirmed ‘when it is combined with the topping off of the 3x ADX luster, ‘When a strong trend has brought the 3x ADX cluster 0 90, ‘watch for the 3x +DI cluster bottoming at level 5. When both clusters turn atthe same time — that is, the 3x ADX cluster tums down from 90 — and the 3x +DI cluster turns up from level 5, itis double confirmation that a market bottom is formed, and a strong buy signal isin place (Figure 5). 3x -DI CLUSTER Signal 4: Signaling market top with -DI at level 5 Inanuptrend, the 3x-DI cluster falls. When the cluster reaches the basic reference level of 10, itis a signal that a market top ‘may be reached soon. When the smallest ofthe 3X -DIcluster FIGURE S: MARKET BOTTOM. The art ttm i saleby Sx ADX csr pek at 0 and 3x 1D ster btm a 6. TRADING Par | PETTERS CU Development and Backtesting 77 zy Uy, DULL eT STACI Custom and Consulting RTT So Rete a) [Nove 2012+ Technical Anas af STOCKS & COMMODITIES * 17 ‘The calculation of the average directional movement (ADX) indicator is bu onthe intutive noon that a trend is saris of price ranges extending in acanistent rection, ‘in sidebar Fie 1, example A, the second day's wading range is higher than the first day's trading range, indicating positive directional movement In example B, the second day’ tadng range is below the first day's trading range, an indication of negative directional movement. Example C is more complicated because the second day's ranges both lower and higher than the first day's range. Directional movement is only considered to be up, down, or not present Therefore, the larger part of the day’ range extending beyond the previous das range used to deny drectonal movement. In example C, the largest pat of the second day is higher; consequent, ‘the directional movement is positive. In example D, the largest part of ‘the second day's range is lower so that the directional movement is negative. In example E, the second day's range is within the fist day's range so he drectonal moverentis 200, Directional movement forthe ADX is expressed asa function of true range (TR). Tie range is the largest fhe floaing 1 The diference between todays high and today's low 2. The difference between today's high and yesterday's close 3 The dtlerence between today's ow and yesterday's close. In the Excel 40 spreadsheet (sidebar Figure 2), the first calculation {or ADX is the tue range value. This is performed in column . The formula for coll Eis: -=MAX(B3-C3,ABS(B3-D2) ABS(C3-D2)) ‘Next, column F determines the postive directional movement or retuins zero i there is no postive directional movement. The formula ‘or coll Fis: =IF(B9-B2>C2-C3 MAX(B3-82.0),0) Column G calculates the negative directional movement or returns 2a tare no negave doconal movement The fomua focal GBis: =F (C2-C3>B9-82.MAX(C2-C3 0), 0) Theddiycacuiatonsarevoetleandsothe dtaneedstobesmooted. First, sum the last 14 prods for TR, +DM and -DM. The formula for summing the Risin col H16: =SUMIESE16) The formula for summing the +DM isin coll 16: -=SUM(FSF16) ‘The formula for suming the -DM isin cel J16: =SUM(Gs:GT8) ‘The smoothing formula for the TR14 column begins at cel H17: -=Roundl(TAUNC((H16-H116/14)+E17),3)2) formula subacs 1/1AhofyesterdaysTRYStromyes- todays Tal on asta lu Te ound unc function is used to calculate the indeator as cose as possble to the developer ofthe ADX' origina form ofcalelaon (which was done byhand). The smoothing fama forthe +DM14 column begins at ool I17: -=Round|(TRUNC((16-16/14)4F17).3).2) The smoothing formula subtracts 1/14h of yesterday's #DM14 from 18+ Novem 2012 Tce Anais of STOCKS & COMMODITIES Directional Movement Examples A B c D —_— 4 2 +My — 2 — 2 — — -M om >: — t yesterdays +0Mt4 and then adds today’s #DM value. The smoothing ‘ormula forthe -DM14 column begins at coll 17: =Round{(TRUNC|(J16-W16114)+G17)3)2) The formula subtracts 114th of yesterday’ -DM4 value ‘rom yesterdays -DM{4 and then adds today’s -DM value. Now we have a 14-day smoothed sum of TR, +0M and -OM. The next step is to calculate the ratios of +DM and-DM to TR. The ratios are called the +¢irectonal necator (+D)) and directional indicator (-D). The formula {ortho 1D column bogine at coll K16: =Round((100"(161H16) 0) ‘The formuia forthe +01 column begins at el L16: -=Roune\(100"J161H16))0) ‘The INT (ntoger function) is used because the orginal developer ‘dropped the values ater the decimal in the orginal work on the ADX indicator. The net step i to caleuate the absolute vai of the dfer- ‘ence between the +DI and the -I. This s done in column M andthe formula fr cel M16: =ABS(KIE-LI6) ‘The next column calculates the sum ofthe +DI and Dl. The formula for coll N18: =K16HL16 “The nex step isto calouate the DX, which isthe ratio ofthe absolute ‘value ofthe difference between the +D1 and the -D vided by the sum fe eed OL Ts ae nx Tar 16: -=Round( 100"(M16/N16)) 0) ‘The final stap is smoothing the DX to arrive a the value of the ADX. First, average the last 14 days of DX values. The formula fr call P28: =AVERAGE(015:028) “The smooting process uses yesterday's ADX value multiplied by 18, and then acd today’s DX value. Final, vide tis sum by 14, The formula for ool P23: -=Round{ ((P2813)+029)'4).0) a. se] e[Tay 7 J|-« [~t [mM [nwfole Date High [ Tow ‘pM [Teig| spxiia| Deis} sprig | -piig|p|-pr_[ Dx Abe S20103}-417. 37] 311.09 DIFF SUNT 20103} 419.79} 416.16] 7.09] 320106) 419.24] 316.93 320107] 417-96 320108] 420.23 ‘S20 109] 490:50] ‘So0rrof 417.62 S20r1s|-113.36 ‘So0rra} 490.44 320113} 421.18 32017] 419.45 920120) 415.56 oe BE [ADE 920124f 416.39 920129) 418.13 Tze | 320125) 319.78 ERT] 3] ‘Sa012a] 41737 iar dl S20127} S184 133 7 So012af $16.41 10-79 3 320129) 417.83 9.98 77 320130] 9.25] 15 320131 ES Ts 320005] 796 2a 920203] 7129) 2 320205] 120 | 920206] Ts 2] 920207] 1103 T3| 19} 92020] To.25 13] —19] 920211 10:12 12 19} Tines reaches level 5, it isa signal that a reversal down is im- ‘minent. This reversal is confirmed when the 3x -DI cluster ‘actually turns up from level 5 (Figure 6). Signal 4: Signaling market top by combining -3x ADX ‘luster with 3x ADX cluster ‘The 3x-Dibottom signal described is doubly confirmed when itis combined with the topping off of the 3x ADX cluster. ‘When the 3x ADX cluster peaks at 90 and tums down, ‘clusters turn atthe same time — that is, the 3x ADX cluster turns down from 90 — and the 3x -DI cluster turns up from level 5. itis double confirmation that a market top is formed, and a strong sed! signal isin place (Figure 6). CONCLUSION ‘These signals are applicable in alltime frames: daily, weekly, andbeyond. Butinthe weekly and larger time frames,the impact ‘ofthe signals is far greater, as you can see from Figure 6. ‘watch for the 3x DI cluster bottoming at level 5.When bork The expanded structure of the three-line clusters makes the Disa Moen 0110000, Drsel Mower (20009 Dice Mownent (80000 eee PTT eT Mer | an TTT oo rT beeen a bw rrr ‘wt TTT ‘Sp Deca Na LTT an 8 TTT on IT oT Dee are ‘Sp Nw | FIGURE 6: MARKET TOP. On tis weety char ofthe NASOAD Compost, the matket opi signaled by the ADX duster peck at 90 andthe 3x Di cuter botom a. | [Nove 2012 Technical Ans of STOCKS & COMMODITIES * 19 CHARTING THE STOCK MARKET The Wyckoff Method Eidtod by Jack K. Hutson 208 pages, 6x9 inches, chant itystvations indexed $514.95 plus $6.30 shipping & handling, ISBN: 0-998773-08-2 Charting The Stock Market describes and illustrates one ofthe best pioneer- ing technical analysis methods. This book takes the reader step by step through the Wyckoff method: first, the basic principles; second, examples of the ‘method applied to the bond market; thd, an outline of the seps to put the ‘method to use. Det @ Forecasting + Group stock behavior (of the Wyckoff method covered inthis book include: * Point & figure charting ‘@ Relative strength and weakness Tren @ Stop orders @ Wave charts & intraday + Stock selection criteria # Price/volume chart reading & analysis I eveva Tt BEER Buia Cd Toc iv S&C Wear Hot Deals! Subscribe Ta) Get the exact information you want online at the Stocks & COMMODITIES Online Store. + PDF versions of past articles + Convenient credit-card transaction + File available for you to download as soon as transaction is approved + Prices start as low as $2.95 + Full line of ES products ans + Easy to start or , renew your |] subscriptions h — BO Conte oe Keon 20+ Kvermier 2012 Tia Anais of STOCKS & COMMODITIES [INDICATORS | turning points ofall three clusters much, clearer. In the case of the ADX cluster, it is omly with the cluster that we can fferentiate the single-pointed tum from the “looser” tum, And with this differ- ence, a new signal is created. ‘The combination of the +DI and -DI clusters with the ADX clusters also reduces the risk when you rely on only ‘one set of indicators. These new appli tions of DMI should help traders achieve ‘amore accurate reading of the markets and better trading results BC Low has been a teacher and practi- tioner of technical analysis since 1990. He was previously a technical analyst cat Merrill Lynch International Bank in Singapore and a senior lecturer in Sin- ‘gapore Polytechnic, where he pioneered the teaching of technical analysis. He is currenily the president ofthe Singapore Technical Analysis & Traders Sacien and president of Technical Analysis Consuliancy. He may be reached at below83@ yahoo.com.se SUGGESTED READING Evens, Stuart [1999]. “Directional Movement,” Technical Analysis of Stocks & ComMopimiES, Volume 17: February, Low,BC(2010)."“Trading,Time Frames, ‘And Trends,” Technical Analysis of Stocks & ComMoprmes, Volume 28: September. MetaStock (Thomson Reuters) See Traders'Tips section beginning on page 6565 for commentary and implementation of BC Low's technique in various technicat analysis programs. Aeconpanying program cede ean be found in the Traders Tips area of Traders.com For this month’s Traders’ Tips, the focus is BC Low's article in this issue, “Identity Tho ‘Start Of A Trend With DML” Here we present the November 2012 Traders’ Tips code. Code for Excel s already provided in Low's arlicle by he author. Subscribers wil find that ‘code at the Subscriber Area of our website, ‘www.Traders.com. (Click on “Article Code” from our homepage.) Presented here is an overview of possible implementations for other software, “Traders Tips are provided to help the reader implement a selected technique from an article in this issue. The en- ties are contributed by various software developers or pro- ‘grammers for software that is capable of customization, Readers will indie November 2012 Traders" Tips code at our website, Traders.com. Here, you can read some dis- cussion of the technique's implementation by the Traders’ Tips contributors as well as some example charts. To locate Traders’ Tips at our website, use our site's search engine, or click on the Traders’ Tips link from our home page. For past Traders’ Tips, click on the “Archive” button in the S&C Magazine box in the middle of our home page, then click on a Traders’ Tips topic of interest, CF click on a diferent year to see more choices. (TradeStation + TRADESTATION: NOVEMBER 2012 TRADERS’ TIPS CODE In “Identify The Start OF A Trend With DMI” in this issue, author BC Low describes the use of “clusters” of ADX, +DI, and -DIto ad in identification of the start of trends as well as potential market tops and bottoms. The article discusses the ‘congestionof the clusters aboverbelow certain threshold levels, as aids in picking tuning points and reducing risk, Shown in Figure | are three indicators that plot the three FIGURE 1: TRADESTATION, Heros an oxarpo of te Brae nica appod 0 ‘aly ar chat of SNDU (Dow Jones Intl Avg) (6 + Novem 2 + Technion of STOCKS & COMMODITIES ADX values, the three +DI values, and the three -DI values. ‘To download the EasyLanguage code for the indicators, first navigate to the EasyL_anguage FAQs and Reference Posts ‘Topic in the EasyLanguage support forum (hitps://www. tradestation.com/Discussions/Topic.aspx7Topic_ID=47452), scroll down, and click on the Tink labeled “Traders” Tips, TASC.” Then select the appropriate link for the month and year. The ELD filename is“ TAC-DMI_ CLUSTERS ELD. ‘The EasyLanguage code is also shown at Traders.com in the Traders’ Tips area, This article is for informational purposes. No type of trading or Jnvesiment recommendation, advice,or strategy isbeing made, given, or inany manner provided by TradeStation Securities or its afilites. —Chris Imhof TradeStation Securities, Ine A subsidiary of TradeStation Group, Inc. ‘we TradeStation. com MetaStock” + METASTOCK: NOVEMBER 2012 TRADERS’ TIPS CODE BC Low's article in this issue, “Identify The Start Of A Trend With DMI,” presents several patterns to signal the beginning and end of trends. We are providing the MetaStock formulas for those signals, shown at Traders.com in the Traders’ Tips area, These are binary formulas that will normally havea value of zero and a value of I when the cignal is found. They ean be used in any of the formula tools. ‘The steps to enter those formulas in an exploration in order {o setup a system test in MetaStock are as follows: 1. Select Tools > Explorer 21Click New 3. Enter a name for the exploration A.Select the Filter tab and enter the formula 5.Click OK to close the exploration editor. Witliam Golson MetaStock Technical Support Thomson Reuters eSignal + eSIGNAL: NOVEMBER 2012 TRADERS’ TIPS CODE For this month's Traders’ Tip, we’ ve provided the formulas, Sx ADXefs, 3x_-DLefs, and 3x_4DLets, based on BC Low's arile in this issue, “Identify The Start OF A Trend With DMI" All thre indicators contain formula parameters to set the colors of their thee indicator lines, which way be configured through the Edit Chart window. To discuss this study or download « complete copy ofthe formula code, please visit the EFS Library Discussion Board forum under the Forums link from the support menu at ww signal. comorvisitour EFS KnowledgeBase at www.esignal com/supporUkb/efs/. The eSignal formula scripts (EFS) are also avaiable for copying and pasting from the STOCKS & TRADERS’ TIPS FIGURE 2 eSIGHAL Cosmoprries website at Traders.com, ‘A sample chart of the indicators is shown in = Jason Keck ignal, an Interactive Dasa company 800 779-6585, wwew.eSignal.com L 22. . 2% thinkorswim vam + THINKORSWIF In “Identify The Start OF A Trend author BC Low discusses the importance of using the ADX, +DI, and -DI lines in conjunction with each other. ‘The traditional DMI study displays three lines calculated fon one period, whereas the TAC-DMI breaks down each JOVEMBER 2012 TRADERS’ TIPS CODE DMI" in this issue, component of the DMI study into its own study, displaying three lines each (Figure 3). This allows for a much more sen= sitive and a more holistic view of the DMI. For thinkorswim users, we have created three studies and strategy in our proprietary scripting language, thinkScript. Once the strategy has been added to your chart, you can right- ickon the name of the strategy onthe price graph and choose “Show report.” This will allow you tosee how the strategy has performed over the charted time frame. Adjust the parameters of the strategy within the Edit Studies window to fine-tune your entry and exits points The studies: From TOS chars, select Studies — Edit Studies 2, Solect the “Studies” tab in the upper left-hand comer 3. Solect “New” inthe lower left-hand corner 44. There are thee studies this month separated by pound signs (#) 5. Name the studies (such as, “TAC_3xADXChuster.” *TAC_3xDIMinusCluster” and “TAC_3xDIPlusCtuster’ 6. Click inthe script editor window, remove “plot data = close” and paste in the thinkorswim code set shown at Traders.com in the Traders" Tips area ‘The steps to input the strategy are shown at Traders.com. = thinkorsvim A division of TD Ameritrade, Inc wwwthinkorswim com Bloomberg + BLOOMBERG: NOVEMBER 2012 TRADERS’ TIPS CODE In “Identify The Start OF A Trend With DMI” in this issue, author BC Low uses the DMI and its three output lines to help identify overall trend beginning and ending points. The ADX output ofthe DMI measures trend strength without any in either direction ‘TheDMI+-and DMI-outputsalsomeasure the trend strength, but are used in determining direction of a move as well. For this example, we provide a chart (Figure 4) using the ADX. ‘outputs as described by Low, with the three periods default- ing to three, fons, and five bars. This example uses a genetic front-month crude oil contract adjusted for rolls over time. ‘The indicator is written with the DMI+ and DMI- output lines also available, but defaulted as hidden. In Low's article, he states thatthe inflection points of the trend will show when all three lines “cluster” at high values (over 70 and 90 for the end of trends, under 30 and 20 for trend initiation). In the chartin Figure 4, we see an example of this on September 15, 2011, when the three values are within ‘one point of each other, clustered below the extreme value of 20. This cluster immediately preceded the move down with a bottom under $80/barrel ‘The ensuing start of the uptrend did not see this same clustering, but we can see that all three lines peaked on No- vember 17, 2011, with values from 70 to above 90. While not @ complete “cluster” as had occurred atthe extreme Iow values, this alignment at extreme levels was an excellent sign. of a change to come. Using the CS.NET framework within the STDY function on the Bloomberg Terminal, C# or Visual Basic code can be written to display the TAC DMI described here. ‘The C# code for this indicator is shown at Traders.com in the Traders’ Tips area. All Bloomberg code contributions to ‘Traders’ Tips can also be found in the sample files provided ‘November 2012 * nica Anaiaf STOCKS & COMMODITIES * 67 fs wae oe ee ‘FIGURE 4: BLOOMBERG. Hoi scaly ba tartstowirg GL pico movonertem ‘i-Angus 2011 rough mi-Srwary 2012 The sy panel below he pice chart ‘hows the TAC OM nestor or ADX ines. The rotations Brough he ‘ice and study panes mark th bars where some degre of csi fhe AD. ‘nes coo Perea auto hesebarsrepreseniponisawhichatrend shoud ‘begin (162011 and antes where subsoquent tend wi nd (1172011). with regular SDK updates, and the studies will be included in the Bloomberg global study list. Bill Sindet Bloomberg, LP wsindel @bloombers.net Weal abs + WEALTH-LAB: NOVEMBER 2012 TRADERS" TIPS CODE ‘This month's trading ideais based on tracking market exhaus- tion patterns and acting when they reverse in the opposite direction. Theideaof using acluster of indicators with multiple periods, as discussed in “Identify The Start Of A Trend With DMI” by BC Low in this issue, may not be breakthrough per se; for example, it’s found in systems using multiple moving averages (MMAs), such as rainbow charts and the Guppy MMA. ‘Acommon traitthat MAS share with TAC-DMIclustersis| that when indicators within a group are moving lose together, the group is largely in agreement. One of the differences in Low's technique is that a new trend starts when signaled by ‘TAC-DMI clusters converging at an extreme and then revers~ ing as a group. Meanwhile, multiple moving averages tend ‘expand as a group, following a change in price direction. Asthis month's Wealth-Labsstrategy code [shown at Traders. ‘com in the Traders’ Tips area] illustrates, the convergence pat- tem of tiple ADX, DI+ or DI- can be formalized fairly easily in WealthScript. Our"‘coavergence' routine with configurable thresholds highlights each ofthe four events onacharttriggered by combining the triple D+/DI- and ADX clusters: possible slartof uptrends and downtrends, topping, and bottoming out. Motivated traders can reuse the code, possibly enhancing their own systems with timely setups aimed at identification of the start of a trending move and top/bottom-picking. {68 + November 2012 Technica nals of STOCKS & COMMODITIES FIGURE 5: WEALTW-LAB. foro sa woohiy chart of PFE (Ptz=) musing me pplication othe TAC-OM approach A sample Wealth-Lab chart is shown in Figure 5. — Eugene, MS123, LLC woneawealth-lab com AmiBroker + AMIBROKER: NOVEMBER 2012 TRADERS’ TIPS CODE Jn “Identify The Start Of A Trend With DMT" inthis issue, author BC Low discusses how touse short-term ADX indicator ‘clusters to identify market tops and bottoms. His technique ‘uses just thre short-term ADX (average directional movement) andicators with periods equal to three, tour, and fve bas. ‘A ready-to-use AmiBroker formula for the indicator is shown at Traders.com in the Traders’ Tips area. To display the indicator simply input the formula into the formula editor and press “Apply indicator.” ‘A sample chart implementation is shown in Figure 6. 'ADXS",colorRed)s ‘ADXS",eolorGreen }: 'ADXS",colorDarkBIue); ‘Tomasz Janeccko, AmiBrokercom wineamibrokercom ‘FIGURE 6: AMIBROKER, WEEKLY EURVUSO CHART WITH ADX CLUSTERS. The ‘3x ADX castes peaking aboe 70 and tumng down atk he end fhe me. A ‘now tend begins when hey coeverge blow 30 and tu up. TRADERS’ TIPS + NEUROSHELL TRADER: NOVEMBER 2012 TRADERS’ TIPS CODE ‘Thediretional movement clustersandcorespond- ing signals deseribed by BC Low in his arco in this se, “Tdentfy The Stan OF A Trend With DMT” canbe easily plemented witha few of NeuroShell Trader's 800+ indica- tors along with our Advanced Indicator Set #2. Simply select “New indicator” from the Inset menu and use the Indicator ‘Wizard to set up the following indicators: ‘Tile ADX Cluster (ADXS, ADX4 & ADXS): “Tiple-D1 Custer (015, D8, D114): MiusDI( High, Low, Closo, 8) Minus High, Low, Close, 8 ) MinusDI High, Low, Closo, 14 ) Sional 4: Signaling market op with DI at vel 5 PV bn STi Fal ween iT Ta PA ‘45 8( Mina{ Change-DI,), Chango( D181), Change-OI141) 0) ‘Signa 40: Signaling market top by combining x ADX cluster with 3x ADX cluster ag foro Lal ADS, 9) ‘AcB{ Max3{ Change(ADX3 1), Chango(ADX4,1), Change(ADXS 4), 0), ‘Ae Lag( 6 1,5), ‘A5B{ Mind Change'-DI51), Change(‘018.1), Cange-O114 1), 0)) Users of NeuroShell Trader can go to the STOCKS & COM- MopImies section of the NeuroShell Trader free technical support website ta dawnload a eapy af this ar any previons ‘Traders’ Tip. ‘A sample chart is shown in Figure 7. Marge Sherald Ward Systems Group, Ine. 301 652-7950, sales@wardsystems com wirwneuroshell com + Al: NOVEMBER 2012 TRADERS" TIPS CODE EG Tel coe based on BCLow's rl in his is- sue, “Identify The Start OF A Trend With DMI” is provided athe following website: www: TradersEdgeSystems. ‘convraderstips hm, Several ofthe terms used by the authorhad tobe interpreted to be converted into signal code such a, “cluster drifts down below level 30:" “converging.” “turing up” and so on. My interpretation may difer from wht the author intended, and ‘other interpretations are possible. In addition, ha vo come up with exits forthe sighals as none were given. In testing ‘sing the NASDAQ 100 lis of stocks, the long-only system ‘was profitable over the test period, whereas Teould not get the short-ony system to be profitable. To test the author's 3x DML system, 1 sed the NASDAQ 100 list of stocks and AIQ's Portfolio Manager. Loug-only trading simulation was run with the following captalization, cost, and ext settings: + Maximum of 10 open positions * Size each position at 10 & of mark-to-market total capital Pear Pest oi Rinh en DART [FIGURE 7: NEUROSHELL TRADER. Tie NewoShel Trade chart cele be OMI ‘ses endegral FIGURE 8: AQ, EQUITY CURVE. This ong-oty xutycune i compared i te [NASDAO 10 fe ts pad 1251/1009 772012 tad he NASDAQ 100 stot sos. "November 2012 * sia Anais af STOCKS & COMMODITIES * 69 TRADERS’ TIPS ++ Take no more than three new positions per day “+ Compute the mark-to-market capital each day "+ The cents per share was deducted for each round-tur trade + Select trades based on the highest 14-bar ADX reading + Exit trades ifthe end-of-day stop-lss exceeds 3% + Exittrades by protecting S0% of profits once profit evel teaches 10%, In Figure 8, 1 show the resulting statistics and long-only ‘equity curve compaed to the NASDAQ 100 index. For the period 12/31/1999 109/17/2012, the system retumed anaverage internal rate of return of 20.7% with a maximum drawdown of 58.2% on 3/9/2009, ‘The code and EDS file can be dowaloaded from www. ‘TradersEdgeSystems.comv/traderstips htm. + TRADERSSTUDIO: NOVEMBER 2012 = Richard Denning = TRADERS’ TIPS CODE info TradersEdgeSystems com “for AlQ Systems ‘The TradersStudio code based on BC Low's article in this issue, “Identify The Start OF A Trend With DMI,” i provided atthe following websites: sw cTiadensEdgeS ystems comleadortipe ta + wow TindesSmdio som ~> Traders Resonrces > Traders Tips ‘The following code files are provided in the download: + Indicator plot: “THREE_ADS_IND? for plotting the 3x ADX. indicator ‘Indicator plot “THREF_DMfplus IND” for plotting the 3x DMIplus indicator ‘Indicator plot “THREF_DMfninus IND” for ploing the 3x DMlminus indicator + Funetion: “COUNTOF” is a helper fumetion that retums the numberof times rule is rue + System: “THREE_ADX" is ay interpretation ofthe author's

    You might also like