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#11 hiker

hiker

    independent trader

  • TT Member*
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Posted 04 March 2006 - 07:44 PM

resistance zone has narrowed to $64-64.55...shorting rallies continues to be in play for this name while the other name in the sector is likely catching attention of longs:

http://stockcharts.com/gallery/?oats
5% gain last week...new highs continue...rising lows controlling the weekly chart pattern. Note the ADX which is now at 55.47.

let's see how this one guide to using the ADX works for trading OATS by watching what happens to future price behavior now that the ADX is at current levels:

The ADX Indicator

Ever have trouble determining if a stock is trending or just moving sideways? If you answered, "Yes," then the ADX is for you! The Average Directional Index (a.k.a. ADX) was developed by J. Welles Wilder Jr. to evaluate the strength of a stock's trend. It is an oscillator that fluctuates between a scale of 0 and 100, although it rarely ever gets above 70. A low reading below 20, indicates a weak trend (or sideways action) and a high reading above 20, indicates a strong trend. Understand that the ADX line itself does not actual give any trading signals; however it does help in analyzing price activity. Most charting packages or websites offer the ADX as an indicator. It is often accompanied by a DMI + and a DMI - reading. The DMI (Direction Movement Indicator) simply helps to determine if the trend is sloping up or down by showing a green line above or below a red line. The ADX line itself does not determine up or down trends...it simply determines trend strength.

A few points in applying the ADX indicator:

* Remember the ADX itself does not give signals...it simply determines the strength of the current trend. An up-sloping ADX line means the trend is strong. A down-sloping ADX line indicates a weakening trend or sideways action.
* Technical analysis is an art, not an exact science. With that said, do not get hung up about the 20 level. Pay closer attention to the slope of the ADX line itself to indicate a strong or weak trend.
* As with all technical indicators, it is best to combine them with other tools. When the ADX suggests a non-trending stock, consider using indicators like Stochastics or RSI for buy and sell signals. If the ADX suggests a strong trend, consider using moving averages, support & resistance, and trendlines for signals.
* Take caution if the ADX line rises above the 50 level. It usually indicates the trend is ridiculously strong and the stock price will most likely correct soon.
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Edited by hiker, 04 March 2006 - 07:52 PM.