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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: MechanicalMethod who wrote (11104)	1/30/2001 8:39:51 PM
From: HairBall	Respond to of 12039

MechanicalMethod: A little blurb about Directional Movement... The Directional Movement Index is an unique filtered momentum indicator. It is based on the assumption that markets exhibit strong trends only about 30% of the time and provides entry into trades only when markets exhibit significant trending characteristics. Direction Movement is the largest amount of daily movement a security has up or down. In other words, if the rise of today's high relative to yesterday's high is larger than the drop of today's low relative to yesterday's low than the Directional Movement for the day is said to be up and equal to the difference between today's high and yesterday's high. Likewise, for the case were the drop in low prices is larger. +DI and -DI are the sums of the up and down directional movements respectively over the past days specified divided by the sum of the True Range for the specified time range. The Directional Movement Index (DX) relates the +DI and the -DI to give a measure of trend. The Average Directional Movement (ADX) is merely a moving average variation of the Directional Movement Index (DX). The Average Directional Movement Rating (ADXR) takes an average of today's current versus a past ADX value. Directional Movement was originally defined by Welles Wilder in 1978. His book, New Concepts in Technical Trading Systems, offers full explanation about all of the facets of using Directional Movement. If you employ trend-following techniques with stocks or commodities, a directional movement index toward the upper end of the scale would be good; likewise nontrending techniques should be considered for stocks or commodities at the lower end of the scale. Simply said, enter long when +DI crosses over the -DI line and sell or sell short when -DI crosses over the +DI line. Wilder also states that significant movement is measured if the ADX line is moving well away from the ADXR line. This could indicate significant price movement. Regards, LG