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2016issue C0348-54

How an Average Directional Index filter and a breakout entry form one procedure

A historical workflow treats an Average Directional Index strength filter, a buy-stop breakout and optional volume confirmation as one procedure, with trade management written separately from the entry.

  • A 14-period Average Directional Index crossing above 40 is the momentum-strength condition that precedes the breakout entry.
  • Entry is a buy-stop placed a defined offset above a recent close or high, so the trade is taken only if price continues through the breakout level.
  • An optional volume filter, plus scanner price-band and range gates, can still withhold the signal after the strength cross.
  • Trade management is specified apart from entry: a declining Average Directional Index below 20 is a reason to take profits early or tighten a trailing stop.
Entries in this reading3 entries
Breakout system48 readingsCurrent trackAverage Directional Index71 readingsMomentum strategy103 readings

A single procedure, not separate annotations

This archive article walks through a historical construction that joins an Average Directional Index strength filter to a Breakout system entry. The same workflow is a Momentum strategy: it waits for measured trend strength, then requires price to continue through a breakout level before a buy-stop can fill.

The parts are written as one procedure. A strength condition, a price trigger, an optional volume check and later trade management either produce a trade or they do not. Editorial reading: if those steps are treated as separate chart annotations, the abstention rule is easy to miss.

The Average Directional Index strength condition

The procedure treats a 14-period Average Directional Index crossing above 40 as the momentum-strength condition that precedes a breakout entry. The construction uses the main Average Directional Index line as the strength filter and does not add the directional-indicator lines as extra confirmation.

The educational purpose of that threshold is to withhold entries during sideways, low-energy price action and to wait until measured trend strength is high enough to justify a new momentum trade.

Daily NASDAQ-100 test with ADX at or above 40: average profit by outcome

Requiring Average Directional Index at or above 40 at the buy cut the daily NASDAQ-100 sample to 151 trades and produced a 2.12 percent average gain: 6.61 percent on the 122 winners and a 16.77 percent average loss on the 29 losers. Over the same holding periods the NASDAQ-100 itself averaged 0.76 percent. Figures are read from the AIQ results table for the filtered run from 31 December 1999 through 8 January 2016.
Requiring Average Directional Index at or above 40 at the buy cut the daily NASDAQ-100 sample to 151 trades and produced a 2.12 percent average gain: 6.61 percent on the 122 winners and a 16.77 percent average loss on the 29 losers. Over the same holding periods the NASDAQ-100 itself averaged 0.76 percent. Figures are read from the AIQ results table for the filtered run from 31 December 1999 through 8 January 2016.NASDAQ-100 constituents · Daily · 1999-12-31T00:00:00.000Z to 2016-01-08T00:00:00.000Z

This is a daily-bar basing-around-the-200-day-average system on the nas100 list, not the 15-minute breakout. Exits were an 80 percent capital-protect stop and an 80 percent profit-protect trail after a 5 percent gain. The source notes that 151 trades over this span is thin unless the universe is expanded.

Buy-stop entry and optional volume confirmation

Entry is specified as a buy-stop placed a defined offset above a recent close or high, so the trade is taken only if price continues through the breakout level. Strength alone does not complete the signal.

An optional volume filter can require current volume to meet or exceed a 20-period volume average multiplied by 1.1 before the breakout signal is valid. When that filter is used, a strength cross without the volume test still leaves the procedure in an abstain state.

Scanner gates and the 15-minute bar

A scanner implementation adds price-band and range gates so candidates must trade between 20 and 70 and show at least a 5-point 15-day range before the Average Directional Index cross above 40 is considered. Those gates sit in front of the strength condition rather than replacing it.

The system is constructed for 15-minute bars in at least one implementation, and that implementation states daily-bar versions are not a substitute.

Trade management after the entry

Trade management is specified separately from the entry. A declining Average Directional Index below 20 is used as a reason to take profits early or tighten a trailing stop to one unit under the day’s low.

Editorial reading: keeping management on its own line makes the holding-period rules testable beside the entry rules, instead of leaving the exit as an unstated chart habit.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
50 of 56 in the Average Directional Index track
201622-23 pp.Next on Average Directional IndexScore RSI and stochastic crossings only when ADX confirms the trendA relative strength index crossing up through its oversold threshold is treated as a buy-side alert.
All readings on this track · 56 readings
  1. 1986Cycle-aligned directional trend indicator
  2. 1987What crossover and directional entry rules actually compare
  3. 1988A directional-line cross needs a trend filter, an extreme-point rule, and a dollar stop
  4. 1988Constructing true range by offset addressing
  5. 1988Constructing directional movement from bar range
  6. 1988Average directional index construction: recursive smoothing and lookback offset
  7. 1988Staged Average Directional Index construction with Relative Strength Index confirmation and stop alerts
  8. 1988Average Directional Index construction with frozen true range and directional rules
  9. 1991Constructing the average directional index from range expansion and true range
  10. 1991Constructing five-session forecasts from stochastic, ADX, and MACD inputs
  11. 1993Constructing the average directional index from directional movement and true range
  12. 1993Confirming n-bar breakouts with ADX and DX filters
  13. 1994Constructing a Bollinger band-width trend filter
  14. 1994A pre-trade checklist that can refuse a long three ways
  15. 1997An ADX threshold and a moving average as a trend filter
  16. 1998Regime filters for mutated indicators
  17. 1999Building the average directional index from range extension and true range
  18. 2000Evaluating ADX, RSI, and moving averages in a multi-stock warehouse
  19. 2000Stochastic pop as a filtered continuation setup
  20. 2000Onset and exit from one average directional index
  21. 2002Joint ADX and MACD readout for trend strength and direction
  22. 2003Adaptive Donchian breakout with implied volatility and volume
  23. 2004The average directional index as a regime gate for the relative strength index and the stochastic oscillator
  24. 2004Constructing true-range-specified volume as a directional filter
  25. 2005Constructing a multi-filter penny stock breakout procedure
  26. 2005Construct one playbook that flips with session regime
  27. 2005Combining Bollinger Bands, the average directional index, and Fibonacci retracement on currency pairs
  28. 2006Assembling an adaptive price zone from double-smoothed averages
  29. 2006An ADX strength gate for MACD and the stochastic oscillator
  30. 2007Directional movement as a filter plus trigger
  31. 2007Constructing a veto-first trend permission stack
  32. 2007ADX gates for trend end, range, and reversal
  33. 2008Constructing a nine-cell directional-ratio grid
  34. 2008Average directional index and directional trend indicator lookbacks as trend-filter parameters
  35. 2008A holding-matched market lens from averages and directional-line crosses
  36. 2008A nine-cell directional scoreboard for multi-horizon entries
  37. 2010Building a Vortex Indicator from high-low distances
  38. 2010Constructing ADX, RSI, and MACD price filters
  39. 2011Constructing a volume zone oscillator with a moving-average and Average Directional Index regime filter
  40. 2011A volume zone oscillator conditioned by an Average Directional Index filter
  41. 2011Candlestick names need volume-price, ADX, and moving-average checks
  42. 2012Clustered average-directional-index traces as a trend-start filter
  43. 2012Average Directional Index cluster filters for trend-start signals
  44. 2012Confirming a trend start or turn with a triple ADX cluster
  45. 2013Constructing a late-entry stack from a signed DMI oscillator
  46. 2013A directional oscillator and its stochastic as a stacked timing filter
  47. 2013ADX cluster lookbacks are a locked specification, not a chart label
  48. 2013Combining moving averages, stochastics, and ADX in a daily scan
  49. 2015Assembling the Average Directional Index from directional movement
  50. 2016How an Average Directional Index filter and a breakout entry form one procedure
  51. 2016Score RSI and stochastic crossings only when ADX confirms the trend
  52. 2018Constructing an ADX filter for intraday breakouts
  53. 2018An ADX volatility gate for prior-day breakouts
  54. 2019Exponential deviation bands with a moving average, RSI and ADX
  55. 2020A normalized-slope trend filter from linear regression
  56. 2020Gating volatility-momentum divergences with a Trend filter
By fieldTrend and mean reversion93 readingsBy year201678 readings
All 71 readings tagged Average Directional Index
Also on Average Directional Index5 readings
1993Confirming n-bar breakouts with ADX and DX filtersBreakout system2005Constructing a multi-filter penny stock breakout procedureBreakout system2018An ADX volatility gate for prior-day breakoutsBreakout system2018Constructing an ADX filter for intraday breakoutsBreakout system2013Constructing a late-entry stack from a signed DMI oscillator