Parsing ADX signals from professionals



You got to know ADX in the Average Directional Movement Index indicator review. This is a successful combination of a tool that allows you to simultaneously predict the trend direction and assess its strength. The calculation of the value consists of several intermediate steps. The indicator consists of intermediate dashed lines for the calculation and one main one – aggregating signals. ADX helps to determine the strength of the trend at the moment of its exit from the flat. Is the breakout of the flat range a strong trending move or is it a false breakout.

Average Directional Movement Index strategies are based on the relative position of the main ADX line and dashed DI lines, as well as on the basis of their intersection and location relative to overbought and oversold zones.

Application features ADX:

  • The tool is suitable for currency pairs and cross rates. It works worse on stocks, gold or oil.
  • Signals to open a trade appear only on a trend movement.
  • The time interval is from H1 and above. The author advises to use it on D1, but then you should remember about swaps.
  • The ADX line is below 20% – in the flat market. If the ADX rises rapidly to 40%, the market is trending strongly. It is too late to look for an entry point when the indicator is above 50%.
  • More accurate signals appear when the price goes out of equilibrium. If the trend changes direction, the Average Directional Movement Index signals are more “blurry”.

Trading Strategies for Average Directional Movement Index

  1. Analysis of the strength of the trend movement… The strength of the trend is the ratio of the volumes of orders of “bulls” and “bears” to each other. If the volume of bulls rises sharply, the price goes up – the asset becomes more expensive. If the volumes are equal or the scales are tilting alternately in one direction or another in a short period of time, the market is flat.

Ranges of ADX movement:

  • 0 – 20%. Flat. There is no clear preponderance of bulls and bears in the market. Either the volumes are equal, or there are practically no orders on the market. This position of the indicator often occurs before news releases or before holidays. Traders take a wait and see attitude.
  • 20 – 30%. A trend begins. One of the parties begins to increase volumes by shifting the price. It is too early to judge the strength of the trend – the breakout of the resistance or support level may turn out to be false and the price may return to the flat range. You can open a position, but carefully, evaluating signals from other instruments or signals from additional ADX lines.
  • 30 – 40%. The indicator is in this range – we are looking for moments to open a deal.
  • 40 – 50%. A strong movement tending to its extreme. Opening deals here is a risk, since the trend may soon exhaust itself. If the deal is already open, you can increase its volume.
  • 50 – 80%. The market is in the overbought or oversold zone. Even on strong moves above 60%, the ADX rarely rises.

The zones are for guidance only and are individual for each instrument. For example, on volatile markets, a deal can be opened already when the ADX leaves the 20% zone, on calm markets – 25% will still be considered a flat.

ADX-1

The picture is revealed in large format – click on it!

At the beginning of the chart, there is a flat, the index is below 20%. As soon as the index approaches 30%, you can look for an entry signal – a downtrend begins. Note that the main ADX line shows the strength of the trend, not its direction. While the index is at its peak at about 55%, the trend direction changes – the strength does not change, the index remains at the same value, but the trend goes the other way. Then, there is a flat segment again – ADX in the 25-30% zone. As soon as the index crosses the 30% mark and goes up, a downtrend begins.

  1. Determining the direction of the trend… If the main line ADX is responsible for the strength of the trend, then the direction is shown by additional lines DI + and DI -. Signals:
  • When crossing, additional lines begin to diverge. The larger the divergence angle, the stronger the trend. If the positive line goes up, the trend is upward. If the negative line goes up, the trend is downward.
  • Maximum divergence, after which convergence begins – the trend ends.

ADX-2

The moment of convergence of the dotted lines means balance. If the divergence is small and the convergence of the lines begins again, the trend is weak.

In the next review, we will consider examples of opening deals by combining signals of the main and additional lines.

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Average Directional Movement Index

You got to know ADX in the Average Directional Movement Index indicator review. This is a successful combination of a tool that allows you to simultaneously predict the trend direction and assess its strength. The calculation of the value consists of several intermediate steps. The indicator consists of intermediate dashed lines for the calculation and one main one – aggregating signals. ADX helps to determine the strength of the trend at the moment of its exit from the flat. Is the breakout of the flat range a strong trending move or is it a false breakout.

Average Directional Movement Index strategies are based on the relative position of the main ADX line and dashed DI lines, as well as on the basis of their intersection and location relative to overbought and oversold zones.

Application features ADX:

  • The tool is suitable for currency pairs and cross rates. It works worse on stocks, gold or oil.
  • Signals to open a trade appear only on a trend movement.
  • The time interval is from H1 and above. The author advises to use it on D1, but then you should remember about swaps.
  • The ADX line is below 20% – in the flat market. If the ADX rises rapidly to 40%, the market is trending strongly. It is too late to look for an entry point when the indicator is above 50%.
  • More accurate signals appear when the price goes out of equilibrium. If the trend changes direction, the Average Directional Movement Index signals are more “blurry”.

Trading Strategies for Average Directional Movement Index

  1. Analysis of the strength of the trend movement… The strength of the trend is the ratio of the volumes of orders of “bulls” and “bears” to each other. If the volume of bulls rises sharply, the price goes up – the asset becomes more expensive. If the volumes are equal or the scales are tilting alternately in one direction or another in a short period of time, the market is flat.

Ranges of ADX movement:

  • 0 – 20%. Flat. There is no clear preponderance of bulls and bears in the market. Either the volumes are equal, or there are practically no orders on the market. This position of the indicator often occurs before news releases or before holidays. Traders take a wait and see attitude.
  • 20 – 30%. A trend begins. One of the parties begins to increase volumes by shifting the price. It is too early to judge the strength of the trend – the breakout of the resistance or support level may turn out to be false and the price may return to the flat range. You can open a position, but carefully, evaluating signals from other instruments or signals from additional ADX lines.
  • 30 – 40%. The indicator is in this range – we are looking for moments to open a deal.
  • 40 – 50%. A strong movement tending to its extreme. Opening deals here is a risk, since the trend may soon exhaust itself. If the deal is already open, you can increase its volume.
  • 50 – 80%. The market is in the overbought or oversold zone. Even on strong moves above 60%, the ADX rarely rises.

The zones are for guidance only and are individual for each instrument. For example, on volatile markets, a deal can be opened already when the ADX leaves the 20% zone, on calm markets – 25% will still be considered a flat.

ADX-1

The picture is revealed in large format – click on it!

At the beginning of the chart, there is a flat, the index is below 20%. As soon as the index approaches 30%, you can look for an entry signal – a downtrend begins. Note that the main ADX line shows the strength of the trend, not its direction. While the index is at its peak at about 55%, the trend direction changes – the strength does not change, the index remains at the same value, but the trend goes the other way. Then, there is a flat segment again – ADX in the 25-30% zone. As soon as the index crosses the 30% mark and goes up, a downtrend begins.

  1. Determining the direction of the trend… If the main line ADX is responsible for the strength of the trend, then the direction is shown by additional lines DI + and DI -. Signals:
  • When crossing, additional lines begin to diverge. The larger the divergence angle, the stronger the trend. If the positive line goes up, the trend is upward. If the negative line goes up, the trend is downward.
  • Maximum divergence, after which convergence begins – the trend ends.

ADX-2

The moment of convergence of the dotted lines means balance. If the divergence is small and the convergence of the lines begins again, the trend is weak.

In the next review, we will consider examples of opening deals by combining signals of the main and additional lines.

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Average Directional Movement Index

You got to know ADX in the Average Directional Movement Index indicator review. This is a successful combination of a tool that allows you to simultaneously predict the trend direction and assess its strength. The calculation of the value consists of several intermediate steps. The indicator consists of intermediate dashed lines for the calculation and one main one – aggregating signals. ADX helps to determine the strength of the trend at the moment of its exit from the flat. Is the breakout of the flat range a strong trending move or is it a false breakout.

Average Directional Movement Index strategies are based on the relative position of the main ADX line and dashed DI lines, as well as on the basis of their intersection and location relative to overbought and oversold zones.

Application features ADX:

  • The tool is suitable for currency pairs and cross rates. It works worse on stocks, gold or oil.
  • Signals to open a trade appear only on a trend movement.
  • The time interval is from H1 and above. The author advises to use it on D1, but then you should remember about swaps.
  • The ADX line is below 20% – in the flat market. If the ADX rises rapidly to 40%, the market is trending strongly. It is too late to look for an entry point when the indicator is above 50%.
  • More accurate signals appear when the price goes out of equilibrium. If the trend changes direction, the Average Directional Movement Index signals are more “blurry”.

Trading Strategies for Average Directional Movement Index

  1. Analysis of the strength of the trend movement… The strength of the trend is the ratio of the volumes of orders of “bulls” and “bears” to each other. If the volume of bulls rises sharply, the price goes up – the asset becomes more expensive. If the volumes are equal or the scales are tilting alternately in one direction or another in a short period of time, the market is flat.

Ranges of ADX movement:

  • 0 – 20%. Flat. There is no clear preponderance of bulls and bears in the market. Either the volumes are equal, or there are practically no orders on the market. This position of the indicator often occurs before news releases or before holidays. Traders take a wait and see attitude.
  • 20 – 30%. A trend begins. One of the parties begins to increase volumes by shifting the price. It is too early to judge the strength of the trend – the breakout of the resistance or support level may turn out to be false and the price may return to the flat range. You can open a position, but carefully, evaluating signals from other instruments or signals from additional ADX lines.
  • 30 – 40%. The indicator is in this range – we are looking for moments to open a deal.
  • 40 – 50%. A strong movement tending to its extreme. Opening deals here is a risk, since the trend may soon exhaust itself. If the deal is already open, you can increase its volume.
  • 50 – 80%. The market is in the overbought or oversold zone. Even on strong moves above 60%, the ADX rarely rises.

The zones are for guidance only and are individual for each instrument. For example, on volatile markets, a deal can be opened already when the ADX leaves the 20% zone, on calm markets – 25% will still be considered a flat.

ADX-1

The picture is revealed in large format – click on it!

At the beginning of the chart, there is a flat, the index is below 20%. As soon as the index approaches 30%, you can look for an entry signal – a downtrend begins. Note that the main ADX line shows the strength of the trend, not its direction. While the index is at its peak at about 55%, the trend direction changes – the strength does not change, the index remains at the same value, but the trend goes the other way. Then, there is a flat segment again – ADX in the 25-30% zone. As soon as the index crosses the 30% mark and goes up, a downtrend begins.

  1. Determining the direction of the trend… If the main line ADX is responsible for the strength of the trend, then the direction is shown by additional lines DI + and DI -. Signals:
  • When crossing, additional lines begin to diverge. The larger the divergence angle, the stronger the trend. If the positive line goes up, the trend is upward. If the negative line goes up, the trend is downward.
  • Maximum divergence, after which convergence begins – the trend ends.

ADX-2

The moment of convergence of the dotted lines means balance. If the divergence is small and the convergence of the lines begins again, the trend is weak.

In the next review, we will consider examples of opening deals by combining signals of the main and additional lines.




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