Channel Rules Changes

For my trading involving the 55-day price channel breakouts, I'm adding a new entry requirement: The 14-day average directional index (ADX) must now be at 25 or greater, in addition to the existing requirement that it be higher than the previous day.

In my postings, I'll continue to analyze both strong- and weak-trend beakouts, as I have done, but in separate tables.

To accommodate the new rules, I'm changing the color coding in my analytical postings so that magenta (a light purple) covers ADX reading from 20 through 24, and blue is extended downward so that it covers 25 up to 39.

Under the new color scheme, brown (under 20) remains non-trending, magenta (20-24) signifies a weak trend, and aqua (25-39) signifies a strong trend. Orange (40 and up) signfies a really strong trend, with the practical effect that the sudden-death rule applies.

See the "How I Trade" guide for the full set of rules.

The new entry rules are as follows, with the new language underlined:

Bull Entry

• Has the price traded above the 55-day upper line (the breakout level on the breakout day)?
• If yes, then is the ADX at 25 or greater
• If yes, then is the ADX higher than on the previous day?
• If yes, then is the parabolic sar in bull phase?
• If yes, then open a bull position at a price above the breakout level.

Bear Entry

• Has the price traded below the 55-day lower line (the breakout level on the breakout day)?
• If yes, then is the ADX at 25 or greater
• If yes, then is the ADX higher than on the previous day?
• If yes, then is the parabolic sar in bear phase?
• If yes, then is the intra-day direction congruent with the breakout direction?
• If yes, then open a bear position at a price below the breakout level.

I've also tinkered with the language on oscillator re-entry to clarify that the ADX and parbolic sar requirements for entry must also be met on oscillator re-entry. That means a rising ADX of 25 or greater and a bull-phase parabolic sar.

Finally, in Indicators, I'm not finding the implied volatility/statistical volatility relationship to be useful. So I've replaced "iv/sv" in the rightmost spot with the ADX trend ("adx tr"), and placed it in the third spot, right after the "adx" block.