There Steemit Crypto Academy [ August 17th, 2021] ADX Indicatorr

However, we haven't covered how to measure the strength of the trend in any possible time frame. You can only measure the strength of the trend by using a special trading indicator. For example, the ADX, which is an acronym for Average Directional Index.

Detecting a strong directional move is the most important skill for all traders to have. No matter what type of trader you are, after you enter a position you need a strong directional move. In order to make a profit, the move must be in the direction of your trade.

The ADX indicator trading rules can help you achieve your financial goals.

Before moving forward, we must define which technical indicator we need for the best ADX strategy. We will define the rules of ADX indicator trading.

What is ADX Indicator?

The principles of the Average Directional Index can apply to almost all tradable assets including stocks, exchange-traded funds, mutual funds, and futures contracts. ADX has become exceptionally useful in futures markets for many reasons:

With a standard range of 14 bars, ADX offers a “bigger picture” than many other technical indicators.

ADX is time adjusted, meaning that the most recent data is given exceptional weight.

ADX helps you identify the strength of a trend, which will be useful for any contract being executed in the near future.

ADX makes it very easy to compare mutually exclusive futures contracts at once.

Futures traders enjoy using ADX as a metric because it offers the perfect blend of past and present data and future predictability. Successfully purchasing futures contracts will require you to identify which potential contracts are mispriced in the status . Using ordinary ADX readings for future contracts makes this possible.

Using ADX for major indexes (such as the DJIA, S&P 500, and others) can also help you identify whether the general market is experiencing bearish or bullish conditions.

What are the ADX Indicator Trading Rules

Before going further into the ADX indicator trading rules, let’s define what the ADX indicator is and how you can profit from it.

The ADX indicator simply measures the strength of a trend and whether we’re in a trading or non-trading period. In other words, the ADX is a trend strength indicator. This method of technical analysis is used to identify the emergence of strong downtrends and buy signals.



We need to be very careful about how we read and interpret the ADX indicator. It is not a bullish and bearish indicator. ADX’s moving average only measures the strength of the trend.

So, if the price is going UP, and the ADX indicator is also going UP, then we have the case for a strong bullish case.

The same is true if the price is going DOWN and the ADX indicator is going UP. Then we have the case for a strong bearish case.

The first ADX indicator trading rule says, a reading below 25 signals a period of non-trading or ranging market. The second ADX indicator trading rule says, when the ADX is above 25 is enough to signal the presence of a strong bullish/bearish trend.

Going forward, keep in mind that the ADX indicator doesn’t give you any information about the direction of the market. It just provides you with information about the strength of a trend.

Let's move on, and find out how the ADX indicator can be used with different trading styles:

ADX indicator for day trading
ADX indicator for swing trading
First, we’ll focus on how to use ADX indicator for intraday trading.

How to use ADX indicator for day trading
The ADX indicator day trading strategy starts with selecting the right settings.

Let me explain why:

Short-term charts are fast-paced, so you need to tweak the ADX setting to make it more sensitive to the short-term price changes in the market.

So…

The best ADX setting for day trading is the 3-period.

As a general rule, the shorter the period is, the more sensitive the technical indicator becomes to the price. Therefore, the 3-period ADX indicator works best for day trading.

As we already know, low ADX readings mean the trend strength is weak while higher ADX readings mean a strong trend. We also know from the natural ebb and flow of the market that prices move from periods of consolidation to trending and vice versa.

Now, if we combine the two market hypothesis we can conclude the following:

Low ADX readings (consolidation) should be followed by higher ADX readings (trend).

So…

When day trading with the ADX indicator, we look for clues to buy and sell when ADX falls below 25.

When the ADX falls below 25 it suggests that there is no strength in the trend and most likely we’re consolidating. This means we can look for potential intraday breakout signals.

But, since the ADX doesn’t show us the direction of the trend, we wait until the ADX breaks above 50:

If prices are rising with the ADX rising we buy
If price is falling with the ADX rising we sell
Nothing speaks louder than a trade example.

So, here is an example outlining the ADX day trading strategy in action:

How to use ADX indicator for swing trading
Swing trading with the ADX indicator is a lot easier because after all the trend strength indicator works better for position trading.

If you want to use this ADX swing trading strategy, you need to follow these simple rules:

ADX must cross above 30 – this will signal a strong trending market
Wait for the price to retrace to the 20-EMA
When the price touches 20-EMA, place a buy above the high of the previous bar
Place SL below the newly formed swing low.

What are the best ADX Indicator Settings?
The ADX indicator uses a smoothing moving average in its calculation. We find out that the best ADX indicator settings to use is 14 periods. With our ADX indicator settings, you’ll have more accurate signals and it will help you get in a trade earlier.

ADX indicator settings

The ADX indicator works best when used in combination with other technical indicators.

The best ADX strategy also incorporates the RSI indicator in order to time the market. The ADX indicator can only help us to gauge the intensity of the trend. So we need the RSI indicator for entry signals.

The RSI uses a 20-period setting, which is the same as the ADX indicator settings.

Finally, your chart setup should have at the bottom both the ADX and RSI indicator. It should be the same as in the figure below.

The Best ADX Strategy
The ADX indicator trading rules will ensure that you only trade when there is a strong trend on the 5-minute chart or the daily chart. In this regard, the best ADX strategy is a universal strategy that performs the same, regardless of the time frame used.

Before we even look to see if the market goes up or down, we must first wait for the ADX indicator to show a reading above 25. Based on the ADX indicator trading rules, a reading above 25 is signalling a strong trend and the likelihood of a trend developing.

adx indicator intraday

We all know that the trend is our friend, but without real strength behind the trend, the newly formed trend can quickly fade away.

In order to gauge the direction of the trend, we also need to look at the actual price action. This brings us to the next step of the best ADX strategy.

No matter what your time frame is, we need a practical way to determine the direction of the trend.

By using a sample size of 50 candlesticks to determine the trend we ensure that we trade in the moment of now. We like to keep things simple, so if the price is heading lower during the last 50 candlesticks we’re in a bearish trend

Now, it’s time to focus on the catalyst that will trigger our sell signal for the best ADX strategy.

For our entry signal, we’ll be using the RSI indicator that uses the same settings as the ADX indicator settings. Normally the RSI reading below 30 shows an oversold market and a reversal zone. However, smart trading means looking beyond what the textbook is saying.

In a strong trend as it’s defined by the ADX indicator that’s precisely what we want to see.

Guidelines
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