Average Directional Index (ADX) | Forex Indicators Guide

Average Directional Index (ADX)

Downloads:

ADX.mq4
Advanced_ADX.mq4

ADX Quick Summary

Trading with ADX indicator involves the following signals:

ADX staying below 20 level there is no trend or the trend is
weak.
ADX moving above 20 level trend is strong.
ADX passing 40 level trend is extreme.
ADX value rising trend is going stronger, falling trend is
weakening.
+DI stays on top of -DI uptrend is in place.
-DI stays on top of +DI downtrend is in place.
Two DI cross trend is changing.

Average Directional Index (ADX)

The Average Directional Index (ADX) depicts a presence or

absence of a trend. ADX advices on the strength of the dominant
forces that move market prices here and now.
In other words, ADX advices on trend tendencies: whether the
trend is going to continue and strengthen or it is about to lose its
positions.
The author of Average Directional Index J. Welles Wilder
considers his ADX indicator as a primary achievement; and only
because signals given by ADX are not an easy to take a grasp of
from the first look, many Forex traders avoid using ADX in favor
of more visually comprehensive indicators.

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Average Directional Index (ADX) | Forex Indicators Guide

How to interpret ADX

ADX indicator has 2 lines: ADX itself (white), +DI (green) and DI (red).
Traders then need to draw a horizontal line at the level of 20.
All readings of ADX which are below 20 suggest a weak and
unclear trend, while readings above 20 indicate that a trend has
picked up.
That is, basically, the simplest explanation of the purpose of ADX.
ADX allows Forex traders to determine whether the trend is strong
or weak and thus choose and appropriate strategy to trade with: a
trend following strategy or a strategy fit to consolidation market
periods with no significant price changes.
There is also additional line to be added to ADX indicator window
- at 40 level.

How to trade with ADX

Trading with ADX looks as follows:

If ADX is traded below 20 - there is no trend or the trend is weak,
thus a non-trend-following strategies should be used, otherwise
losses may occur as a result of false signals and whip-saws taking
place. An example of non-trend-following method is channel
trading.
If ADX is traded above 20 but below 40, it is time to apply trend
following methods. An example would be: Forex trading Moving
averages or or trading with Parabolic SAR indicator.
When ADX reaches 40 level, it suggests an overbought/oversold
(depending on the trend) situation on the market and it is time to
protect some profits of at least move Stop loss order to a break
even.
When ADX passes 40 level, it is a good time to begin collecting
profits gradually scaling out of the trades on rallies and sell-offs
and protecting remaining positions with trailing stops.
ADX -/+ DI lines are used for spotting entry signals. All -/+ DI
crossovers are disregarded while ADX remains below 20. Once
ADX peaks above 20 a buy signal occur when +DI (green) crosses
upwards and above -DI (red). A sell signal will be the opposite:
+DI would cross -DI downwards.
If after a newly created signal another opposite crossover happens
within a short period of time, the original signal should be
disregarded and position protected soon or closed.
ADX indicator is never traded alone, but rather in combination
with other indicators and tools. ADX indicator most of the time
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Average Directional Index (ADX) | Forex Indicators Guide

gives much later signals comparing to faster reacting moving

averages crossover or Stochastic, for example, however, reliability
of ADX indicator is much higher than for other indicators in
traders' toolkit, which makes it a valuable tool for many Forex
traders.
And just one more idea to test out:
When ADX rises above 20 for the first time and then goes flat for
some time, there is believed to be a new trend being born and the
reason for ADX being currently flat is because market reacts to
this new trend formation by making first initial correction. During
this correction it is a good time to initiate new orders.

ADX indicator formula

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Average
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Comments

trader
what settings can one use for the ADX in trading short term
trades, like the 30min time frame?

FxIndicators
ADX indicator standard setting are 14. In most cases it is better to
use standard settings just because majority of traders use them;
result - everyone sees the same picture and gets the same signals at
the same time.
However, with ADX indicator specifically, Forex traders often
look for alternative settings.
The nature of ADX indicator allows experimenting with settings to
get best performance.
Common range for ADX is from 7 period ADX to 30 period.
For 30 minutes chart try ADX 30.

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Average Directional Index (ADX) | Forex Indicators Guide

Price
trader
Oscillator
(PPO)
Triple
Check out this link to know more uses of ADX: System Selection
Exponential technique
Moving

Average
(TEMA)
Triple
trader
Exponential
Moving
Average
For Stock market ADX settig is set to 10 as default, but in Forex i
(TRIX)
think for the most case 14 is the best choice
MOMENTUM
INDICATORS
Accumulative
Swing Index
(ASI)
trader
Advance
Decline Ratio
(ADR)
should i use ADX with the weekly, daily, or 15 minute chart?
Aroon
Aroon

Oscillator
Commodity
Channel
FxIndicators
Index (CCI)
Relative
Strength
any chart, I use it even on 5 min as a trend filter for scalping here
Index (RSI) and there.
Stochastic

Stochastic
RSI
VOLATILITY
trader
INDICATORS
Average True
Range (ATR)
will default settings for ADX (ie) ADX14 will suit trading on 15
Bollinger
Min chart?
Bands
Chandelier

Exit
VOLUME
INDICATORS
FxIndicators
Acceleration
Bands
Chaikin
yes, it will.
Money Flow
(CMF)

Volume
CYCLE
INDICATORS
trader
Detrended
Price
Oscillator
hi, does ADX come with all MT4 platform
(DPO)
Elliott Waves
Schaff Trend

http://forex-indicators.net/adx[03/02/2015 10:45:06]

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trader
u are doing a wonderful job. God bless u

FxIndicators
Thank you! Glad you like it.
Yes, ADX comes with all MT4 platforms. You'll find it in MT4
under Trend indicators, under name "Average Directional
Movement Index".

trader
Found ADX useful, show sell signal... Google and found this
page, short and simple. Thanks U Guys.

trader
ADX indicator is a good help but only with other supportive
indicators like RSI or so.

trader
sir your is very good human,thanks all very very best explanation

trader
I agree with the rest of the traders, this site ROCKS! thanx for
your explanations. they are simple n easy to understand. I will
recommend this page to all my FX buddies, be blessed-Mightily.

trader
Google -> your site -> understanding :) thanks very much. I was

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Average Directional Index (ADX) | Forex Indicators Guide

searching long time for easy to understand explanation.

FxIndicators
Thank you!
It's great to have so many people discovering the powers of
indicators!

trader
is there a bug in MDI formula? I'd prefer MAX(L(t-1)-L(t),0)

FxIndicators
No, I don't think so.
But double-check with other resources.

trader
I want to thank a friend for a novice not to have trading in the
demo so real and yesterday I discovered your site.
Quero agradecer ao amigo pois sou novato nao to ainda
negociando no real so na demo e ontem eu descobri seu saite
tenho apreendido muinto e embreve ja irei operar na conta real
pois suas explicaoes estao a me dar confiana obrigado mesmo e
sertamente estarei de olho no seu saite ok.

trader
When a strong trend is in play and reverses to a strong trend in the
opposite direction, what should we look to see in the ADX? If you
wait for it to go back to 20 and rise above you have missed the
strong trend in the opposite direction. How do you recognize this
situation before it's too late? Thank you!

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Average Directional Index (ADX) | Forex Indicators Guide

trader
You should add E=MC2(r-xd)(rxl)-x2(m-lc=4)

FxIndicators
When a strong trend is changed by an opposite strong trend, ADX
indicator is totally useless.
Basically, as soon as ADX starts to decline from the top 30-45
levels, it no longer posses any interest as it can't reflect a change
in a trend. Traders can only refer to +-DI for trend confirmations.

trader
Would you kindly show me where to add the new line. Thanks in
advance

trader
keep the good jobs

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