Bryan Sumner
Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report. Read this 49 page Quantum Swing Trading Report plus the shocking Profit Button Report that applies no matter what you trade-stocks, forex, futures or options FREE. Meet the High Velocity Market Master and get your FREE COPIES of the Ultimate Day Trading System and the Universal Risk & Money Management Tool just now! Every day you will come across a new trending indicator. The number of trending indicators now available is mind boggling. Almost all these trending indicators use price and volume in their charts. So using many will not give you an advantage. What you need to do it to use only one trending indicator and combine it with candlestick patterns to generate accurate trading signals.
First, you need to eyeball the chart to determine if the market is in a trend. You can also use the ADX ( Average Directional Index) Indicator to determine the trend. Unlike the oscillators that have a range between which they oscillate, a trending indicator has no upper or lower bound. The higher the trending indicators reading, the stronger the underlying trend!
Now these trending indicators can be applied to almost all markers stocks, futures, currencies, commodities, ETFs and so on. So mastering one trending indicator can give you the edge to trade different markets. The three major trending indicators are: 1) Moving Averages, 2) Directional Movement Index (DMI) and 3) Moving Average Convergence Divergence (MACD).
Directional Movement Index (DMI) is a powerful trending indicator. DMI not only reveals the direction of the trend but also tells whether it’s strength is increasing and when it is about to end.DMI is composed of three charts or plots.
+DMI, -DMI and ADX. +DMI ranges between 0 and 100 and indicates how effective the bulls were in pushing prices above the last day’s high. -DMI also ranges between 0 and 100 and shows how effective the bears were in pushing prices below the previous days low. ADX measure the difference between the two +DMI and the -DMI. ADX gives the strength of the trend.
Most traders use +DMI and -DMI crossovers as trading signals. When the +DMI crosses above the -DMI, it signals that buyers are now in control of the market. When the -DMI crosses above the +DMI, it signals that the sellers are now in control of the market. You must master this technical indicator if you are a serious trader.
However, frequent crossovers between the +DMI and the -DMI means that neither the bulls nor the bears control the market. This will reflected by the ADX being below 20 meaning the market is ranging. Most charting software now available provide DMI in the arsenal of indicators that you can use. DMI is calculated over 14 days and ADX over 25 days. You need to master this one trending indicator.
Tags: +dmi, adx, directional movement index
Posted in Stocks · March 11th, 2010 · Comments (0)