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Strategies & Market Trends : Tech Stock Options
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To: Judy who wrote (5679)2/28/1997 10:02:00 PM
From: Joel Brussell   of 58727
 
Hello Judy:

I hacen't been able to find the formula for ADX (perhaps Tom has it and can post it) but here's it how it supposed to be used.
Keep in mind I'm learning and don't pretend to be an expert, nor do I play one on t.v
ADX is a mving average tool that is supposed to determine whether a market is trending or in just another choppy period. It was developed by Welles Wilder, the guy who brought us RSI.
I'm quoting here from reference manual-
<A rising ADX indicates a strong underlying trend while a falling ADX line suggests a weakening trend which is subject to reversal>
remember a "strong underlying trend" doesn't indicate direction, it can be up or down.
I have also heard when it goes above 40 and turns down one should watch for a reversal in trend.
I use ADX in tandem with + DMI and -DMI. When they cross and the ADX line is trending up, there usually is considerable momentum.
some people won't pay attention to DMI crossings unless the ADX line is headed up at the same time. Or people will wait for the ADX line to trend up.
This is an indicator (ADX) that will tell you nothing at least half the time in that the line is choppy.
In my own trading i have just adopted the rule of not taking a trade against the a rising ADX line.
In ASND the line turned up on 2-03-96 and is still headed up
In KM the line headed up at the beginning of the rally.
It's a great confirming indicator on possible breaks from areas.
It's not the Holy Grail but a usefull tool
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