Indicator ADX is a technical analysis indicator that helps investors optimally determine when prices are trending strongly. Trend trading will help investors earn more profits than usual. Besides, they also limit the risk that the market will reverse. Let’s join Forex Trading to learn details about this indicator right away.
How is Indicator ADX used?
ADX is one of the most effective trading tools that focuses on analyzing market trends. If investors can identify when a trend is forming based on ADX, they will be able to come up with a more suitable trading strategy.
Learn about the ADX indicator on the MT5 indicator platform
Indicator ADX is an average directional indicator. This is a technical analysis tool used to measure the strength of a trend. ADX is used for many different purposes in the market. Investors can use it to measure trend strength. Or expand the scope as well as look for future trends.
ADX Indicator includes 3 main lines: +DI, -DI, and ADX. If ADX<25, then the market is moving sideways and price trends are clear. If ADX>25 shows that the market is about to have a new trend regardless of whether it is up or down.
ADX can be used in all trading instruments such as exchange-traded funds and futures contracts. ADX not only identifies trends but also helps traders find the strongest trends to trade. ADX also recognizes range conditions so traders don’t get stuck when encountering a sideways trend.
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Components and calculation of the ADX indicator
As mentioned above, the ADX indicator includes 3 main lines. With the ADX line represented in dark blue over 14 trading days. The ADX line will have a value ranging from 0 to 100 and corresponds to the lowest to highest level. Currently, ADX has no direction, it records the strength or weakness of the trend regardless of whether the price is running up or down.
The +DI line will usually be green and the -DI line will be red. The ADX indicator will often be drawn in the same frame as the two moving indicator lines. If +DI is above -DI then the price will increase. The ADX line has the role of measuring strength in an uptrend and at this time the buyers will have the advantage.
Technical analysis of the ADX indicator on the MT5 platform
MT5 is currently a powerful trading platform developed by MetaQuotes Software Corp. The program provides a set of tools and functions necessary to support trading on financial markets. MT5 expands trading coverage across many financial markets.
Indicator ADX 1 signals a trend strength index
The ADX indicator system can measure changes in market sentiment by tracking price changes. Through the ADX indicator, investors can completely measure the strength of the basic trend.
If the ADX line has a value between 0-25, the market is not trending. If the ADX line has a value between 25-50, the market is trending strongly. If the ADX line has a value between 50-75, the market is trending very strongly. And if the ADX line has a value between 75-100, the market is in a very strong trend.
Investors can completely set these modes themselves in the indicator properties section. The photo below is the parameters for investors to set up to monitor the ADX indicator.
ADX 2 identifies trends and ranges
Looking at the chart, the ADX index shows a weak trend and is gradually entering the accumulation zone (regional consolidation). This zone appears when ADX falls from above 25 to below 25. Note the two blue (+DI) and red (-DI) dashed lines when the +DI line is above the -DI line, indicating an uptrend. On the contrary, if the -DI line is above the +DI line, it indicates a downtrend.
The ADX indicator reflects the strength of this trend. The ADX line pointing up shows investors a strong upward trend. So traders should trade in whichever direction the DI line is higher.
Specifically, if the blue line is higher than the red line, it means that the uptrend is more dominant and vice versa. Therefore, traders can measure trend strength and predict market movements.
How is Indicator ADX used in forex?
Investors can completely use the ADX indicator for day trading and long-term trading.
Use the indicator ADX to trade time frames in Forex
By applying the indicator ADX to the short-term trading time frame. Investors must align the ADX line so that it is most sensitive to price fluctuations. Investors are best advised to use ADX for 3 cycles.
With the principle that the fewer cycles, the higher the sensitivity. ADX will work best with 3 periods when trading by day. And if the value of ADX is higher, it means the trend is stronger. The lower ADX goes, the weaker the trend will be. If ADX<25, the current trend is quite weak, this is a period of market consolidation. Investors need to wait for ADX to pass the 50 mark before being able to place an order. If the price increases along with the ADX line, place a buy order. And if the price drops along the ADX line, the investor places a sell order.
If you want to use the indicator ADX for long-term trading, you need to remember the following notes. First, the ADX line needs to cross the 30 mark. When it crosses this mark, there will be a signal of a strong price trend. Wait for the price to return to EMA20 and touch EMA20, then place a buy order at the high price in the previous session. Also, set stoploss for the lower level of the bottom.
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Instructions for effective trading with Indicator ADX on the MT5 platform
Like many other indicators on the market, the indicator ADX is a lagging indicator that can be used in addition to directional indicators. The basic understanding of this is that ADX will not be able to indicate a trend until that trend has already occurred. Furthermore, investors can completely use this indicator on the basic MT5 platform.
The MT5 platform provides investors with a variety of indicators. Investors can also use MT5 indicators to monitor price fluctuations. From there, you can create a more suitable trading strategy. Especially today, MT5 supports indicator tools with more than 21 time frames. MT5 also provides investors with automatic trading features.
Conclude
If you are a professional investor and want to have good profit results in the market, you cannot ignore the indicator ADX. Investors can combine ADX with other indicators such as RSI and MACD to increase efficiency. Combining indicators will help investors have more data on their trading strategy and increase their market winning percentage. Above is the information that Forex Trading wants to share about the ADX indicator. Hopefully, this information can help investors come up with appropriate trading strategies. And always follow Forex Trading to receive more useful information.
FAQs
Is the direction of the ADX line important in determining the trend?
The direction of the ADX line is very important for investors in understanding market trends.
Can the ADX indicator be used for all assets including gold, BTC, and currency pairs?
Indicator ADX can be used for all types of assets in the forex market.
If the ADX line is below 25, will it give a signal?
If below 25, ADX can still give a signal but the signal accuracy will only be 50%.
