The ADX indicator is a indicator directional movement. Its main purpose is to measure the momentum of the trend. He is also known among traders as Average Directional Index. The technical analysis tool allows to determine the strength of the movement and to assess how strong the momentum of the "bulls" or "bears." ADX is already built into the basic trading platform MT4 and MT5.
If you set the indicator to the chart of the currency pair, the analysis of which will be scheduled in the lower window you will see three lines: blue main, pink and green dotted. The main blue line shows the strength of the trend. The higher the location, the more market participants push the price in a certain direction.
If the line is at 20, the strength of the trend is very small. When it reaches the range between 20 and 40 levels – the power of moving average, if the line crosses level 40, the price movement is characterised by strong momentum either from sellers or from buyers.
The Dotted lines indicate the presence of a "bearish" or "bullish" sentiment in the market. The green line is conventionally named "+DI". When it's placed above the other two lines, the price increases. If the top is pink dotted line, conventionally referred to “– DI”, the market down trend line. The change of trend occurs when the lines intersect. It is on the basis of these two lines is calculated and the indicator ADX. Tool description allows us to consider several vantage points to enter:
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Not all indicators «Forex» can give a signal to buy or sell, but ADX - this is one of those tools that predicts and analyzes the situation after the fact. If the market is flat and all the lines of the tool are tightly intertwined with each other, it is better to abandon its use and to give preference to one of the oscillators. Using lines you can determine the power of the future trend. You should pay attention to the aspect that the indicator cannot indicate the direction of the trend, it can only indicate its presence in the market or not. When the "bear" trend line can be directed downwards, and it will testify about the presence of a strong and impulsive movement. The preponderance of the bulls line will be pointing up. Dramatically increase the efficiency of trading if simultaneously use 2-3 trading indicator and including the ADX. How to use it, we reviewed a little higher.
The Main advantage ADX can be called its effectiveness on different time frames. If several time periods from the shopping tool is fed identical signals should think about opening a position to evaluate the situation on the market. The tool is applicable to intraday and swing trading. In the latter case, the use of the indicator in the period from one day to several, it is recommended to pay attention to the results of the last trading sessions. It is desirable that the trading range of the main line of Average Directional Index as high as possible crossing shopping 40. An estimation of the situation, you can set the levels in the settings tool.
The Indicator can be successfully written in any trading strategy. It is not recommended to use by itself, but bundled with other tools and with the confirmation of the secondary signals, it can provide a decent the profitability of the trader.
Consider what tools experienced traders combine ADX indicator. Strategy involves opening positions when one of the above signals takes place near a key level or in the structure of a technical pattern (figures of technical analysis). Nice work yourself line tool in conjunction with candlestick pattern analysis. For example if the price chart formed a pin bar, which indicates a trend reversal, and the indicator line is in the interplay with other lines below the 20 level for a long time, you should expect a significant drop in prices and a very strong pulse. But if this picture is complemented by economic factors, fundamental analysis is to prepare for the opening of a profitable trade.
To trade on any time frame will fit standard setting of the indicator ADX.Traders who work exclusively with technical analysis, you can tailor the program to fit their needs. There is already a private matter, but for beginners it is preferable to change anything in the settings and leave everything as it is. Entering valid when, with a clear trend line of the indicator crosses the level 30. To open a position there is a small lot.
At a time when the blue line will cross the level of 40 can add. To determine a more precise entry point should move on the eve of the decision making into smaller hourly charts. This will reduce the ratio of loss and profit, will allow to win back the deal in the best way.
The ADX indicator can be successfully used at relatively low market movement, but its actual availability. To avoid a series of stops on some trades, you can follow the location of the lines. For example, if the price moves to the active level and by all indications it is ready to break through, but the indicator indicates a slowing of the trend to enter the market is not worth it. Forces "bulls" or "bears" is simply not sufficient to continue the movement. Taking note of indications of lines and their location relative levels, the number of losses the result is false penetrations will decrease significantly.
The ADX indicator can be a excellent indicator of consolidation in the market. To determine the fading trend and the market transitions into a flat very problematic. If the trend in three descending lines, please note that the market situation is favorable for trade to call problematic. A systematic reduction from the level 50 to the bottom warns of low volatility. If trade is based on the penetrations and bounces, the intersection of lines 40 can be interpret as the beginning of the active trend and end of a period of stagnation on the stock exchange.
As to the indicators «Forex», it should be said that the most harmoniously combined with the ADX MACD. If you set the chart for two tools, they will eliminate false signals from each other. When ADX indicates a strong movement in the market, the MACD indicator can show the direction of the movement itself. This will eliminate confusion and the difficulties faced by traders just starting to trade with the help of this tool. Quite often because of carelessness, the rising up of the blue line is associated with a growing trend, and descending – falling.
A Great signal to buy can serve the simultaneous growth of two indicators. When both indicators go down, it speaks of the fading of the movement, MACD, in turn, portends a trend reversal.
Lag – this is one of the main disadvantages that has a ADX indicator. A description of the problem is very simple. The point is that the indicator correctly signals about the strength of the trend only when the spread (the flat) is not delayed for a long time. The problem is that the history of a specific trend, on the basis of which is the construction schedule, quickly erased. Data analysis can be distorted. Hence the fact that to use signals indicator rationally only at the source of origin of the trend in the moments when the three lines of the tool are almost at the lower level. The longer they stay in this position, the greater profit you can expect.
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