used in conjunction with (DMI) may help getting a better understanding of the ever changing landscape of the market and perform more advanced
Here are details of the concept applied
1- Plots Band’s (BB) Cloud colored based on Width ( ) Indicator’s value
(created by John ) are a way to measure . As increases, the wider the bands become and similarly as decreases, the gap between bands narrows
, in widely used approach, consist of a band of three lines. Likewise common usage In this study a band of five lines is implemented
The line in the middle is a ( ) set to a period of 20 bars (the most popular usage). The then serves as a base for the Upper and Lower Bands. The Upper and Lower Bands are used as a way to measure by observing the relationship between the Bands and price. the Upper and Lower Bands in this study are set to two and three standard deviations (widely used form is only two standard deviations) away from the (The Middle Line), hence there are two Upper Bands and two Lower Bands. The background between two Upper Bands is filled with a green color and the background between two Lower Bands is filled with a red color. In this we have obtained Band’s (BB) Clouds (Upper Cloud and Lower Cloud)
Additionally the intensity of the color of the background is calculated with ( ), which is a indicator derived from the standard indicator. , quantitatively measures the width between the Upper and Lower Bands. In this study the intensity of the color of the background is increased if value is greater than %25
What to look for
Price Actions : Prices are almost always within the bands especially at this study the bands of three standard deviations away from the . Price touching or breaking the BB Clouds could be considered as buying or selling opportunity. However this is not always the case, there are exceptions such as Walking the Bands. “Walking the Bands” can occur in either a strong uptrend or a strong downtrend. During a strong trend, there may be repeated instances of price touching or breaking through the BB Clouds. Each time that this occurs, it is not a signal, it is a result of the overall strength of the move. In this study in order to get a better understanding of the trend and add ability to perform some advanced Indicator (DMI) is added to be used in conjunction with .
Cycling Between Expansion and Contraction : One of the most well-known theories in regards to is that typically fluctuates between periods of expansion (Bands Widening : surge in and price breaks through the BB Cloud) and contraction (Bands Narrowing : low and price is moving relatively sideways). Using in conjunction with may help identifying beginning of a new directional trend which can result in some nice buying or selling signals. Of course the trader should always use caution
2- Plots Colored Line
(DMI) (created by J. Welles Wilder ) is actually a collection of three separate indicators combined into one. consists of the ( ) , (+D I) and (-D I) . ADX's purposes is to define whether or not there is a trend present. It does not take direction into account at all. The other two indicators ( and ) are used to compliment the . They serve the purpose of determining trend direction. By combining all three, a technical analyst has a way of determining and measuring a trend's strength as well as its direction.
This study combines all three lines in a single colored shapes series plotted on the top of the price chart indicating the trend strength with different colors and its direction with triangle up and down shapes.
What to look for
Trend Strength : Analyzing trend strength is the most basic use for the DMI. Wilder believed that a DMI reading above 25 indicated a strong trend, while a reading below 20 indicated a weak or non-existent trend
Crosses : DI Crossovers are the significant trading signal generated by the DMI
With this study
A Strong Trend is assumed when >= 25
is defined as (+D I > ) and ( >= 25), which is plotted as green triangle up shape on top of the price chart
is defined as (+D I < ) and ( >= 25), which is plotted as red triangle down shape on top of the price chart
Week Trend is assumed when 17< < 25, which is plotted as black triangles up or down shape, depending on +DI-DI values, on top of the price chart
Non-Existent Trend is assumed when < 17, which is plotted as yellow triangles up or down shape, depending on +DI-DI values, on top of the price chart
Additionally intensity of the colors used in all cases above are defined by comparing ADX’s current value with its previous value
Summary of the Study:
Even more simplified and visually enhanced DMI drawing comparing to its classical usage (may require a bit practice to get used to it)
As said previously, to get a better understanding of the trend and add ability to perform some advanced Indicator (DMI) is used in conjunction with .
PS: Analysis and tests are performed with high volatile Cryptocurrency Market
Source of References : definitions provided herein are gathered from TradingView’s knowledgebase/library
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Secondly, value added enhancement performed by adding Volume Based Colored Bars indicator created by Kıvaç ÖZBİLGİÇ.
Special thanks to Kıvaç ÖZBİLGİÇ for allowing me to use this indicator and his immediate reply to my request of permission to use his indicator.
Volume Based Colored Bars colors the bars into volume weighted signals increasing the visibility of the Volume changes. Intensity of the colors of the bars varies according to average value of the volume for given length of bars (default value set to 30 bars)
displaying the trend strength and direction
displaying adx and di+/di- values
displaying adx's momentum (grawing or falling)
where tooltip label describes "howto read colored dmi line"
middle line and standard deviation bands of the bollinger bands are now customizable with ability to select different moving average types, such as DEMA, HMA, WMA besides standard SMA
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