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I have tried a lot of things with the ADX in the past.
One setup that i still use and it makes money is when the ADX is very strong (>35) ,
so I am willing to basically buy the first pullback on that strong uptrend and the way i see that is when the fast stochastics %K falls back to 60 from the overbought levels.
The majority of the people will just sell the stock believing its too high so basically you are going against all of these people.
Just an example. I just used the Stock Scanner in ToS and there are only 2 stocks filling the requirement (above 35 ADX) on the S&P 500 right now. PVH and FDX. I would be willing to sell put spreads in their correction below (when the stoch hits the levels i talked above).
In the past I have also tried to use low ADX to find setups but with not such great results.
The way it fits me better is when it is very high in the way i explained above.
YES!
There are many patterns that repeat endlessly - there are many levels that are seen as "important" and some levels are
often like magnetic to the price.
THIS is the difference to playing in the casino where randomness should be seen. ()
Think of the SL levels of the major trader community, of the breakout behavior etc.: everything repeats even on
different price levels - but in the same manner nearly ALWAYS.
If one distills these patterns that occur in a high percentage over time and sets on THOSE then the winners will be
nearly guaranteed. Ok - some patience is needed!
Looking at the market behavior long term on the stock markets and indices then a trader can certainly profit.
I think you have found by yourself the most intelligent response to your question: All the system I tested failed to make money....
Do not misinterpret my words I'm not saying that what you have said is stupid it is in fact quite well observed and intelligent.
Think about the indicators (all of them) in just a more mathematical perspective and just think about that: how by dividing or adding or subtracting the price on n period ago with a price of m period ago you can expect to find any information that is not in the price now ?
The ADX is supposed to tell you when the market is trending. Great ! You can see that without the ADX on a chart.
There is IMO only one category of "indicators" that is worth something when they are properly used it is the filters (the MA is the most basic one of this this family).
Levels where the price have failed to go lower or higher, market behavior around those levels, order flow etc all those indications are much more useful to make money.
R.I.P. Olivier Terrier (aka "Okina"), 1969-2016.
Please visit this thread for more information.
markets are designed to repeatedly wash out traders to put them back on the sidelines because markets need fuel in the form of available buyers and sellers
and based on what has just occurred, charts show you when they have used up more of the buying fuel or more of the selling fuel or if the buying and selling fuel is being used up equally
then you don’t need indicators as you can:
side with the dominant force when there is one,
look to enter and exit based on the changes in what fuel has just been used up,
and despite your best efforts, are going to get rinsed out plenty often so keeping tight risk is important to keep you in the black
a couple of helpers include a 20 and 50 EMA - (or whatever settings you prefer) as helps with seeing the dominant force and also recognising when fuel has been used up
And if intraday trading, then using a a few time frames for context and also watching action in a correlated market, but only if it is actually providing useful info at the time of trading.
The ADX is great if you're not following a chart too closely. To account for lag, though, I recommend reducing the ADI from 14 period to 7, while keeping DM+ and DM- at 14. I also recommend exiting based off price action, well before the DM+ and DM- cross. But I can't immediately think of a consistent way to automate it without writing a price chasing algo. Maybe it would work if the algo took into account different time frames, or other indicators.
This pairing makes no sense to me. The ADX is period based. Renkos don't care for time periods. Renkos just show the walk of price.
Early on, back when I was starting to get over trying all the different doodad indicators out there and began peeling off indicators I didn't really need or use, I began considering the negative space above and below the trades as equally important, like a mass of potential buyers and sellers on either side, or buying and selling pressures with the chart as their boundary. Something kind of clicked. Prior to that, I was viewing the chart like a ski slope or something.
Well, it does to me, at least in theory (how well it works in practice, I have no idea, because I don't use Renko). I suggest that the fact that the display-method isn't divided into temporal units isn't in itself a sign of illogicality, Chik.
You could, after all, make exactly the same observation about using any kind of moving averages in conjunction with volume bars/candles, couldn't you?
The volume bar/candle display, just like Renko, isn't based on units of time, but the moving average takes as its defining parameter "the completion of a bar/candle" just as is true of the example mentioned above.
Personally, I think moving averages constructed from volume bars/candles are actually more useful than those on time-based chart displays.
I see that it's superficially slightly counterintuitive, but I'd respectfully suggest that if you think about it more carefully, you'll see that it can actually make sense, or at the very least that the reason you've offered yourself for its apparent illogicality isn't quite valid, anyway.
I have had past success using ADX to identify non-trending markets (ADX < 20). In non-trending markets, market neutral options strategies, such as selling straddles and selling iron condors, generally perform well.
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