09 - DMI+ADX Journal

RISK DISCLAIMER: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. Forex Factory and/or myself (Jhig) will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

'09 - DMI+ADX Journal
by: Jhig

This journal will chronologize all my future trades as well as invoke discussion. My system involves risk managment, entry & exit strategy over a long timeframe. The only pairs I will trade will have low spread cost in which I will take advantage of their "affordability". My strategy is fairly simple. Unfortunately the indicators I use are NOT available in every trading platform. If you find my chosen indicators are not available for you, search google/yahoo. I'm sure someone has developed and made it available to the public.

INDICATORS

1. EMA(21)
2. ADX(14)
3. DMI(14) plus/minus
4. Aroon

CURRENCY PAIRS

1. eur/usd
2. usd/jpy
3. eur/gbp
4. eur/chf

TRADING TIMEFRAMES

1. 4 Hour chart *(My Preferred Timeframe)*
2. Daily
3. Monthly
4. Weekly

In the future, I'll write out my system, step by step (though if you have been trading for a while, I'm sure you already have an idea). Again, its a really simple system and most traders will probably catch on fast.

At this time it would be best to Learn how to use the indicators and get a good grasp on understanding how they work before puting them to use:

1. EMA / http://www.investopedia.com/terms/e/ema.asp
2. ADX / http://www.investopedia.com/terms/a/adx.asp
3. DMI / http://www.investopedia.com/terms/d/dmi.asp
4. Aroon / http://www.investopedia.com/terms/a/aroon.asp

... And here is what your chart will look like. (Your chart will probably not look exactly like mine due Metatrader usually combine ADX and DMI into a single indicator. Most other platforms seperate the two as two individual indicators.) But looking at my chart will give you some idea.

RISK DISCLAIMER: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. Forex Factory and/or myself (Jhig) will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Over / Under System

INDICATORS

1. EMA(21) This type of moving average reacts faster to recent price changes than a simple moving average.
2. ADX(14) An indicator used in technical analysis as an objective value for the strength of trend. ADX is non-directional so it will quantify a trend's strength regardless of whether it is up or down. ADX is usually plotted in a chart window along with two lines known as the DMI (Directional Movement Indicators). ADX is derived from the relationship of the DMI lines.
3. DMI(14) An indicator for identifying when a definable trend is present in an instrument. That is, the DMI tells whether an instrument is trending or not.
4. Aroon(14) used for identifying trends in an underlying security and the likelihood that the trends will reverse. It is made up of two lines: one line is called "Aroon up", which measures the strength of the uptrend, and the other line is called "Aroon down", which measures the downtrend. The indicator reports the time it is taking for the price to reach, from a starting point, the highest and lowest points over a given time period, each reported as a percentage of total time. Both the Aroon up and the Aroon down fluctuate between zero and 100, with values close to 100 indicating a strong trend, and zero indicating a weak trend. The lower the Aroon up, the weaker the uptrend and the stronger the downtrend, and vice versa.

MONEY MANAGEMENT

1. Money Management - 1 LOT (Only trade the lowest possible amount)

TIMEFRAME/TRADED PAIRS

1. 4 Hour Chart or Higher
   -----
2. EUR/USD
3. USD/JPY
4. EUR/GBP
5. EUR/CHF

TRADING RULES
(ONLY TRADE IF YOU HAVE STUDIED THE INDICATORS FOR THIS STRATEGY AND COMPLETLY UNDERSTAND THE 'WHO','WHY', AND 'HOW' OF THESE INDICATORS. AND REMEMBER, INDICATORS WORK BEST ON HIGH TIMEFRAMES SUCH AS, 4 HOUR DAILY WEEKLY MONTHLY)

1. (Establish the Trend) // First thing first, we must establish the trend before making a trade. By using DMI(14), if the "DMI PLUS" is on top, the trend is BULL/UP. If "DMI MINUS" is on top, the trend is BEAR/DOWN. Once the trend has been established, we now know to only trade in that direction.
2. (Find Trend Strength) // ADX show the "strength" of the trend. Trend has been established using DMI so now we look at ADX to determine the strength of the trend. Ideally, a trader will want to only take a trade if the ADX is above 40, the trend is considered to have a lot of directional strength either up or down depending on the current direction of the trend. When the ADX indicator is below 20 the trend is considered to be weak or non-trending, not saying a trader shouldn't take a trade on anything 20 or below, its just a trader should expect the trade will be a very shortterm trade. Now that we know the trend direction and strength.
3. (Entry Signal) // Aroon indicator will be used as our entry signal. When the Aroon up crosses up through the Aroon down, the currency pair is said to be in a new uptrend and should experience some upward momentum and vise versa for a downward move. When to two line cross, a trader has two entry options to take.

ENTRY RULES

1. Market Order // If Aroon Up crosses through the Aroon Down, trend is up, a trader could place a martket order only in the direction of the trend which was established using DMI. Vise Versa for a downward trade.
2. Pending Buy/Sell // If Aroon Up crosses through the Aroon Down, trend is up, a trader would place a "Pending" order only in the direction of the trend. Before placing a pending order, the trader should wait for the last candle to close and place a pending order/buy stop at the "HIGH" of the previous candle.

For more information or better understand using Aroon, please visit: http://www.investopedia.com/universi...r/ind_osc5.asp

EXIT RULES

1. Trailing Stop // Under normal market conditions, its best to use a TrailingStop 20pips back. During very volatile moments, such as major news releases, a trader might want to give its trade some breathing room. A TrailingStop of 50 pips should be enough.

Placing tight stops is great money/risk management. A trader that trades the smallest LOT possible with a tight enough stop is practising good money/risk management and remember, if profits are made, adjust your trailing stop to break even and/or lock in profits.

Dec 29,2008

 

1. Eur/Usd - OpenPrice 1.4064 ClosePrice 1.4368 (+)Profit +304/pips
   
2. Eur/Chf - OpenPrice 1.4968 ClosePrice 1.4755 (+)Profit +213/pips

Possible Future Outlook (ie: Green = Possible Future Entry, Red = No Future Entry)
Eur/Usd - Eur/Chf, Usd/Jpy - Eur/Gbp

Great thing about ADX, DMI, & Aroon is ... they keep traders on the right side of the trend. By using DMI, trader automatically know what side of the trade to be on. ADX lets the trader gauge the strength of the trend which in turns helps the trader make a logical decision to either enter the trade or not. Aroon gives you a clear entry point if all other variables are in a row.

Now the above system was intended for traders new to the idea of using DMI, ADX, & Aroon. My personal system takes Aroon out of the system and only uses DMI and ADX. Because Aroon and DMI are practically the same, for personal reason, I prefer DMI with ADX gauging strength. For my trade entry guidlines, I would first determine the trend using DMI and assess the trend's strength with ADX. EMA(21) is important, DMI(14) is above 25 (for example: trend is showing "bullish") and ADX is above 20 (at least), EMA has to be behind the candles/price action and pointing up, before I take an entry trade.

This system works on any/all timeframe. I've scalped the 5 min chart using this sytem as well as traded the monthly chart and profited with with system. I would personally recommend traders use this system on higher timeframes, better risk managment, better profit ratio. Using the 4 Hour chart, I may make one trade per week or 20+ trades a week. It helps using 4 Hour timeframe (or higher) to prevent "over trading", a traders worst enemy.

Jan 5, 2009

 

1. Eur/Usd - OpenPrice 1.3838 ClosePrice 1.3656 Profit +182/pips
   
2. Eur/Gbp - OpenPrice 0.9536 ClosePrice 0.9396 Profit +140/pips
   
3. Usd/Jpy - OpenPrice 93.31 ClosePrice 90.96 Profit +235/pips

Jan 8, 2009

 

1. Usd/Jpy - OpenPrice 92.61 ClosePice 91.24 Profit +137/pips

Why dont you post your trades? I use your system for some time, i want to compare to you. System is really easy and profitable. Thx

Hi,
I tried to post my trades on the mt4stats.com
I am unable to connect to their server. How did you manage to get it up and running?
thanks

Neel

Hi,

I'm using ADX + TOR. TOR helps me identify true trending markets. I also like using Moving Averages to make sure the market is trending and not ranging. I use the ADX signal to be sure the trend is effective and to be in the right direction (DMI+ buy, DMI- sell).

I'm just starting with it. Paper backtests looks very interesting. I also like to add the Sonic Stochastics (Lower & Higher stochastics) on 15M charts and zoom on the 1M when something's happening.

Is it still some people here interested in ADX techniques ?

Regis

I am building a system relying on DMI Cross + ADX >=20 but am not sure abt the exit rule.

How about exit when EMA 3 cross above/below EMA 10?

Comments please

Thx