BeginnerEarly Stages For Beginners8 Topics
Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
Margin & Leverage2 Topics
IntermediateIdentifying Scams2 Topics
Brokers for Beginners5 Topics
Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Counter Trend Trading/ Counter Trend Lines
- Moving Average
- Top-Down Analysis
- Consolidation Trading (Breakout, Retest, Continuation)
AdvancedUsing Indicators6 Topics
Technical Analysis (Part 2)8 Topics
Market Structure5 Topics
Fundamental Analysis9 Topics
CompletionRisk Management for Beginners8 Topics
Psychology for Beginners7 Topics
Personal Psychology Questions2 Topics
Average Directional Index (ADX)
The ADX is visually the simplest momentum indicator, which is why it’s so popular among forex traders willing to determine the strength of a trend. However, it’s actually the most complex of the four when it comes to calculations used to determine its value. In fact, its formulas are so sophisticated that we won’t even bother explaining how the ADX is formed, but we’ll just mention that the indicator’s main purpose is to assess the strength of a trend.
The ADX also represents a line that fluctuates between 0 and 100, but its formulas involve multiple lines.
On a side note, the ADX was first introduced by J. Welles Wilder Jr., who presented it in his 1978 book, “New Concepts in Technical Trading Systems,” which also discusses the RSI and the Parabolic SAR.
How to Use ADX?
Unlike the previous three indicators, the ADX doesn’t care about the direction of the trend at all. It only shows whether an existing trend is weak or strong. Thus, a reading below 30 suggests that the price is moving within a horizontal channel. If the ADX breaks above 30, it suggests that the price is trending, and the higher the ADX line goes, the stronger is the trend, whether bullish or bearish. If the ADX line is above 50, then it suggests a very strong trend, and if it’s above 75, then it’s an extremely strong trend.
One of the best ways to use the ADX indicator is to wait for the currency price to break above a resistance or below a strong support and then confirm the newly forming trend with ADX. For example, let’s say that we’ve had a horizontal channel. If the price breaks above its resistance while ADX is gradually increasing, we can confirm that the newly formed uptrend is gaining traction, and we can go long.
The ADX can also be used to better understand when to exit the market. For example, if the ADX is crossing below 50, it means that the current trend is weakening, and it may be time to exit the market, though this should be ideally confirmed by other indicators as well.