Trading the DMI with ADX, TSI and EMA (BTCUSD)

Continuing with using the ADX/DMI on a daily chart to trigger a trade with the 4 hour chart to refine the entry, I’ve marked up the recent BTCUSD action similar to the wheat chart in previous article. As you can see from the daily chart, price dropped on the 4th causing the DI’s to swap dominance on the DMI. With the ADX still above 25, this could be viewed as a good signal that a real change is occurring.

On the 4hr chart, I’ve boxed out the day for the candle that caused the change and placed some entry targets for a possible retrace to enter.
Again, as I noted at the end of the last article, the Wilder strategy would call for the sell to be placed at or below the extreme of the day of the change. However, this does open up the trade to more risk. By tracking the day and subsequent action on the 4 hr chart, it’s possible to reduce the risk by placing a stop order in the 25-75% range with a stop just above the high of the day.

In this case, it would have worked however, there are cases which I’ll review next where the trade would have been missed.

Comment:

Looking at a case where the daily chart did not provide a good trigger based on DMI swap. The recent action in ngas seemed to have a similar setup as wheat and btc reviewed earlier. However, the 4 hour chart did not provide the pullback into the 25-75% range to enter a buy. This is one case where following the original strategy outlined by Wilder would have paid instead of the limit order into a pullback of the daily candle that created the change in dominance.

Technically, I guess you could create two orders to cover both the continued breakout to the upside with a stop order and a limit order for the pullback with OCO when filled.

If you wish to just look at the daily and 4hr chart, this might be a strategy to explore going forward. However, If you want to manage risk, buying at the top of a candle that caused the swap could be too much and in these cases (where there is no pullback, you just miss the trade).

However, I’m also exploring this setup on the weekly/daily chart combo and if you look at ngas weekly against daily, then the setup would have worked. Though with weekly, it takes longer to materialize and may not be any more beneficial in managing risk.