Now I will try to open a trade based on the information given in this review. I will find the beginning of a trend using ADX and enter the market. Your Personal Account built into the LiteFinance platform is more convenient from a practical perspective compared to MT4. It contains only what you need; you can combine active trading with social trading and get familiar with its functionality without registering. In the Display tab, specify the timeframes where you want to display the same window when switching to charts of other intervals.

Both indicators are typically plotted over the ADX indicator, and the two indicators are used to calculate the formula for the ADX itself. The Negative Directional Indicator is used to measure the presence of a downtrend. If -DI is trending pointing downwards, it suggests that a downtrend is increasing in strength.

Determining the Trend Direction

Trend traders want to find a strong trend and open positions in its directions. We are waiting for the dotted +DI and -DI lines to start diverging and when the index line begins to exit the 0-20% zone at the same time. We open a trade in the trend’s direction 2-3 candles after the ADX crossed the 20th level. The best moment to exit the market is when +DI and -DI (after the maximum divergence) begin to converge and/or the index line goes down and crosses the 30% level.

Scan, chart, and strategize using any combination of indicators and timeframes. Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks.

What Is an Average Directional Index (ADX)?

Knowing when trend momentum is increasing gives the trader confidence to let profits run instead of exiting before the trend has ended. However, https://www.bigshotrading.info/stock-trading-courses/ a series of lower ADX peaks is a warning to watch price and manage risk. The best trading decisions are made on objective signals, not emotion.

• As the average directional index can reflect periods with a weak or no trend, it can be used for range trading.
• And vice versa, “sell” signal occurs when -DMI crosses above +DMI (ADX must be above 25).
• When price makes a higher high and ADX makes a lower high, there is negative divergence, or non-confirmation.
• The RSI, Supertrend, and ADX indicators help to confirm trade setups, and the use of discount, premium, and equilibrium zones can…
• Now that this guide has fully explained all there is to know about the ADX indicator, it’s time to take your own interpretations of the information and apply it to real-world markets.
• Directional movement indicator crossovers can be used to estimate the performance of a security and predict coming changes in a trend, such as reversals or breakouts.

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Introduction to Moving Averages

The Positive Directional Indicator is used to measure the presence of an uptrend. If +DI is trending pointing upwards, it suggests that an uptrend is increasing in strength. The Average Directional Index (ADX) may be used in conjuction with other studies. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.