Directional Movement Index
- Trade only those markets withanADXR above 25/30.
- Trending market: ADXR > 25/30 or rising 3 points in 1 week.
- Non-trending: ADXR < 25/30 and momentum is negative.
- Buy = up index (+DI) crosses above the down index (-DI)
- Sell = down index (-DI) crosses above the up index (+DI)
- Stop out positions using the Extreme Point Rule
- On the day that +DI and -DI cross, use the extreme point made that day, as the Reversal Point.
- If you just went long, the reversal stop point is the low made on the day of the crossing.
- If you just went short, the reversal stop point is the high made on the day of the crossing.
- Continue to hold this position and the stop, until you are stopped out, even if the lines have crossed.
- Trend change
- In strong uptrending moves, the +DI and the ADXR turn up early and move higher, with the +DI generally holding above the ADXR.
- A high probability signal that the uptrend has stalled or ended is generated when the ADXR line crosses above the +DI, and then turns down. This signal commonly occurs on the day of the trend change or slightly before.
- It rarely takes more than a few days past a true trend shift to see the ADXR turn down. A warning that a top may be near is often signalled when the +DI stalls and turns down from a high level.