Average Directional Index (ADX) - Can it Be Utilized to Trade Forex Profitably?


As technical tools and indicators go, the ADX frequently gets lost in the weeds compared to the more popular MACD, RSI and Stochastics. However, if used correctly the ADX can be a big help in trading the Forex profitably. The Average Directional Index was established by Welles Wilder, a prolific researcher and author on the monetary markets. Investopedia describes the ADX as an indication that is "utilized to identify when cost is trending highly". There are 3 elements to the ADX: the DI+ line informs us when there is a positive, upward pattern widespread in an offered market; conversely the DI- line tells us when there is an unfavorable, downward pattern. The last component is the ADX line itself which tells us the strength of the trend.

I like to make the DI+ green and the DI- red since on my charts green bars show upward relocations and red bars show down moves. The ADX is used like this: when the green (DI+) line crosses above the red (DI-) line, then a favorable, upward pattern is gaining dominance in the market and you can anticipate prices to rise. When red crosses above green, just the opposite happens, a negative/downward trend is coming into play. Now, if the ADX line is increasing as well, that tells you the strength of that relocation is increasing. If the ADX signs up a reading of 20 or below, we say there is no trend in place. A reading between 20 and 25 recommends a weak trend. When the ADX is above 25 a strong trend -up or down- exists. Keep in mind, the ADX line doesn’t'' t tell which way the market is moving, just the strength of the trend. Look to see whether the green or red line is on leading to get the direction. That's it in a nutshell. There are other factors to consider such as which time frame is best to use ... which currency works best with this, what are the optimum settings, what are the finest times to trade ... and more. Do you require to keep your eye on the chart all day? There are excellent answers to all this which I will deal with in subsequent short articles.

If you're exceptionally considering making use of the ADX indicator into your trading method to get earnings in the monetary markets, I highly suggest you look into the indication we have actually used called the "ADX and Momentum" Indicator.