This ADX Swing Trading Strategy is based on the ADX Indicator.
If you don’t know what the ADX indicator is, here is a brief lesson:
This indicator stands for Average Directional Index
- The ADX indicator measures the strength of a trend and can be useful to determine if a trend is strong or weak.
- ADX will not tell you if the trend is up or down-it just tells you the strength of the current trend, whether it be uptrend or downtrend.
- High readings indicate a strong trend and low readings indicate a weak trend.
- When this indicator is showing a low reading then a trading range is likely to develop.
- Avoid trading currency pairs with low readings! You want to be trading pairs that have high readings.
- On some charting packages there are two other lines on the chart, +DI and -DI (the DI part stands for Directional Indicator). Ignore these lines. Trying to trade according to these two lines is your surest way to lose money-and its even more confusion.
The only thing that we are concerned with is the ADX indicator itself.
Here is a chart to give you more clarity:
In the chart above, the ADX indicator is the blue line . The other lines are the +DI (dotted green) and -DI (dotted white), you should ignore these.
The area in the brown rectangle box shows how this indicator identifies trading ranges and times when the market is not trending.
The ADX is showing a low reading and notice that the currency pair is trending sideways.
Now look at what happens when the indicator gets into higher territory, generally above 25. A strong trend develops! If you are looking to trade the ADX indicator, then trade when the ADX indicator is above 25.
HOW TO USE THE ADX INDICATOR SCALE
To setup the ADX scale, follow
the instructions shown on the chart on the right.
You will have a box pop up and then you can add ADX scale values like 25 as shown on the previous chart above.
If ADX is between 0 and 25 then the currency pair in a trading range. It is likely just chopping around sideways. Avoid Trading these.
Once ADX gets above 25 then you will begin to see the beginning of a trend. Big moves (up or down) tend to happen when ADX is right around this number.
When the ADX indicator gets above 30 then you are staring at a currency pair that is in a strong trend! You should be looking to trade these pairs when this happens.
Note:You won’t see very many currency pairs with the ADX above 50. Once it gets that high, you start to see trends coming to an end and trading ranges developing again.
HOW TO TRADE THE ADX
What forex trading strategies can you use with the ADX Indicator? In this website, here are a few I believe that you can use with the ADX indicator. Play around with the ADX with these forex trading strategies and see how it goes with you:
- http://swing-trading-strategies.com/5ema-and-8ema-cross-over-swing-trading-system/
- http://swing-trading-strategies.com/10-and-20-sma-with-200-sma-forex-swing-trading-system/
- http://swing-trading-strategies.com/3emas-swing-trading-system/
- http://swing-trading-strategies.com/macd-swing-trading-system/
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