06 July 2009

Measuring trendiness 1 - finding out what ADX is

The concept of ADX is really reasonable. It indicates trendiness to measure the average of the differences between up momentums and down momentums over n periods. The wider the differences are, the stronger the trends are.

In the book The New Technical Trader by Tushar S. Chande and Stanley Kroll, it’s written that CMO can measure trendiness like Vertical Horizontal Filter (VHF) and ADX.
Do you think only CMO has the ability among oscillators? I don’t think so because it’s just one of them, so if CMO has the ability, I think some of other oscillators can have that too, so I’ll compare ADX(14) with CMO(14) and Center of Gravity Oscillator (CG Oscillator)(10).

By the way, when trends are weak, two moving averages that are short and long periods should tangle each other, so I think MACD and 3/10 Oscillator would be about 0. When trends are strong, the two moving averages should line up, so I think MACD and 3/10 Oscillator would be away from 0. From this aspect, MACD and 3/10 Oscillator could measure trendiness too, so I’ll compare ADX(14) with MACD(12,26,1) and 3/10 Oscillator(3,10,1).

In this examination, I’ll use 1 hour charts of EUR/USD and USD/JPY and I modified the photos to suit ADX. Specifically, I inverted the parts of minus at indicators to plus, but I left original lines to change into semi-transparent. (Actually it was really troublesome.)
Please look at the first and second photos.

In fact this result disappoints me, because I expected some of them to be more similar to ADX, then I was going to conclude ADX was not special, though I could have them more similar to change parameters or I could use other indicators that were more similar.

But when I saw the line of ADX, I thought it’s smooth and moderately timely, so I could use it in another way. Then at last I tried to modify ADX from absolute value to real number. I named it “ADX modified” at the charts.
I’ll compare ADX modified (14) with MACD(12,26,9) and TRIX(8)
Please look at the third and forth photos.

ADX modified, MACD and TRIX are fairly similar, aren’t they? This is what I was expected.
Of course the result is about ADX modified, so it can’t conclude ADX is not special, but at least it satisfies me. What do you think?

Actually I didn’t show you the way of measuring trendiness, because I didn’t have a convincing way at the moment. This is one of my pending issues.

Download : CMO_v1.mq4
Download : CG.mq4
Download : 310.mq4
Download : Trix log.mq4
Download : ADX modified v1.mq4 (This ADX modified is slightly different from above photo's.)
Download : ADX modified v2.mq4 (This ADX modified is slightly different from above photo's.)

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