DMI/ADX consistently works

I had mentioned the DMI in a Stochastics thread and got like 10 people mailing me about it, so I figured the best way to discuss it would be a new thread.

Anyway, I use the DMI/ADX almost exclusively (DMI is the Directional Movement Index & ADX is the Average Directional Movement Index ). The only additional indicator I use is Nasdaq futures. I have used this theory for day trading for several years and I consistently make money. I am profitable almost everyday, although I have had a few ( very selodom) net negative days when you count commissions.

DMI/ADX works great for any trading from day trading to swing or position trading. I combine the ADX/DMI onto one study. I make the ADX line white in color, the PDI line red, and the MDI line green. I use the PRO software offered by Realfasttrader. That software makes it real easy because it already combines ADX/DMI into one indicator. Although, I'm pretty sure most softwares out there also have DMI/ADX (it's very common), I think it's easiest to use when they are combined.

This is how I do it:
When white (ADX) crosses the other lines and is at the top and green (MDI) is at the bottom (red in the middle), it's a buy. White on top red (PDI) on the bottom (green in the middle), it's a sell. Often the simplest things work best and this seems simple and it is, but it works very good. I consistently make between .02 -.05 cents on 2000 - 5000 share trades. I usually go for more around the open (maybe .05-.10 or more). I ONLY trade widely traded Nasdaq stocks, like CSCO and INTC.

I use a 1 minute chart and a 2 minute chart on the stock (obviously both have the DMI on them) and a 2 minute Nasdaq futures chart.

The 1 minute chart generally makes the call and the 2 minute confirms it.

I use a smooth period of 15.

I'm telling you DMI works way better than MACD and Stochastics in my experience. The DMI works on all levels of chart: 1 minute, 5 minute, 1 day, 1 month etc... When you look at the buy/sell call and the stock price it consistently works. I don't know why more people haven't been discussing this.

There is no price correlation necessary IMO. What you need to see is ADX (white line) break above the middle line (MDI or PDI) and whichever line is on the bottom MDI (green) and PDI (red) determines the call.
I set them up like MDI (green) and PDI (red) because it makes sense in my mind.
Green = Buy
Red = Sell

It doesn't get any easier than that. Don't just take my word for it, look at a software that lets you combine DMI/ADX onto one study and back test it. Look at when DMI makes the call and what the stock did. The percentage of times that it makes the correct call is astonishing.

I ONLY enter a trade when ADX (white line) is on the top. I never trade when ADX is at the bottom or between the PDI/MDI lines. In my experience the only correlations that work are when ADX is at the top, then you just need to see which (MDI/PDI) is at the bottom to determine the call.

It is best to enter just as ADX is crossing the other lines and heading up. Once it is already at the top it doesn't work as well, especially on the "scalp" type trades of .02-.04. The "scalp" move generally happens quickly once ADX crosses to the upside.