A Daily Swing Trade

Directional Movement helps determine if a security is "trending." Developed by Welles Wilder and explained in his book, New Concepts in Technical Trading Systems, it can be used either as a system on its own or as a filter on a trend-following system.

Two lines are generated in a DMI study, +DI and -DI. The first line measures positive (upward) movement and the second number measures negative (downward) movement. A buy signal is given when the +DI line crosses over the - DI line while a sell signal is generated when the +DI line crosses below the - DI line.

Developed by Marc Chaikin, the Chaikin Money Flow compares total volume to the closing price and the daily highs and lows to determine how many issues are bought and sold of a particular security. It is based upon the assumption that a bullish stock will have a relatively high close price within its daily range and have increasing volume. However, if a stock consistently closed with a relatively low close price within its daily range with high volume, this would be indicative of a weak security. There is pressure to buy when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. Of course, the exact number of periods for the indicator should be varied according to the sensitivity sought and the time horizon of individual investor.

An obvious bearish signal is when Chaikin Money Flow is less than zero. A reading of less than zero indicates that a security is under selling pressure or experiencing distribution.

A second potentially bearish signal is the length of time that Chaikin Money Flow has remained less than zero. The longer it remains negative, the greater the evidence of sustained selling pressure or distribution. Extended periods below zero can indicate bearish sentiment towards the underlying security and downward pressure on the price is likely...

As you can see from the chart of the Dow, three doji candles have appeared, which is a technical signal of indecision that can often be used to mark the end of a prolonged trend. Three consecutive dojis, also known as a tri-star pattern, is very rare and it suggests that the uptrend is running out of steam...