AUD/USD: ADX/DMI Signal: Buy at 0.99257 - Stop Loss at 0.98924

  on May 22 2012 4:16 AM

Date: 22.05.2012 Time: 04:00 AM EST Entry: 0.99257 Signal: Buy Stop Loss: 0.98924 Take Profit: When the ADX line begins to fall

width=640 (Chart done with FXCM)

DMI: The Directional Movement Indicator (DMI) is a trend-following system developed by Welles Wilder. You establish a long position whenever the Plus DI crosses above the Minus DI. You establish a short position, when the -DI crosses above the +DI.

ADX: The Average Directional Movement Index (ADX), is part of the DMI and determines the market trend. We combine DMI with the ADX to reduce the whipsaws. The ADX informs you if it is early or late in a trend. If the ADX line is trading above 20, then the market is in a trend. If the ADX line is below 20, it means the trend is not a strong one.

Entry Signal: 1. Crossover +DI and -DI 2. ADX must have 3 consecutive higher readings above 20 to confirm that we are entering into a trend. 3. ADX should be pointed up at all times when entry is being considered 4. If at this time, the +DI (blue line) is above the -DI (red line), which indicates an uptrend, then the ADX should have also crossed the -DI (red line). This is a very important confirming factor.

Risk Management: We place our stop at the low of the bar, where the DMI lines have the crossover. Money-Management: For each trade I risk LESS THAN ONE PERCENT.

Exit: We look to exit the trade only when the ADX line starts to fall down.

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