

Tema PDI  MDI 


Here's an excellent short article from Jim Greening, showing how MetaStock system tests
can be built up . . .
This week I'm going to discuss my third MetaStock Profit SystemTest 03_Tema PDI  MDI, ADX (Vol Required).This test is based on Wilder'sdirectional movement indicators.
Wilder says a buy signal occurs when PDI  MDI moves above zero anda sell signal occurs when PDIMDI falls below zero.I started with that thought and experimented a little. Wilder used14 day periods to calculate his PDI and MDI functions.Since I like Fibonacci numbers, I used 13 days instead. Also I liketo smooth my indicators so I used Tema smoothing7.
My custom PDI  MDI formula then became:


Tema PDI  MDI
Periods := Input("Enter Tema SmoothingPeriods",8,55,13);
Tema(PDI(13)  MDI(13),Periods)


I started with the idea that I would take the PDIMDI crossoverof anoptimized number as my basic buy and sell trigger.However, this numberdid not have to be zero and did not have to bethe same for entering longand entering short.After a lot of trial an error I decide 1, 3, or 5 wouldbe my enterlong number and 5, 13, or 21 would be my enter short number.This makes sense since the market is biased to the up side, so enteringalittle under zero would get us in a little earlier.Also down moves tend tobe fast an extreme and this would only letus in short for larger, fasterdown moves which is what I wanted.Finally I wanted some way to reduce thenumber of false signals andI wanted to do that with directional movementindicatorsonly so this test would be completely uncorrelated with my othertests.
For long positions, I notice that most up moves started when adx waslow and that adx climbed during the move to a max andthen started to fall at the end of the move. Therefore, I thought anadx max and min for a buysignal would help reduce falsesignals. After some experimenting, I set themin at 8 and the max at21. I also noticed that most good buy points occurredwhen MDI and ADX were close together so I decided that the differencebetweenthe two should be small.After more experimenting, I decided on the followingfor my open longsignal: 

Tema PDI  MDI System
Open Long:
Alert(Cross(Fml("Tema PDI  MDI"),opt1),13) AND
MDI(13)  ADX(13) <= 4 AND
MDI(13)  ADX(13) >= 2 AND
ADX(13) >= 8 AND
ADX(13) <= 21


To close my open long position I wanted the PDIMDI to be less than opt1.
When a stock starts to drop, the MDI starts to rise, so I wanted theMDI to be greater than a certain number to close a position.Finally, since markets are biased upwards, I also wanted the 55 dayvariable moving average to be dropping before I closed the position.Therefore, the close long became: 

Close Long:
Fml("Tema PDI  MDI") < opt1 AND
MDI(13) > 21 AND
LLV(Mov(L,55,VAR),5) = LLV(Mov(L,55,VAR),13)


To open a short position, I wanted the PDIMDI to cross below afairlyhigh negative number.
I wanted confirmation in thatthe adx was still fairly high when that happened. The answer was: 

Open Short:
Alert(Cross(opt2,Fml("Tema PDI  MDI")),8) AND
ADX(13) > 34


To close the short position, I only wanted PDIMDI to be greater thana certain positive number.
I don't like a lot of confirmations for closing shorts. With the biasbeing up, you need to close shorts fast.
My close Short and optimization became: 

Close Short:
Fml("Tema PDI  MDI") > 13
Optimization:
Opt1: Min = 1 Max = 5 Step = 2
Opt2: Min = 21 Max = 5 Step = 8




That's it. Any comments or questions?
JimG 

Source / From: 
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http://www.guppytraders.com 
