ADX Indicator

How to trade using ADX indicator?

The first point you have to know about the ADX it’s not a bulish/bearish signals genrator. By other mean it cannot be used alone to determine when to enter the market but it have to be used with another trend follower indicator (e.i. moving average and MACD indicators).

The ADX indicator indicates the strength of the trend without telling you the direction of the trend (upward or downward).

Although the ADX fluctuates from 0 to 100 it’s rarely to score values above 6o. You can use the reading of the ADX with you trend trading as the following:

1- Readings above 40 indicate the strength of the trend. The same when the ADX moves below 40 to above 40 a trend strength is excepted.

You can use the crossing of +DI and -DI to determine the trend direction; when +DI crosses -DI upward it’s a bulish signal. Conversely, when +DI crosses -DI downward it’s a bearish signal. You can to return to your trend follower indicator to decide where to go.

2- Readings below 20 indicate ranged trend and flat period. similarly when the ADX moves from 40 or above downward to 20. You can dicide to close your trend follower position or tighten your stop loss.

How to trade using ADX indicator?

The ADX it’s not a bullish, bearish trading signal generator - and should never be used as such.

The ADX indicator simply indicates the strength of the trend - and other indicators should be used to enter, and exit trades.

Although the ADX fluctuates from 0 to 100, it rarely moves above 60.

Use the ADX in the following way:

Readings above 40 indicate the strength of the trend.

Readings below 20 indicate range trading and flat periods of consolidation.

You can use the crossing of +DI and -DI to determine the trend direction; when +DI crosses -DI upward, it’s a bullish signal, on the other hand, when +DI crosses -DI downward it’s a bearish signal.

The ADX line is a great momentum indicator and like the RSI (also developed by Wells Wilder), the ADX it will help you trade the strongest trends - and give you advance warning of changes in momentum.

The Bottom Line

If you want currency trading success, you can’t just trade support and resistance levels, and hope they hold or break. You need confirmation of momentum to get the odds on your side - and the ADX indicator will assist you.

Final Words

New Concepts in Technical Trading Systems was published in 1978, and was one of the first trading books I ever bought. Every trader should make this book a part of his or her forex education. If you want to learn forex trading the right way, get the book, and use the ADX indicator to increase your chances of making big FX Profits.