Lets 1st discussed about What is ADX indicator?
ADX indicator – True Trend Strength Indicator
The ADX (Average Directional Index) is a creation from technical analysis legend J. Welles Wilder.Trading with adx is help you to reduce risk and increased profit chance. How? ADX (average directional index) is help to you determine price trend strength. As ADX calculated based on moving average of price range. Default value of ADX indicator is 14 bars. But trader used different bars size based on instrument volatility. ADX plotted as a single line between 0 to 100. Directional movement indicator (DMI) plotted for ADX value.
Below ADX value determine directional strength.
|ADX Value||Trend Strength|
|0-25||Absent or Weak Trend|
|50-75||Very Strong Trend|
|75-100||Extremely Strong Trend|
You will find from above table that ADX value greater then 25 indicate strong trend. Low ADX indicate that value accumulation or distribution. If price is stable and ADX also below 25 then its indicate that someone cornering instrument. Intraday Trader should avoid trade if ADX below 40.
How to Use ADX (Average Directional Index) for Day Trading?
ADX is friend for Day trader. Every day trader wants to avoid sideways moment of instrument. So golden rule that if adx
- Moving between 25 to 30 range – its time to break out either upward or downward. Trader should carefully watch adx value.
- ADX above 30 and below 50 range– its time to enter into trade. Once again ADX is indicator which indicate price directional strength but its doesn’t show directional so its supportive indicator. Take trade base on your primary indicator.
- Falling ADX – its misconception that falling ADX means its reversal of directional movement of indicator. Falling ADX value indicate that weakness of strength in directional movement its time to exit from trade not reveral.
- ADX as a Range Finder indicator – trade hates price trade in range. Or non- directional movement. If ADX value down from 25 to below 25 range its indicate that price is side-ways moment.
After knowing above ADX value used you will defiantly feel that its friend for Day trader.