E-Mini Trading: Do You Understand the ADX?

By David Adams

One of the most important concepts in e-mini trading is to learn to trade with the trend. Of course, trends come in varying intensities and magnitudes. The question many e-mini traders face is whether they are entering a trade in a strong trend or a weak trend. Strong trends typically produce sizable profits and weak trends can often end with a loss. It’s in every trader’s best interest to discern the strength and intensity of a trend in which they may choose to initiate a trade.

The Average Directional Indicator and its sister indicators, the Minus Directional Indicator (-DI), and the Plus Directional Indicator (+DI) are part of a group of indicators developed by Welles Wilder in his 1978 book, “New Concepts and Technical Trading Systems.” As an aside, I highly recommend reading this book as it is one of the landmark texts in technical trading. Along with the above-mentioned indicators this book also laid the groundwork and explained the Relative Strength Indicator (RSI), Average True Range (ATR), and the RSI. These indicators have been around since 1978 and are still the basis for a great deal of technical analysis.

The ADX is used to determine the strength of a trend. I do not use it as a primary indicator in my personal trading, but rely heavily upon it as a secondary indicator to indicate whether the trend in which I am participating is a powerful or weak trend. Generally speaking, the default setting for the ADX is set at 14 bars, though I have seen traders adjust the setting as high as 50 bars and as low as 8 bars. The ADX is generally plotted on the same plane as the +DI and -DI. When the +DI and -DI cross it is generally considered a potential entry point for a trade. The ADX, however, will give the trader a good idea whether or not this potential entry point is part of a strong trend or merely a spurious trade signal in a range bound market. The ADX is plotted on a continuous graph from 0 to 100. For the most part, the strength of the trend, as measured by the ADX is as follows:

• 0 – 25 indicates a lack of trending market action.
• 25 – 50 indicates a strong trending market.
• 50 – 75 indicates a robust trend.
• 75 – 100 indicates an extremely powerful trend.

Like many technical indicators, it is important to understand that the ADX is a lagging indicator. This does not necessarily have to be an impediment to using the ADX though, because e-mini traders often enter trades too early in a trend and are subject to false breakouts and false breakdowns. So the ADX can assist an e-mini trader in entering a trend at the proper time.

It is also important to understand that the ADX is non-directional, which is to say that it does not indicate the direction of a trend, only the strength of a trend. For example, a strong downtrend may register 58, and a strong uptrend can also register 58. The point is a simple one; the ADX only measures the strength of a trend and not the direction of a trend. So, when the ADX is rising the strength of a trend is increasing either long or short. By the same token, when the ADX is falling the strength of a trend is waning.

In summary, this has been a short introduction into the use of the ADX and more study and actual experience is required to use it effectively. We have noted that the ADX measures trend strength and is a non-directional indicator. It does not measure the direction of a trend, only the strength of the trend. Finally, we have given some general guidelines on ADX readings that quantify the strength of the ADX indicator. Learn more about this indicator, as it is useful and can be a valuable addition to your trading.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here

Are The Banco De Oro (BDO) Bulls Back?

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Henry Sy-backed Banco De Oro Unibank, Inc. or BDO as it’s commonly known made some significant headway over the past two months. And it appears that BDO still has some more left in its bank for a move higher.

The start of 2011 was not particularly well for BDO as its shares slid from around PHP 60.00 to a low of PHP 45.8 on February 23. From that point, it was able to pick itself up all the way back to PHP 54.00. After that, it consolidated for a while before it breached the PHP 54.00 resistance the other day. Since the start of the year, BDO was actually forming a cup and handle pattern which it broke last Monday. Now, if it can keep its head above the PHP 54.00 then it could head all the way to PHP 62.00.

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Silver Corrects


From $17 a year ago, the price of spot silver rose to an all-time high of $49.78 yesterday way faster than gold’s ascend. One factor is the Middle East unrest and many people who find gold expensive are moving to silver instead.

As seen on it’s chart above, upon tapping $49.78 yesterday, the daily candle stick closed at $46.46. This is clearly a bearish candle signal and indicates a one-day reversal. True enough, silver continued to decline today and could do so in the coming days. However, this doesn’t mean that silver will continuously fall. In fact, its uptrend still remains intact and the price could further head back up once it finds some support. Like I always say, as long as the uptrend remains intact, the bulls will be on its side. In that case, catching the price at the uptrend lines and placing your stop loss below it would be advantageous. At its current chart, the immediate support could be around $44.00. Then after that could be $42.00. In any case silver bounces off those levels and heads back up, it needs to first retest it’s all-time high at $49.78 as heavy selling pressure will most likely be encountered at that level.

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Randomness and E-Mini Trading

By David Adams

Among the most controversial topics in market theory is the degree and level of randomness present in each daily trading session. There are those that deny the random movement of the market, while others believe that all market movement may be random. The truth probably lies somewhere between these two extreme views.

The human mind has a very difficult time dealing with random events. We are genetically programmed to sort and organize events into patterns that are identifiable. Yet randomness in the market is poorly understood, and competing theories have muddied the waters of true comprehension. In my opinion, there is a high degree of randomness in the market; along with some highly organized behavior that also occurs in the market. With a plethora of studies published in recent years on this topic is difficult to come to a definitive conclusion as to which portion of the e-mini market is random and which portions of the market are finite trends. Let’s face it, any experienced trader has observed the market rocket in one direction without rhyme or reason and found himself scratching his head in confusion.

And it’s that confusion in the e-mini markets that causes so many individual e-mini traders to misinterpret market movement and true trending patterns. From my reading, it is my opinion that about 65% of market movement is random in nature, and about 35% of the market movement is organized behavior. This is a difficult concept, as I have mentioned earlier in this article, for most investors to accept. Things happen for a reason, and we are conditioned to interpret most actions in terms of cause and effect. The market defies these traditional notions and a great deal of testing has shown that at times the market moves in a highly random manner.

So how does that affect us as e-mini traders?

From my viewpoint, I think it is important to identify the trending markets and specifically concentrate on trading the market during the periods that it trends. As I have mentioned, this limits most traders who choose to follow this maxim to trading only about one third of the daily trading session. The rest of the time you may find yourself watching the market ping-pong back and forth in a tight range. Generally speaking, range bound trading is a function of normal market operations of filling and backfilling. I specifically avoid any activity in the markets during these range bound periods or during periods the market forms a channel. This channel behavior is generally called a consolidation period.

If you believe the tenants of my belief, it is not difficult to understand how individuals who engage in over-trading often find themselves on the negative side of their futures account. There are only so many times that the market trends sufficiently to initiate trades that stand a chance of earning a respectable profit. On the other hand, channel trading is typified by false breakouts and false breakdowns, which are frustrating and generally result in a losing trade.

In summary, it is difficult to ignore the vast amount of literature that empirically illustrates the random nature of e-mini markets. On the other hand, there is a good deal of evidence that suggests that the market is not entirely random, and periods of trending are not random behavior but organized movement in the market system. For e-mini traders then, the logical conclusion is to focus your trading efforts on those periods when the market is in a trending pattern and avoiding those periods of time when the market is displaying random behavior caused by normal filling and backfilling from the retail sector.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here



GBPUSD, GBP, USD, british pound, sterling pound, us dollar, cable, hidden bullish divergece, ron acoba, daily forex picks

The recent correction of the British pound against the US dollar could probably be a good opportunity for me to go long on the GBPUSD.

The GBPUSD or the Cable as what the people in the FX arena call it rallied strongly from a low of 1.6165 to a high of 1.6600. The pound, however, shed some of its gains after reaching the said high. At present, it is exchanging at around 1.6464 and it seems that there is still some room for it to go lower. I view this correction as temporary. Hence, the pound could bounce right back once it finds a significant support.

The question now is, “Which level is a good entry point?”

To determine this, I got the Fibonacci retracement levels using the 1.6165 swing low and the 1.6600 swing high. So my plan now is to place buy orders at these 3 levels and a stop loss just below the 61.8% Fibonacci retracement level. The presence of a hidden bullish divergence, where the price registers higher lows and the stochastics mark lower lows, suggest a bullish turnaround in prices. I’m just hoping that my long orders get triggered and the price action goes my way. If indeed it does, then I would likely close my position/s at around 1.6550.

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US Economy on the Rise

By James McKee

The US economy is on the rise and many are taking notice of the fact that US corporations and the stock market are both in extensive recovery. This has had considerable influence on a weak dollar, and allowed it to raise somewhat against the Euro. The USD has had some complications recently, and has fallen sharply against the Euro. This has not been a great time to invest in the USD on the online forex exchange, with the recent boost in US corporate earnings the economy may be on the rise.

The US dollar has never quite recovered since 9/11; however, President Obama’s stimulus money and other measures have helped the USD recover somewhat but it has a long, long way to go. The nation of America is in a tough position without its former production ability, and the added weight of several new burdens including an intervention in Libya. The entire US fiscal picture is not a bleak one; however, the United States has still not made the necessary budget cuts. All of the United States government has been in a deadlock attempting to hammer out a satisfactory budget to no avail. The amount of money trimmed from the US budget is so small that in all likelihood it will have no impact.

The Federal Reserve Bank has committed publicly committed to reinforcing the dollar and aiding the US economy for the foreseeable future. The Federal Reserve Bank aims to do this by keeping interest rates low and allowing debt levels to rise as high as they need to. The support of the Federal Reserve will help investors to feel more at ease when investing in US stocks or the US dollar, because they will both enjoy a slightly more stable environment thanks to the Fed.

Attracting investors is just part of the problem though, there is also the need to fix what has become a very broken budget in the United States. Roads and other items related to infrastructure have been being neglected and as a result commerce, as well as safety have been suffering in the US. The United States economy will only enjoy a temporary and faulty recovery if the budget is not changed significantly, there can be no recovery with the constant debt. The USD on the online forex exchange will continue to experience trouble until the United States government becomes a lot more serious about decreasing their debt.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

Why Automated Trading Systems Never Work?

By Taro Hideyoshi

As a trader, I am quite sure that you have heard about automated trading systems. They usually come with big claims of profits in just few clicks to set them up. Have you ever wonder (if you have not been using any) that if they work or not?

In this article, I am going to share you some reasons that will help you answering the question “Do automated trading systems work or not?”

The first reason why automated systems never work is because markets always change. The systems may look good at some periods or some situations but they never work in long run.

Another reason is because the automated systems generally come as black box. Developers do not want you to see what are behind the system. They just claim that you will get big bucks if you buy their systems. Also they will show you the results of the systems based on historical data. That is not enough! The historical performance cannot guarantee the future.

I have always mentioned about complete trading systems. A complete system must consist of rules for entry, exit, stop-loss and money management. Some automated systems may consist of these components but they will still not work if they are black box.

In real trading, you need white box systems that you can tune them to be suitable for market conditions. Furthermore, you have to know what are reasons behind each trade, where and why do you enter a trade, how your exit and stop are placed. How your money is managed.

Think about this, if the developers of the systems can take profits in trading using their systems as they claim, why are they making money by selling their systems? If it was you, do you want to share your secret with others?

The fact is there is no secret in trading. It mostly depends on your mind. Some successful traders use only basic indicators in their trading. Also, traders who are using the same system may get the different results.

So the bottom line is: instead of fully automated trading systems, you better use semi-automated trading systems. Learn and adjust your trading systems then let they gain you profits. However, do not forget to do back-test for the systems before using them.

A benefit of the automated trading system is they execute a trade based on the system. It requires less control of your mind.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.

E-Mini Trading: How Long Should You Trade in Simulated Mode?

By David Adams

As difficult as it may seem to believe, I have several students in my trading room who have been e-mini trading on simulators for several years. I frequently ask them why they have not moved to real money, and they respond that “they want to completely understand the system before moving to an actual live account.” Of course, the real problem in this equation is fear of failure, and putting off an actual test of their skills is a suitable substitute for dealing with the issue of actually winning and losing. Even the best traders have day that they lose money. I have been in this business for most of my life, and have entire days that end up in the negative column. I don’t enjoy losing, but it is a fact of life. I have even had periods of time where my style was not in tune with the market and I have had losing weeks, and occasionally even a losing month. It doesn’t happen often, and never in recent years, but learning to deal with losing trades is part and parcel of learning to trade.

On the other hand, I like for students to use an e-mini trading simulator for several weeks so that they can learn the features of a trading platform like:

• How to place a trade at a specific price
• How to set up stop loss orders
• How to set up staggered profit targets
• Learn the general operating features of a trading platform
• Place simulated trades to get a feel for how the price action looks on a DOM.

In short, simulators are great places to learn how to operate a trading platform and implement the trading strategies the new student has been learning. But when fear begins to replace the learning feature of a trading simulator, it is my experience that most traders seldom make the transition from simulator to trading actual money. Until traders can make that quantum leap from pretend trading to real trading they are doing themselves a great disservice and would probably be best served spending their time in an avocation more suited to their psychological and emotional parameters. Trading is not for everyone.

So, if you have been e-mini trading on a simulator for more than a year I would have a heart to heart conversation with myself. After a year of learning, you should be able to initiate a good number of winning trades, and experience some losing trades. Each trading experience is a learning moment and in order to learn you have to be an actual participant; extended time spent on a simulator is little more than participating in trading as a spectator. This is something for you to consider and take to heart.

In summary, we have pointed out some excellent benefits associated with simulated trading and pointed out that an extended period spent in simulated trading may not be beneficial to a new trader. It is my opinion that traders should learn to trade on live accounts. In short, get off the sidelines and onto the field of play.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here