CHAPTER 3
Trending Indicators: Entries and Stop and Reverse

In order to trade at all, it's necessary to get into the market to buy or sell. Thus indicators used for entries are fundamental. In Section 3, the most well-known of indicators, moving averages, are discussed, as well as the popular DMI and ADX (Directional Movement Index and Average Directional Movement Index). Various trading systems using these indicators are presented, as well as methods of combining them such that one corrects or filters the other.

QUESTION 3.1   DANG with SMAs (5, 21)

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  1. Draw in blue up and red down arrows for a moving average stop and reverse system.
  2. Circle any whipsaws.

QUESTION 3.2   AVAV SMAs (10, 21, 50)

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  • Long Entry = FastMA > (MediumMA and SlowMA), Long Exit = FastMA < MediumMA
  • Short Entry = FastMA < (MediumMA and SlowMA), Short Exit = FastMA > MediumMA
  1. Draw in blue up and red down arrows for long and short entries.
  2. Draw in purple down and up arrows for long and short exit only.

QUESTION 3.3   DDD with SMA (10), High Low Channel (21)

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  • Long Entry = FastMA > Upper Channel, Long Exit = FastMA < Upper Channel
  • Short Entry = FastMA < Lower Channel, Short Exit = FastMA > Lower Channel
  1. Draw in blue up and red down arrows for long and short entries.
  2. Draw in purple down and up arrows for long and short exit only.

QUESTION 3.4   DDD with DMI and ADX (34)

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  1. Using blue up arrows and red down arrows show the trades for a DMI SAR system.
  2. Circle any whipsaws.

QUESTION 3.5   CBK with DMI and ADX (14)

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  1. Draw blue up or red down arrows on what appear to be successful entries.
  2. Circle a major area where there's a “necklace effect.”
  3. What is the condition of the ADX during December 2013?
  4. What does this condition mean?
  5. What's the condition of the ADX from about mid-February through late May?
  6. What does this condition mean?

QUESTION 3.6   VISN SMAs (5, 21) and DMI (14)

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  1. Using a simple moving average crossover system, with the DMI as a filter, circle whipsaws that would have been avoided.

QUESTION 3.7   DDD with SMA (10), High Low Channel (21), and DMI and ADX (14)

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  1. Assume you were using the DMI as a filter for the moving average with channel system. Circle whipsaws that would have been avoided.
  2. Put a W on the whipsaws not avoided.
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