In this tutorial, you’ll learn how to use the Average Directional Index ADX Indicator. First of all, the ADX is useful to determine the strength of the trend.

The Average Directional Index is a trend indicator. It was created by Wilder to measure the strength of the current trend.

The Average Directional Index shows you the trend direction by two associated indicators, the Negative Directional Indicator (-DI) and the Positive Directional Indicator (+DI).

You can find the ADX preinstalled in many platforms with basic settings.

How to calculate the ADX indicator

The Average Directional Index shows you the trend direction by two associated indicators, the Negative Directional Indicator (-DI) and the Positive Directional Indicator (+DI).

First of all, you have to calculate the Plus Directional Movement (+DM) and Minus Directional Movement (-DM)

The formula:

+DM =  High – Previous High

 -DM =  Previous Low – Low

Here you can find all you need to calculate the ADX.

How to trade using the ADX Indicator

Quite simply when the +DI crosses the -DI it creates a buy signal and vice versa.

Generally, this system doesn’t perform well. It could work with currencies that are in a strong trend.

The system does not lose, but it is not tradable. The profit factor and the net profit average trade are too low. Indeed, there is a series of false signals that disturb the strategy.

To use the Average Directional Index to trade, we need to add another indicator that provides us a more efficient signal.

How to read the ADX Indicator

The standard length for the Average Directional Index Formula calculation is 14 periods. Many traders using only one level for ADX reading, when ADX is greater than 20 or 25, the trend is strong. Probably it’s not enough.

ADX standard Indicator level 20

We like to use more levels.

We create four levels:

Average Directional Index Indicator levels

In this way, it is easier to read the ADX and the actual trend.

How to use ADX in forex

ADX Indicator was a reliable tool to trade the Forex Market. In the past, currencies were trending healthy, and for a long time. In the last year, the Forex Market is less volatile, and the trend follower strategies work poorly.

To use the ADX indicator in the Forex Market, you have to develop a strategy that uses the ADX to filter the trend.

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