{"id":9608,"date":"2022-10-12T08:14:23","date_gmt":"2022-10-12T08:14:23","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9608"},"modified":"2022-10-12T08:14:23","modified_gmt":"2022-10-12T08:14:23","slug":"how-to-use-adx-average-directional-index","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/12\/how-to-use-adx-average-directional-index\/","title":{"rendered":"How to Use ADX (Average Directional Index)"},"content":{"rendered":"\n

When trading, it can be helpful to gauge the strength of a trend, regardless<\/em> of its direction.<\/p>\n\n\n\n

And when it comes to evaluating the strength of a trend, the Average Directional Index<\/strong> is a popular technical indicator for this purpose.<\/p>\n\n\n\n

The Average Directional Index<\/strong>, or ADX for short, is another example of an oscillator.<\/p>\n\n\n\n

ADX\u00a0fluctuates from\u00a00 to 100<\/strong>, with readings\u00a0below 20<\/strong>\u00a0indicating a weak trend and readings\u00a0above 50<\/strong>\u00a0signaling a strong trend.<\/p>\n\n\n\n

The ADX calculation can be complicated, but in a nutshell, the stronger the trend,  the higher ADX goes<\/p>\n\n\n\n

When the ADX is low, it highlights periods when the price is usually going sideways or trading in a range.<\/p>\n\n\n\n

When the ADX has risen above 50, this indicates that the price has picked up momentum in one direction.<\/p>\n\n\n\n

Unlike\u00a0Stochastic, ADX does NOT determine whether the trend is bullish or bearish. Rather, it merely\u00a0measures the strength of the current trend<\/strong>.<\/p>\n\n\n\n

Because of that, ADX is typically used to identify whether the market is ranging or starting a new trend<\/strong>.<\/p>\n\n\n\n

ADX is considered a \u201cnon-directional\u201d indicator. It is based on comparing the highs and lows of bars and does not use the close of the bar.<\/p>\n\n\n\n

The stronger the trend<\/em>, the larger the reading regardless of whether it is an uptrend or downtrend.<\/strong><\/p>\n\n\n\n

How to Use ADX<\/h2>\n\n\n\n

When you\u2019re using the ADX indicator, keep an eye on the 20 and 40 as key levels.<\/p>\n\n\n\n

here\u2019s a little cheat sheet to help you interpret ADX values.<\/p>\n\n\n\n

ADX Value<\/strong><\/td>Indication<\/strong><\/td><\/tr>
Rising<\/td>Strengthening trend<\/td><\/tr>
Falling<\/td>Weakening trend<\/td><\/tr>
Below 20<\/td>Weak trend<\/td><\/tr>
Between 20 and 40<\/td>Strong trend<\/td><\/tr>
Above 40<\/td>Extreme trend<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Take a look at these neat charts we\u2019ve pulled up:<\/p>\n\n\n\n

\"ADX<\/a><\/figure>\n\n\n\n

In this first example, ADX lingered below 20<\/strong> from late September until early December.<\/p>\n\n\n\n

As you can see from the chart, EUR\/CHF was stuck inside a range during that time.<\/p>\n\n\n\n

Beginning in January though, ADX started to climb above 50<\/strong>, signaling that a strong trend could be waiting in the wings.<\/p>\n\n\n\n

And would you look at that! EUR\/CHF broke below the bottom of the range and went on a strong downtrend. Ooh, that\u2019d be around 400 pips in the bag.<\/p>\n\n\n\n

Book it, baby!<\/p>\n\n\n\n

Now, let\u2019s look at this next example:<\/p>\n\n\n\n

\"ADX<\/figure>\n\n\n\n

Just like in our first example, ADX hovered below 20<\/strong> for quite a while. At that time, EUR\/CHF was also ranging.<\/p>\n\n\n\n

Soon enough, ADX rose above 50 and EUR\/CHF broke above the top of its range.<\/p>\n\n\n\n

Tada!<\/p>\n\n\n\n

A strong uptrend took place. That\u2019d be 300 pips, signed, sealed, and delivered!<\/p>\n\n\n\n

Looks simple enough, right?<\/p>\n\n\n\n

If there\u2019s one problem with using ADX, it\u2019s that it doesn\u2019t exactly tell you whether it\u2019s a buy or a sell.<\/p>\n\n\n\n

What it does tell you is whether it\u2019d be okay to jump in an ongoing trend or not.<\/p>\n\n\n\n

Once ADX starts dropping below 50 again, it could mean that the uptrend or downtrend is starting to weaken and that it might be a good time to lock in profits.<\/p>\n\n\n\n

How to Trade Using ADX<\/h2>\n\n\n\n

One way to trade using\u00a0ADX\u00a0is to wait for breakouts first before deciding to go long or short.<\/p>\n\n\n\n

ADX can be used as confirmation whether the pair could possibly continue in its current trend or not.<\/p>\n\n\n\n

Another way is to combine ADX with another indicator, particularly one that identifies whether the pair is headed downwards or upwards.<\/p>\n\n\n\n

ADX can also be used to determine when one should close a trade early.<\/p>\n\n\n\n

For instance, when ADX starts to slide below 50, it indicates that the current trend is losing steam.<\/p>\n\n\n\n

From then on, the pair could possibly move sideways, so you might want to lock in those pips before that happens.<\/p>\n\n\n\n

As the saying goes, \u201cThe trend is your friend.\u201d<\/p>\n\n\n\n

Until it stabs you in the back.<\/p>\n\n\n\n

\"Trend<\/figure>\n\n\n\n

Oh wait.<\/p>\n\n\n\n

I mean\u2026\u201d Until it reverses<\/em>.\u201d<\/p>\n\n\n\n

(Got caught up in memories for a moment there.)<\/p>\n\n\n\n

The next time you think a trend is changing and you need to decide whether to stick to this \u201cfriend\u201d or cut ties, consider trying the ADX to confirm the trend\u2019s strength.<\/p>\n","protected":false},"excerpt":{"rendered":"

When trading, it can be helpful to gauge the strength of a trend, regardless of its direction. And when it comes to evaluating the strength of a trend, the Average Directional Index is a popular technical indicator for this purpose. The Average Directional Index, or ADX for short, is another example of an oscillator. ADX\u00a0fluctuates from\u00a00 to 100, with readings\u00a0below […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[887],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9608"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9608"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9608\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9608"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9608"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9608"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}