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I Need Help On Adx

Discussion in 'General Forex Talk' started by masterkey, Jun 16, 2010.

  1. masterkey

    masterkey Recruit

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    Hello all members ,
    Please i need help on how to interpret ADX- AVERAGE DIRECTIONAL MOVEMENT INDEX .
    Thank you all.
     
  2. Forexwatchman

    Forexwatchman Sergeant

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    I use to use this indicator and found it to be a fairly accurate leading or trend-following indicator. The main use of this indicator is for determining if a trend is starting, strengthening, or at an extreme level. I used the Advanced ADX indicator instead of the generic one with three lines that comes with the MT4 platform. You can ignore the +DI and -DI lines, all you really need to pay attention to is the ADX line and the two horizontal lines drawn at 20 and 40. I used 30 and 40 by the way because 20 was a more prone to fakeouts. The main idea then is if the ADX is below 20/30 then there is no trend and you are in a ranging market, if it is above 20/30 BUT also still below 40 then you are just beginning to see a trend gain momentum and this is where you want to pick your entries. Once it's over 40 you should stay out because the trend is at an extreme level and bound to reverse.

    The Advanced ADX I mentioned earlier eliminates the 2 DI lines and replaces them with colored bars much like the volume bars on a MACD indicator. When the bars are red, momentum is bearish, when they are green, momentum's bullish. Instead of a ADX line, you use the height of the bars to determine what level you are at in reference to the 20 and 40 horizontal bars mentioned above.
    So to sort of summarize how I incorporated this indicator, I only used it to determine if the market was ranging or trending. If it was ranging, then I looked to my oscillating indicators, if it was trending then I looked at my trend following indicators. I would advise you play around with the Advanced ADX, but again I no longer use it at all as I have since steered away from almost 98% of the indicators I've ever used as I have refined my trading strategy. It's all part of the experience. Good luck!
     

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