Trend Reversal System w/ ADX

[Leth]

Here is a simple ADX system for trading trends on a daily chart...

Optimal settings for longer term trading should be kept around a period of 20 days. This keeps transaction costs at a minimum. As you can see...the actual ADX line is not shown because it is not needed to trade longer term trends. However, the +DMI line and the -DMI lines are used for trigger points.


ADXDMI20.jpg

(click on thumbnail and maximze)


Rules:

Go Long the day after the +DMI line crosses above the -DMI line
Go Short the day after the +DMI line crosses below the -DMI line
Always reverse and/or close positions at the cross
Check your positions EOD only


Don't forget that when trading individual stocks, Dow Theory may apply. As with all trading systems, strict money management rules must be used. See the following thread on how to build a more complete trading system:

http://www.trading-lab.com/forums/bu...tems-t196.html



*Disclaimer: Your personal choice in trading methods should be based on your evaluation and understanding of risk. The author/poster of this article is not liable for any personal losses accrued as a result of the above system(s) utilization.

[Soverus Khan]

Originally Posted by Leth

Here is a simple ADX system for trading trends on a daily chart...

The ADX example shown below has a period of 14 days. Optimal settings should be between 18 and 25. This keeps transaction costs at a minimum. As you can see...the actual ADX line is not shown because it is not needed to trade longer term trends. However, the +DMI line and the -DMI lines are used for trigger points.






Rules:

Go Long the day after the +DMI line crosses above the -DMI line
Go Short the day after the +DMI line crosses below the -DMI line
Always reverse and/or close positions at the cross
Check your positions EOD only

As with all trading systems, strict money management rules must apply. See the following thread on how to build a more complete trading system:

http://www.trading-lab.com/forums/bu...tems-t196.html



*Disclaimer: Your personal choice in trading methods should be based on your evaluation and understanding of risk. The author/poster of this article is not liable for any personal losses accrued as a result of the above system(s) utilization.

I experimented with ADX/DMI on 3 different timeframes. I would recommend a very intensive backtest. I'm not a big backtest guy anymore though. I studied it on the 1 and 5 minute, 5 day, and monthly time horizons and could not justify the r/r.

If you stumble upon an enhancement, please post. I do think it has more opportunities than most indicators.