Modernizing Classic Trading Indicators: RedK's Directional Index & MACD Backtesting Strategy

Introduction

TradingView continues to be a hub for innovative technical analysis tools. Today, we examine two Pine Script® indicators that creatively reimagine classic trading concepts:

1. RedK's Directional Index (K xDMI): A contemporary evolution of the traditional DMI/ADX
2. Modified MACD Strategy: A backtest-optimized approach to MACD trading

RedK's Directional Index (K xDMI)

Core Concept

This indicator represents a modern interpretation of the classic Directional Movement Index (DMI) and Average Directional Index (ADX) system. While preserving the original's fundamental purpose - measuring trend strength and direction - it introduces several computational and visual enhancements.

Key Improvements

1. Unrestricted ADX Oscillation

   • Original DMI restricted ADX to oscillate below zero
   • K xDMI allows full positive/negative oscillation for clearer trend strength representation

2. Calculation Efficiency

   • Removes excessive moving average layers
   • Uses weighted moving averages (WMA) for more responsive calculations

3. Visualization Options

   • Multiple display formats (area, histogram/columns)
   • Volume-weighting capability (optional)

4. Practical Enhancements

   • ADX "step" option for qualitative trend classification
   • Adjustable "strong trend" filter level

Suggested Usage

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• Default settings (length=7, smoothing=3) optimized for modern fast-paced markets

• Signal interpretation remains similar to classic DMI:

  • DI crossover indicates trend direction
  • ADX shows trend strength
• Recommended for use with complementary confirmation indicators

Modified MACD Backtesting Strategy (2015+)

Strategic Adjustments

This Pine Script® modification addresses common MACD strategy limitations:

1. Time Filter

   • Restricts backtesting to 2015 onward
   • Eliminates outdated market condition data

2. Parameter Scaling

   • Doubles standard MACD inputs (fast/slow/signal)
   • Effectively analyzes shorter timeframes as longer intervals

Performance Benefits

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• 45min chart behaves like 90min strategy

• Tested configuration shows:

  • 42% profitable trades
  • 1.998 profit factor

• Recommended parameter sets:

  • Standard: 20, 42, 20
  • Aggressive: 30, 63, 30

FAQ

General Indicator Questions

Q: Why modify classic indicators?
A: Modern computing power allows us to enhance legacy tools while preserving their core value - just as their creators anticipated.

Q: How do I know which settings to use?
A: Start with defaults, then adjust based on your trading style and timeframe. Always validate with historical testing.

K xDMI Specific

Q: What's the main advantage of unrestricted ADX?
A: Clearer visualization of bearish trends and more intuitive strength measurement.

Q: Should I use volume-weighting?
A: Only if your strategy specifically incorporates volume analysis. The standard version works well for most cases.

MACD Strategy Specific

Q: Why focus post-2015 data?
A: Financial markets evolved significantly after this period, making older data less relevant to current conditions.

Q: How does parameter scaling help?
A: It allows effective use of shorter timeframes while maintaining the characteristics of longer interval analysis.

Conclusion

These innovative approaches demonstrate how classic technical indicators can evolve to meet modern traders' needs. By combining:

• Enhanced visualization
• Optimized calculations
• Strategic parameter adjustments

Traders gain more responsive, intuitive tools while maintaining the proven concepts behind these indicators.

Remember: No indicator works perfectly in isolation. Always combine multiple confirmation methods and consider broader market context in your trading decisions.