Learning to catch High Probability Breakouts

[nitingosavi]

Currently reading :-ADX

Directional Movement (DM)
DM is the largest part of today’s range that
is outside of yesterday’s range.
When the largest part of today’s range is
above yesterday’s range, we get positive
DM (+DM).
When the largest part of today’s range is
below yesterday’s range, we get negative
DM (-DM).
---------------------------------
The primary use of ADX is to measure trend strength.
DMI CONFIRMS trend direction and CONFIRMS price entry/exit signals.
When ADX > 25
If +DMI is above –DMI, prices are trending up.
If –DMI is above +DMI, prices are trending down.
----------------------------------
Short Mode
ADX > 25
-DMI above +DMI
Scalp Mode
ADX < 25
DMI spikes above 25
Long Mode
ADX > 25
+DMI above -DMI
---------------------------------
ADX Trend Strength Rule
When ADX is above 25, trend strength is strong enough for trend trading strategies
When ADX is below 25, avoid trend trading
strategies (optional: scalp trades)
---------------------------------
The magic ADX number for a trend to be designated “strong” is 25.
When ADX falls below 25, price is usually in a consolidation period and trend trading strategies will normally fail.
Once ADX rises above 25, the trader can use
trend trading strategies.
--------------------------------
Best Trades Begin From Low ADX Periods
ADX Trendline Rule
When ADX is below 25 for an extended period,
draw trendlines on price and wait for a breakout
DMI Breakout Rule
A valid breakout up requires a new high in price and
a new high in +DMI (and +DMI > 25)
A valid breakout down requires a new low in price
and a new high in –DMI (and -DMI > 25)
----------------------------------
LONG SETUP
Price has a consolidation period for at least 30 bars (any
timeframe) with a price pattern.
ADX is less than 25 during the consolidation (preferably less
than 15).
Both DMI lines are above ADX prior to the breakout.
The +DMI makes a crossover high as price breaks the top
trendline.
Price retraces to the 20 EMA and holds (first retracement)
while the +DMI makes a pivot low at or near 25.
Enter long on a price pivot low reversal (up)
-----------------------------------
SHORT SETUP
Price has a consolidation period for at least 30 bars (any timeframe) with a price pattern.
ADX is less than 25 during the consolidation (preferably less than 15).
Both DMI lines are above ADX prior to the breakout.
The –DMI makes a crossover high as price breaks below the
bottom trendline.
Price retraces to the 20 EMA and holds (first retracement)
while –DMI makes a pivot low at or near 25.
Enter short on a price pivot high reversal (down).
----------------------------------
DMI Continuation High Rule
During a retracement, when DMI dominance is maintained, a new high in the dominant DMI confirms continuation of the
trend
New high –DMI and new low in price, or new high in +DMI
and a new high in price
---------------------------------
LONG SETUP
Price makes a new high and ADX rises above 25.
Price retraces down near the 20 EMA.
ADX turns down during the price retracement.
The –DMI does not cross +DMI on the retracement.
Enter long when price makes a new high and +DMI
makes new high.
---------------------------------
SHORT SETUP
Price makes a new low and ADX rises above 25.
Price retraces up near the 20 EMA.
ADX turns down during the price retracement.
The +DMI does not cross –DMI (or crosses slightly
without a change of dominance).
Enter short when price makes a new low and -DMI
makes new high.
-------------------------------
Get Out of a Trend Trade With ADX Divergence
ADX Divergence Rule:When ADX is divergent with price, exit part or full position
Most trading education focuses on making the perfect
entry
Exits are harder and more important for profit consistency
Divergence =Decision
Sell partial position (half) or full exit
-----------------------------
ADX Warns a Trend is About to End/Reverse
Declining ADX peaks suggests trend is nearing completion
An ADX peak of 25 or less often precedes trendreversals
The end of a trend is an exit, but not necessarily
a reversal entry
------------------------------
Point #1: Low ADX Periods—No Trend Trading
Point # 2: Best Trades Begin From Low ADX Periods
Point #3: Following ADX Peak >25, the Trend is More Likely to Continue Than Reverse
Point #4: Exit a Trend Trade When There Is ADX
Divergence
Point #5: ADX Warns a Trend is About to End/Reverse.

Currently reading it-- yet to practise its use !

 

[ludhianewala]

Currently reading :-ADX

Directional Movement (DM)
DM is the largest part of today’s range that
is outside of yesterday’s range.
When the largest part of today’s range is
above yesterday’s range, we get positive
DM (+DM).
When the largest part of today’s range is
below yesterday’s range, we get negative
DM (-DM).
---------------------------------
The primary use of ADX is to measure trend strength.
DMI CONFIRMS trend direction and CONFIRMS price entry/exit signals.
When ADX > 25
If +DMI is above –DMI, prices are trending up.
If –DMI is above +DMI, prices are trending down.
----------------------------------
Short Mode
ADX > 25
-DMI above +DMI
Scalp Mode
ADX < 25
DMI spikes above 25
Long Mode
ADX > 25
+DMI above -DMI
---------------------------------
ADX Trend Strength Rule
When ADX is above 25, trend strength is strong enough for trend trading strategies
When ADX is below 25, avoid trend trading
strategies (optional: scalp trades)
---------------------------------
The magic ADX number for a trend to be designated “strong” is 25.
When ADX falls below 25, price is usually in a consolidation period and trend trading strategies will normally fail.
Once ADX rises above 25, the trader can use
trend trading strategies.
--------------------------------
Best Trades Begin From Low ADX Periods
ADX Trendline Rule
When ADX is below 25 for an extended period,
draw trendlines on price and wait for a breakout
DMI Breakout Rule
A valid breakout up requires a new high in price and
a new high in +DMI (and +DMI > 25)
A valid breakout down requires a new low in price
and a new high in –DMI (and -DMI > 25)
----------------------------------
LONG SETUP
Price has a consolidation period for at least 30 bars (any
timeframe) with a price pattern.
ADX is less than 25 during the consolidation (preferably less
than 15).
Both DMI lines are above ADX prior to the breakout.
The +DMI makes a crossover high as price breaks the top
trendline.
Price retraces to the 20 EMA and holds (first retracement)
while the +DMI makes a pivot low at or near 25.
Enter long on a price pivot low reversal (up)
-----------------------------------
SHORT SETUP
Price has a consolidation period for at least 30 bars (any timeframe) with a price pattern.
ADX is less than 25 during the consolidation (preferably less than 15).
Both DMI lines are above ADX prior to the breakout.
The –DMI makes a crossover high as price breaks below the
bottom trendline.
Price retraces to the 20 EMA and holds (first retracement)
while –DMI makes a pivot low at or near 25.
Enter short on a price pivot high reversal (down).
----------------------------------
DMI Continuation High Rule
During a retracement, when DMI dominance is maintained, a new high in the dominant DMI confirms continuation of the
trend
New high –DMI and new low in price, or new high in +DMI
and a new high in price
---------------------------------
LONG SETUP
Price makes a new high and ADX rises above 25.
Price retraces down near the 20 EMA.
ADX turns down during the price retracement.
The –DMI does not cross +DMI on the retracement.
Enter long when price makes a new high and +DMI
makes new high.
---------------------------------
SHORT SETUP
Price makes a new low and ADX rises above 25.
Price retraces up near the 20 EMA.
ADX turns down during the price retracement.
The +DMI does not cross –DMI (or crosses slightly
without a change of dominance).
Enter short when price makes a new low and -DMI
makes new high.
-------------------------------
Get Out of a Trend Trade With ADX Divergence
ADX Divergence Rule:When ADX is divergent with price, exit part or full position
Most trading education focuses on making the perfect
entry
Exits are harder and more important for profit consistency
Divergence =Decision
Sell partial position (half) or full exit
-----------------------------
ADX Warns a Trend is About to End/Reverse
Declining ADX peaks suggests trend is nearing completion
An ADX peak of 25 or less often precedes trendreversals
The end of a trend is an exit, but not necessarily
a reversal entry
------------------------------
Point #1: Low ADX Periods—No Trend Trading
Point # 2: Best Trades Begin From Low ADX Periods
Point #3: Following ADX Peak >25, the Trend is More Likely to Continue Than Reverse
Point #4: Exit a Trend Trade When There Is ADX
Divergence
Point #5: ADX Warns a Trend is About to End/Reverse.


Currently reading it-- yet to practise its use !

:clapping::clapping::clapping:
Well done. Exits and stops we need to work out more specifically.

 

[anilnegi]

Too much focus on adx, is this indicator really a worth trading.

Thanks

 

[manojborle]

Too much focus on adx, is this indicator really a worth trading.

Thanks

When we guys studying price action we go deep into concepts, why we cant do this with ADX or rather any other indicator.
What I have learned till now is If I have to trade using indicators I have to study them in deep(which is I am doing) .
Already there are good changes I am observing in my trading.

 

[nitingosavi]

Too much focus on adx, is this indicator really a worth trading.

Thanks

yeah looks like very good along with price action.
so taking some efforts to understand it.

 

[ludhianewala]

Too much focus on adx, is this indicator really a worth trading.

When we start to trade in trends we need additional information regarding the trend strength. If we trade range bound markets, Adx unlike other Oscillators is not that useful, but for breakouts, Adx is exceptional as it measures the strength of the move.

Trading is done on price levels only. Indicators only tell us what price has done.

Thanks and regards

 

[ludhianewala]

There is no price trader in this forum bec price comes in numbers and everybody uses here either candle or bar which is itself a indicator so plz dnt blabber about price action or indicator

My friend please read carefully what I have quoted. A candle or bar also tell only what price has done.

 

[simplebuthard]

I don't track ADX regularly.

Please see current PNB chart. Chart is DAILY tf for last 1 year. See the ADX going crazy. What does this indicate?

 

[nitingosavi]

Earlier I was fully.. indicator's based trader.

after reading many threads here on traderji, my concepts were cleared.
now I use PA ( as much I understand it-still learning) to find a trade.

but when some times confusion is there.. indicators can surely help. still after referring a indicator (which you know well enough) if you are confused stay away from that scrip as none of your working methods suggesting anything to you. IT can be PA or indicators.

Indicators, cant help us at all, if we don't understand the basic Price action.

abt ADX- why I am attracted towards it ?

I have posted many charts/trades(failed and succesfull) here in this thread.. but till date I don't know how to benefit "fully" after a very good entry. premature exits from fantastic trades = virtual loss. I am looking for solution for my this problem and I feel I may find a solution with ADX.

 

[amitrandive]

I don't track ADX regularly.

Please see current PNB chart. Chart is DAILY tf for last 1 year. See the ADX going crazy. What does this indicate?

ADX rising above 25 levels indicate trend strength.

Please note that ADX does not show trend direction,it only shows trend strength.
Though many times traders use crossover of +DMI and -DMI to understand the trend direction.

We need other parameters to make a trading decision.

A rising ADX is a reliable indication of a trend when there has been an extended sideways period before the trend gets started. Before all the high tech computer mumbo jumbo we used to simply refer to this sideways period as a "basing pattern".

http://traderhq.com/average-directional-index-indicator-guide/

+DI and -DI lines crossover signals are prone to “whipsaws.” This is when the lines cross back and forth over each other in a short amount of time, generating multiple trade signals and likely resulting in losses. This is remedied by only taking trade signals in the direction of the larger trend

The value of 20 or 25 may also not be ideal for isolating a trending market. The ADX may move above 25 only to fall back below it, for example. Just because the indicator moves above 20 or 25 doesn’t mean that trend will persist. It is also possible that a trend is in effect when the ADX is below 20; the trend is just not moving quickly.

Since it is an average, it can also be slow to react to trend changes. Like a moving average, it will always be lagging behind price. During a strong trend this can help keep traders stay in the trade, but the downside is that it will also typically get them in and out later than an indicator that is less “smoothed.”

The indicator does not provide a profit target. While that means the profit potential on trades is open ended, leaving room for big gains, it also means a lot of profit can be given back before a reversal signal is generated by the indicator. Therefore it is recommended that some profit taking strategy is implemented

Also please read this article for limitations of ADX.

http://www.actionforex.com/articles...articles/adx-has-its-limitations-20041108195/