How to Use ADX Average Directional Index in Forex

Average Directional Index

The negative DM happens when the previous low minus the current low is bigger than the present high minus the previous high. On the following picture, you can see an example of the ADX oscillator with a horizontal line on the level of 25. On the following picture, you can see an example of ADX drawn in an additional area below the chart. Take profitThe strategy Average Directional Index can easily be used in a bullish trend. This index has been around for many years, proving that ADX can stand the test of time and provide valuable information. Education Learn the basics of trading with a beginners trading course. This indicator must be generated from quotes and cannot be generated from results of another chain-enabled indicator or method.

A long trade is taken when the +DI crosses above the -DI and an uptrend could be underway. Meanwhile, a sell signal occurs when the +DI instead crosses below the -DI. In such cases, a short trade may be initiated because a downtrend might be underway. To get the most out of this guide, it’s recommended to practice putting these ADX indicator trading strategies into action. The best risk-free way to test these strategies is with a demo account, which gives you access to our trading platform and $50,000 in virtual funds for you to practice with. ADX reading above 25 indicates trend strength, while when ADX is below 25, this shows trend weakness.

Understanding Average Directional Index (adx)

The directional movement index is an indicator that identifies whether an asset is trending by comparing highs and lows over time. The ADX makes use of a positive (+DI) and negative (-DI) directional indicator in addition to the trendline. When the negative DMI reads above the positive DMI, this means that prices are falling and this signals a downtrend. In addition, if you look at the series of ADX peaks, you will get information about the trend’s momentum. If there’s a series of higher ADX peaks, trend momentum is increasing. This will let a trader know that he/she may keep the trend trades open letting the profit run. A series of lower ADX peaks means trend momentum is decreasing.

Average Directional Index

ADX fluctuates from 0 to 100, with readings below 20 indicating a weak trend and readings above 50 signaling a strong trend. Like any indicator, the ADX should be combined with price analysis and potentially other indicators to help filter signals and control risk. There are several benefits of using the ADX indicator. The first benefit is that it is readily available in all trading platforms like MetaTrader and TradingView. Like many indicators, the ADX is best-used in combination with other indicators.

Classic signals from the ADX

Being aware of a rising trend momentum gives traders confidence to keep the position instead of exiting before the trend has ended. Similarly, a series of lower ADX peaks can signal the trader to keep an eye on price and ensure that their risk-management technique is in place.

73.16% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the risk of losing your money. Trading through an online platform carries additional risks. Traders can also use the ADX as a filter to help eliminate erroneous signals.


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How does the ADX indicator work?

Rather, it merely measures the strength of the current trend. Because of that, ADX is typically used to identify whether the market is ranging or starting a new trend. ADX is considered a “non-directional” indicator. It is based on comparing the highs and lows of bars and does not use the close of the bar.

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