An Introduction to Forex ADX Indicator
Getting along on a trend is a very profitable move that all traders wish to be in and also a very good way of yielding high risk reward ratio positions as thus the ADX Indicator has remained the best way of getting to know the state of the trend.
Why Chose ADX Indicator?
For some of you who are quite familiar with some of the technical indicators out there, you are sure to know of various forex trend indicators like the moving averages. Yes, the moving averages are also a very good tool in determining the trend but at the same time they aren’t able to give you a value for the trend and hence this is where the ADX Indicator comes into play.
ADX Indicator Explained?
The ADX Indicator is an indicator that is made up of a single line with values ranging from 0 to 100. It is uni-directional, although some folks think it is oscillatory. The Oscillators are known for defining price movements when they point up for a bullish trend and bearish when they point down. Invariably we see the ADX only defining market direction when it points up and thus we refer to it as uni-directional.
The ADX Indicator from our chart below would point up when the market is in an uptrend as well as that of a bearish trend.
Understanding the ADX Indicator
I have continually told investors that the ADX can be used to tell whether the market is trending or ranging. The ADX is numbered from 0 to 100. Some of the readings that you should know about the ADX is that of the weakness of the market (when the ADX moves below the 25 level). In situations like this we find the market in consolidation and price would most definitely be moving in a range.
When we find the indicator move above the 25 level, it simply shows that the trend is getting stronger and the larger the value, the stronger the trend would be. Basically, for us to have a holistic understanding of the trend we are in there’s need for us to marry the value of the indicator to its direction.
Characteristic of a Strong Trend
A strong term in the upward/downward direction is characterized by the ADX pointing up and going beyond the 25 level.
This Indicator can also be employed to helping investor’s trade breakouts. The drawback here is the fact that most breakouts are fake out (which are fake movement of the market resulting to adverse lost of funds by most traders).
Market Breakouts Validation
The ADX indicator allows investors check if a breakout in valid or not. If you notice price breaking out of a pattern or trend line, you are advised to check on your indicator to know if it points upward and moving beyond the 25 level. A reliable breakout is formed when the ADX indicator is pointing upward and is going above the 25 level.
I’m hoping that after going through this article, you’ll find this indicator useful for your trading activities and you’ll be able to integrate it into your trading scheme. Please feel free to comment on our blog and share with use other uses of ADX by commenting here.
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