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1993issue C041-15

Confirming n-bar breakouts with ADX and DX filters

A long-side n-bar high is taken only when a coincident ADX or DX high confirms it, and the trade is closed on a seven-bar low. After that three-part rule is fixed, market-specific lengths are trimmed into one shared set and judged against the same breakout run without the filter.

  • A long-side n-bar high is a mechanical clearance of recent resistance, and failed breakouts are the usual case a filter is meant to reduce.
  • The long entry is a dual-breakout: an x-bar price high is valid only when a y-bar ADX or DX is also making a z-bar high on the same decision bar, then the trade is closed on a seven-bar-low exit.
  • ADX is a smoothed, lagging transform of DX that is easier to inspect visually; DX turns earlier but fluctuates enough that individual turns are hard to judge.
  • Universalization ranks market-specific optimized lengths, drops the extremes, and averages the middle values; the shared-parameter result, not each market's optimum, is the basis for comparison with unfiltered three-bar and five-bar breakouts.
Entries in this reading3 entries
Breakout system48 readingsCurrent trackAverage Directional Index71 readingsTrend filter137 readings

An n-bar high as a mechanical breakout

A long-side breakout can be recognized mechanically as an n-bar high: the latest close or high exceeds the highest high of the prior n bars and is treated as a clearance of recent resistance. Failed breakouts are treated as the usual case a filter is meant to reduce.

Entry, confirmation, and exit as one procedure

The tested long entry required two coincident breakouts: an x-bar price high and a y-bar average directional index or directional index making a z-bar high on the same decision bar. That dual-breakout entry is the trend filter. The indicator-side high must accompany the price high before a long is taken, so range conditions can force abstention.

Trades were long only and were closed on a seven-bar-low exit. The close is a new seven-bar low, used so an opposite-side entry would not interrupt the exit rule.

How ADX and DX differ

The average directional index is a smoothed transform of the directional index. The smoother series is easier to inspect visually but lags. The directional index turns earlier, yet it fluctuates enough that individual turns are hard to judge. A trend filter can use either series.

ADX can be read by its level or by its direction of change. A falling line is associated with range conditions. A rising line is associated with movement beyond a range.

One shared set, not six optima

The same rule set was applied to six futures markets: gold, soybeans, Treasury bonds, crude oil, the Deutschemark, and the S&P 500. Each series covered one thousand bars from late 1987 to 1991, omitting commissions and interest.

Universalization ranks market-specific optimized lengths, drops the extremes, and averages the remaining middle values to produce one shared parameter set. The shared ADX combination was a 5-bar price high with a 17-bar ADX making a 6-bar high. The shared DX combination was a 3-bar price high with a 17-bar DX making a 7-bar high.

Short price-breakout windows were justified as keeping the entry responsive after the filter reduced trade frequency. Longer indicator-breakout windows were justified as ignoring minor DX fluctuations and remaining usable on a flattened ADX after a range.

Judge the shared set against the unfiltered breakout

The filtered procedures were compared with unfiltered three-bar and five-bar breakouts. The shared-parameter result, not each market's optimum, was treated as the proper basis for judging the combined entry-and-exit rule.

17-bar ADX on crude oil, October 1989–January 1990

The 17-bar ADX holds in the mid-20s through late October, slides to the mid-teens in the November range, then turns up around 11 December — the window the article marks as a five-bar price high confirmed by a six-bar ADX high. Numbers were read from the printed ADX pane, whose scale is labeled 15 to 40.
The 17-bar ADX holds in the mid-20s through late October, slides to the mid-teens in the November range, then turns up around 11 December — the window the article marks as a five-bar price high confirmed by a six-bar ADX high. Numbers were read from the printed ADX pane, whose scale is labeled 15 to 40.Crude oil · daily · 1989-10-09T00:00:00.000Z to 1990-01-15T00:00:00.000Z

Daily 17-unit ADX digitized from the published upper pane; companion crude-oil bars use another scale and are not plotted. Approximate to about half an ADX point. Shared rule in the source: 5-bar price high, 6-bar high of this 17-bar ADX, exit on a 7-bar low.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
12 of 56 in the Average Directional Index track
19941-7 pp.Next on Average Directional IndexConstructing a Bollinger band-width trend filterA common Bollinger Bands construction yields a band-width series equal to four standard deviations over the 20-day moving average, and a very low reading is treated as a compressed-volatility, trend-ready state.
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 fieldEntry and exit rules206 readingsBy year199376 readings
All 71 readings tagged Average Directional Index
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