Friday, March 15, 2013

A Volume Biased ADX


I am returning to blogging after a long hiatus.  It is usual in life that we face intervals of disturbing events and confused priorities.   Now that the dust is settling down I am slowly picking up the threads and I am coming back to my passion, Technical Analysis.

I am  sharing some thoughts on the ADX indicator. ADX is one of the very popular indicators and widely used by technical analyst. Dr. Charles Schaap’s  book “ADXcellence” deals with different strategies of trading with ADX. Then there a commercial product called Super ADX which the sellers claim is a leading indicator though the ADX by itself is a lagging indicator. Also I do not know how much of it is based on real ADX other than they have an indicator called supporting ADX. Anyway soon I will release a clone of the so called Super ADX.  I also had released a Gaussian smoothed ADX called KADX which was more sensitive and smoother than the conventional ADX. ADX is a useful indicator to measure the strength of a trend. ADX by itself is a non directional Indicator and does not indicate if the trend is up or down. We use two other indicators called the +DI and -DI to reveal which trend direction. I will not go into further details as most of you, readers of this blog, will be familiar with the ADX indicator.

As many of you may be aware the importance I provide for the volume in my analysis. Any move of a stock which is not aided by volume will not last. Volume is the fuel for any trend. So naturally any trend strength indicator without consideration of the volume cannot provide the real picture. The ADX calculation totally ignores volume and purely based on the price movement.  Price action combined with volume would be definitely provided a more realistic picture. This thought has inspired to experiment with the ADX to include the volume aspect.  The basis for the ADX calculation are the difference between the High of a day and the High of the previous day and also the difference between the low of the day and low of the previous day. In other words it uses the momentum of the Highs and Low. This momentum is fuelled by volume. So we will add a volume factor to this momentum. To calculate the volume factor we take the ratio of the current volume and the average volume. We will bias the momentum of the Highs and Lows with this volume factor. The remaining of the calculation will be based on these biased values and the final ADX, +DI and –DI values will be biased by volume. The result of this is quite evident from the chart below. The resultant +DI and –DI are much more responsive to the volume and they clearly indicate which moves are volume driven and which are not.  The ADX also quickly increase in values when the volume increases indicating increased trend strength.




15 comments:

  1. Hi Kartik ji...
    A post after so many days silence...Nice one..We were missing your new staff..For super ADX a thread had started buy don't know whether any body converted or not...
    http://www.traderji.com/amibroker/78449-superadx-mq4-indicator-can-anyone-convert-amibroker-afl-help-1.html

    The above link is for your reference Sir...Hope u will publish it very soon...

    What hapened to ur web site..tatechnics.in? It is not opening

    ReplyDelete
  2. Sir,
    So happy to see you back in action . :)

    ReplyDelete
  3. Hi Sir!

    Im fan of your VSA indicators for Amibroker some time ago to date, Im glad to see you again on the coding scene...

    Regarding your new ADX Volume Indicator, I can see some kind of correlation with the PVI and NVI indicators, in favor of the last one (NVI) that is sensible to "Strong Hands" movements in volume. How both of these correlate in techincal terms...?

    A Spanish coder named @Blai5_ (Tweeter) made some time ago an excelent indicator for ProRealTime, and it was ported to AmiBroker http://www.blai5.net/www/index.php/koncorde/koncorde-para-amibroker It gives great representation of Volume Movements, and there are some interesting patterns on the indicator that "predicts" strong movements, he call this pattern a MIRRIR, that happens when the PVI is below 0 and below the NVI, and the NVI are over 0.

    Cheers and glad to see you again here.

    ReplyDelete
  4. Hi, Thanks for the info on the Koncorde Indicator. I need to do some research on the same. I will get back with my views on the same soon.

    Regards

    ReplyDelete
    Replies
    1. Dear Kartik ji
      Greetings... Any update about Koncorde Indicator ? Regards.

      Delete
  5. Hi sir,

    I had gone through your blog on VSA. It is wonderful and new to me. I would like to study more. Can you help me to find more stuff on it.

    thanks

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  6. Here you can download the AFL, I'll put it for a limited time. The author @Blai5_ give this for free, but for the ports at his site he ask for donations.

    http://dl.dropbox.com/u/20239906/KONCORDE_v09-XeLMoD.afl

    Cheers.

    ReplyDelete
    Replies
    1. Hi Thanks a lot. I will revert back after my study. I am really keen to see how this can help in the VSA.

      Regards

      Delete
  7. Dear karthikji ia m from mumbai by profession i am a IT server engineer.Unexpectedly i found your article and afl on the net since the day i am in love with your knowledge,dedication and sincerity towards the works.
    There are very few person who share the knowledge without any mutual benefits.Hats off you.thanks

    ReplyDelete
  8. Dear Sir,

    I am new to the chart based trading.
    while searching for the AFL's i have seen your blog.
    Its very useful.

    Can i get the indicators based on ADX.

    ReplyDelete
  9. Dear Moorthi, All indicators can be downloaded. Please check the side pane of the blog. Click on the indicator you like and you will get the link to the post from where the indicator can be downloaded.

    ReplyDelete
  10. Dear Mr.Karthik,

    This piece of code is greatest as many of my problems in trading solved.
    Thanks a lot for sharing & God Bless you & all your family

    Viswanath
    kv.maligi@gmail.com

    ReplyDelete
  11. hi

    do u teach algo trading?plz response.if i can communicate u personally i shall be grateful.

    ReplyDelete
  12. Dear Karthik sir, You VSA indicator is truly wonderful as someone said it solves lots of headaches. I want Amibroker to "autoanalyse" every minute and flash the results on the screen upon the conditions I define for the stock under watch. May be you can help, if not could you guide me to someone who can make this happen. You have been really very generous in this commercial age. God bless you and your family..

    ReplyDelete