Chapter 30 · Advanced Indicators
Advanced indicators
ADX and DMI, Ichimoku, Supertrend, Parabolic SAR, Aroon and pivot points — every formula written out.
The four families
The indicators here are the composites: several calculations combined into one reading. They are more informative than any single line and correspondingly easier to misread, because a number that comes out of four steps hides which step produced it.
ADX and DMI — trend strength without direction
| Step | Formula |
|---|---|
| +DM | Today's high − yesterday's high, if positive and larger than the down-move; else 0 |
| −DM | Yesterday's low − today's low, if positive and larger than the up-move; else 0 |
| +DI | 100 × Wilder average of +DM ÷ ATR |
| −DI | 100 × Wilder average of −DM ÷ ATR |
| DX | |+DI − −DI| ÷ (+DI + −DI) × 100 |
| ADX | Wilder average of DX, conventionally over 14 |
Worked: +DI = 28, −DI = 14. DX = |28 − 14| ÷ (28 + 14) × 100 = 14 ÷ 42 × 100 = 33.3.
| ADX | Reading |
|---|---|
| Below 20 | No usable trend — moving-average signals will whipsaw |
| 20 to 25 | A trend may be forming |
| Above 25 | A trend is present |
| Above 40 | A strong trend; pullback entries work better than breakout entries |
| Falling from a high level | The trend is losing force, whichever way it points |
Ichimoku, all five lines
| Line | Formula | Purpose |
|---|---|---|
| Tenkan-sen (conversion) | (9-period high + 9-period low) ÷ 2 | Short-term equilibrium |
| Kijun-sen (base) | (26-period high + 26-period low) ÷ 2 | Medium-term equilibrium; a common stop reference |
| Senkou Span A | (Tenkan + Kijun) ÷ 2, plotted 26 periods ahead | First edge of the cloud |
| Senkou Span B | (52-period high + 52-period low) ÷ 2, plotted 26 ahead | Second edge of the cloud |
| Chikou Span | Today's close, plotted 26 periods back | Compares now against then |
The cloud is the area between the two Senkou spans. Price above the cloud is the bullish condition, below it bearish, inside it undecided. Its thickness is a volatility reading in disguise: a thick cloud comes from a wide 52-period range.
Trailing-stop indicators
| Indicator | Formula |
|---|---|
| Supertrend upper | (High + Low) ÷ 2 + (multiplier × ATR), typically 3 × ATR(10) |
| Supertrend lower | (High + Low) ÷ 2 − (multiplier × ATR) |
| Parabolic SAR | SAR = Prior SAR + AF × (Extreme point − Prior SAR); AF starts at 0.02, steps by 0.02 to a 0.20 cap |
| Chandelier exit (long) | Highest high since entry − (3 × ATR(22)) |
All four share one property: they only ever move in the direction of the trade. A trailing stop that can loosen is not a stop.
Aroon
- Aroon Up = ((n − periods since the n-period high) ÷ n) × 100
- Aroon Down = ((n − periods since the n-period low) ÷ n) × 100
- Worked, with n = 25: if the high was 3 days ago, Aroon Up = (25 − 3) ÷ 25 × 100 = 88. A fresh high scores 100; one 25 days stale scores 0.
Pivot points, worked
Computed from the previous period's high, low and close. With high 431, low 405, close 428:
| Level | Formula | Value |
|---|---|---|
| Pivot (P) | (High + Low + Close) ÷ 3 | 421.3 |
| R1 | (2 × P) − Low | 437.7 |
| S1 | (2 × P) − High | 411.7 |
| R2 | P + (High − Low) | 447.3 |
| S2 | P − (High − Low) | 395.3 |
Pivots are arithmetic, not analysis. They are useful only because a large number of participants compute the same numbers from the same public data — which is a self-fulfilling effect, and a real one.
Choosing what to run
- 1One indicator per question. Direction, strength, participation, distance — four questions, four tools at most.
- 2Prefer tools from different families. Two trend indicators agreeing is one opinion; a trend indicator and a volume indicator agreeing is two.
- 3Know the default periods you are using and why. 14, 20, 26 and 200 are conventions from the 1970s and 1980s, chosen for markets and instruments that were not this one.
- 4Test on NEPSE data, not on someone else's results. Settings tuned on a deep, fast, 24-hour market carry across badly to a four-hour session with circuit limits.
All eight methods, with an honest note on what each can carry→
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