average directional index (adx) _ forex indicators guide

8/9/2019 Average Directional Index (ADX) _ Forex Indicators Guide

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erage Directional Index (ADX) | Forex Indicators Guide

p://forex-indicators.net/adx[03/02/2015 10:45:06]

How to interpret ADX

ADX indicator has 2 lines: ADX itself (white), +DI (green) and -DI (red).Traders then need to draw a horizontal line at the level of 20.All readings of ADX which are below 20 suggest a weak and

unclear trend, while readings above 20 indicate that a trend has picked up.

That is, basically, the simplest explanation of the purpose of ADX.ADX allows Forex traders to determine whether the trend is strongor weak and thus choose and appropriate strategy to trade with: atrend following strategy or a strategy fit to consolidation market

periods with no significant price changes.

There is also additional line to be added to ADX indicator window- at 40 level.

How to trade with ADX

Trading with ADX looks as follows:

If ADX is traded below 20 - there is no trend or the trend is weak,thus a non-trend-following strategies should be used, otherwise

losses may occur as a result of false signals and whip-saws taking place. An example of non-trend-following method is channeltrading.

If ADX is traded above 20 but below 40, it is time to apply trend following methods. An example would be: Forex trading Movingaverages or or trading with Parabolic SAR indicator.

When ADX reaches 40 level, it suggests an overbought/oversold (depending on the trend) situation on the market and it is time to

protect some profits of at least move Stop loss order to a break even.

When ADX passes 40 level, it is a good time to begin collecting profits gradually scaling out of the trades on rallies and sell-offsand protecting remaining positions with trailing stops.

ADX -/+ DI lines are used for spotting entry signals. All - /+ DIcrossovers are disregarded while ADX remains below 20. OnceADX peaks above 20 a buy signal occur when +DI (green) crossesupwards and above -DI (red). A sell signal will be the opposite:+DI would cross -DI downwards.If after a newly created signal another opposite crossover happens

within a short period of time, the original signal should bedisregarded and position protected soon or closed.

ADX indicator is never traded alone, but rather in combinationwith other indicators and tools. ADX indicator most of the time


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Indicators:

TRENDINDICATORS

AdvanceDecline Line(ADL)Average

DirectionalIndex (ADX)AverageDirectionalMovementIndex Rating(ADXR)CommoditySelectionIndex (CSI)Double

ExponentialMovingAverage(DEMA)Heiken-ashicandlesticksHeiken-ashiZoneTradeMACDMovingAverages

(EMA, SMA,WMA)ParabolicSAR Percentage

gives much later signals comparing to faster reacting movingaverages crossover or Stochastic, for example, however, reliabilityof ADX indicator is much higher than for other indicators intraders' toolkit, which makes it a valuable tool for many Forextraders.

And just one more idea to test out:When ADX rises above 20 for the first time and then goes flat for some time, there is believed to be a new trend being born and thereason for ADX being currently flat is because market reacts tothis new trend formation by making first initial correction. Duringthis correction it is a good time to initiate new orders.

ADX indicator formula

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Comments

trader

what settings can one use for the ADX in trading short termtrades, like the 30min time frame?

FxIndicators

ADX indicator standard setting are 14. In most cases it is better touse standard settings just because majority of traders use them;result - everyone sees the same picture and gets the same signals atthe same time.

However, with ADX indicator specifically, Forex traders oftenlook for alternative settings.The nature of ADX indicator allows experimenting with settings toget best performance.Common range for ADX is from 7 period ADX to 30 period.

For 30 minutes chart try ADX 30.

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PriceOscillator (PPO)TripleExponentialMovingAverage(TEMA)TripleExponentialMovingAverage(TRIX)

MOMENTUMINDICATORS

AccumulativeSwing Index(ASI)AdvanceDecline Ratio(ADR)AroonAroonOscillator CommodityChannelIndex (CCI)RelativeStrengthIndex (RSI)StochasticStochasticRSI

VOLATILITYINDICATORS

Average TrueRange (ATR)Bollinger BandsChandelier Exit

VOLUMEINDICATORS

AccelerationBandsChaikinMoney Flow(CMF)Volume

CYCLEINDICATORS

Detrended PriceOscillator (DPO)Elliott WavesSchaff Trend

trader

Check out this link to know more uses of ADX: System Selectiontechnique

trader

For Stock market ADX settig is set to 10 as default, but in Forex ithink for the most case 14 is the best choice

trader

should i use ADX with the weekly, daily, or 15 minute chart?

FxIndicators

any chart, I use it even on 5 min as a trend filter for scalping hereand there.

trader

will default settings for ADX (ie) ADX14 will suit trading on 15Min chart?

FxIndicators

yes, it will.

trader

hi, does ADX come with all MT4 platform

Search

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CycleWolfe waves

BILL WILLIAMS'INDICATORS

Alligator Indicator AwesomeOscillator FractalsGator Oscillator MarketFacilitationIndex (MFI)ZoneTrade(MT4indicator)

The best of MT4indicatorsIndicators for AccountMonitoring

trader

u are doing a wonderful job. God bless u

FxIndicators

Thank you! Glad you like it.Yes, ADX comes with all MT4 platforms. You'll find it in MT4under Trend indicators, under name "Average DirectionalMovement Index".

trader

Found ADX useful, show sell signal... Google and found this page, short and simple. Thanks U Guys.

trader

ADX indicator is a good help but only with other supportiveindicators like RSI or so.

trader

sir your is very good human,thanks all very very best explanation

trader

I agree with the rest of the traders, this site ROCKS! thanx for your explanations. they are simple n easy to understand. I willrecommend this page to all my FX buddies, be blessed-Mightily.

trader

Google -> your site -> understanding :) thanks very much. I was

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searching long time for easy to understand explanation.

FxIndicators

Thank you!

It's great to have so many people discovering the powers of indicators!

trader

is there a bug in MDI formula? I'd prefer MAX(L(t-1)-L(t),0)

FxIndicators

No, I don't think so.But double-check with other resources.

trader

I want to thank a friend for a novice not to have trading in thedemo so real and yesterday I discovered your site.

Quero agradecer ao amigo pois sou novato nao to aindanegociando no real so na demo e ontem eu descobri seu saitetenho apreendido muinto e embreve ja irei operar na conta real

pois suas explicaçoes estao a me dar confiança obrigado mesmo esertamente estarei de olho no seu saite ok.

trader

When a strong trend is in play and reverses to a strong trend in theopposite direction, what should we look to see in the ADX? If youwait for it to go back to 20 and rise above you have missed thestrong trend in the opposite direction. How do you recognize this

situation before it's too late? Thank you!


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trader

You should add E=MC2(r-xd)(rxl)-x2(m-lc=4)

FxIndicators

When a strong trend is changed by an opposite strong trend, ADXindicator is totally useless.Basically, as soon as ADX starts to decline from the top 30-45levels, it no longer posses any interest as it can't reflect a changein a trend. Traders can only refer to +-DI for trend confirmations.

trader

Would you kindly show me where to add the new line. Thanks inadvance

trader

keep the good jobs

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