Video: Simple Indicator Predicts Pullbacks

Trading chart

Video Transcript

Hey there. This is Trisha for WINvesting and today, I’d like to show you my favorite indicator to spot chop and pull backs in price action. So what we’re looking at right now is a chart of the NQ from Friday, actually the 30th of January. And what we’re looking at here is … I’ve got a few other indicators on here, but the center one here is the ADX/DMI or DMI/ADX depending on what platform you’re using. This is CR so you’ll find it under DMI/ADX/ADXR and I just choose not to draw the ADXR.

If you’re in Ninja, it would be DM, like David Michael and I use a setting of 9, 9, and 9 on all of these. I’ll just show you what the settings looks like, so you can do it similarly with whatever platform you’re using, it might be in a different order than what I’ve got here on my screen. But I’m looking at 9 for length, 9 for living average length, and 9 for the ADXR interval. Like I said, I do not draw the ADXR; you can see here I choose to ignore it.

So it’s really simple. The ADX is the purple and yellow line here, and I’ve got plus DMI in green and minus in red; make it any color you want. And what I’m looking for is the ADX to come outside the top end of the DMI and head lower, start to head lower. And whenever you see that, you are going to get a pull back.

So you can see right here, it comes outside; starts lower, right here, and we get our pull back. The other thing that is really helpful in using the ADX/DMI is when you have the ADX flat lining under your DMIs, and you see the DMIs all tangled together like this, good indication of sideways chop. And no matter what chart you put this on, you’re going to find this continually happen.

So here, we had the ADX come outside the top end of the DMI, we get our pull back. Let’s find a couple more for you. Let’s see… We wanted to come outside the top end, so none of these came out, so that’s what I’m looking for here. Let me just scroll forward here until I find one here. Here we go, it looks like we might have one here. ADX comes outside the top end of the DMI and it price, right here you can see pulls back.

Back here, let me just make this a little higher here. Back here where you see the ADX flat lining under the DMIs like this, you can see we had some sideways chop. So I think that if you apply that to any chart that you’re using, I think that you’re going to find it really helpful. So, I hope that you find that will help in your trading and give you a heads-up of sideways chop and pull backs. Enjoy your day.

Leave a Reply