MDA - Market Direction Analysis

[Culmus]

Thanks Augieboo, I'm looking forward to some additional insight into the DAX with the help of these indicators.

On the ADX maybe a description of my charting service is of some help:

Description:

The ADX is a simple smoothing of the DMI indicator which was introduced by Welles Wilder in 1978. The ADX is the best known indicator to calculate trend strength. While the ADX measures trend strength it does not distinguish the direction of the trend. A rising ADX points to the beginning of a trend or the strenghtening of trend intensity, but it does not show the direction. A falling ADX points to the end of a trend or the lessening of trend strength, again not the direction.

Calculation:

First, two component indicators are being calculated, +DM and -DM. For "outside days" +DM represents the difference of todays and yesterdays high, the difference between todays and yesterdays low represents - DM. "Inside days" should be ignored and for these both +DM and -DM are assigned a value of zero.

Now the so called True Range TR is being calculated. TR is always positive and represents the maximum of the following:

* Todays high minus todays low
* Todays high minus yesterdays closing price
* Todays low minus yesterdays closing price.

Now the upwardly directed Directional Indicator +DI is calculated by dividing TR into +DM. For smoothing commonly the +DMs of the last fourteen days are being added and then divided by the sum of the last fourteen days' TR. The result represents the +DM for the last fourteen days. The same calculation is made for the -DM.

To reach at the DMI subtract the -DI from +DI and divide by the sum of +DI and -DI, then multiply the result by 100.

A simple smoothing then represents the ADX.

Formula:



where n = smoothing constant

Parameters:

The period length can be chosen between 2 and 500. The most common periods used lye between 8 and 30.

Interpretation:

The higher the ADX the higher is trend intensity and the stronger the underlying trend. Hint: As long as the ADX is rising it should be avoided to pay attention to oscillators. The ADX can be used as a filter between oscillators and trend following indicators.

Literature

Babcock, Bruce: The Dow Jones-Irwin Guide to Trading Sytems

Colby, Robert W.. Meyers, Thomas A.: The Encyclopedia of Technical Market Indicators

Le Beau, Charles.Lucas, David: Technical Traders Guide to Computer Analysis of the Futures Market

Pring, Martin J.: Martin Pring on Market Momentum (in deutscher Übersetzung: Martin Prings Börsentechniken)

Wilder, J. Welles: New Concepts in Technical Trading Systems

I hope that helps a little.

Culmus