The Average Directional Index, or ADX, is the trend strength indicator. It helps judge how strong a trend is. The indicator is based on a moving average of price range expansion over a given period of time. The indicator automatically includes three lines:
▪️ ADX itself. Its values range from 0 to 100. This line registers a trend’s strength, but doesn’t show its direction.
▪️ Plus Directional Movement Indicator (+DMI) is the difference between two consecutive highs.
▪️ Minus Directional Movement Indicator (-DMI) is the difference between two consecutive lows.
A strong trend is in place when ADX is above 25, so there’s a sense to use trend-trading strategies. Consequently, when the ADX is below 25, it’s better to avoid trend trading and choose an appropriate range trading strategy. In such moments, the price enters a range.
It’s necessary to point out that the ADX may be used to confirm a breakout of a range. When the ADX rises from below 25 to above 25, it means that the price is strong enough to continue in the breakout direction.
How to trade with ADX?
1️⃣ Make sure ADX is higher than 25.
2️⃣ Notice that +DI crosses -DI to the upside.
3️⃣ Open a long position at the next green candle after the oscillator’s crossover.
4️⃣ Set Stop Loss below the recent low.
5️⃣ Wait for +DI to cross the -DI to the downside.
6️⃣ Close the trade at this exact moment!
✅That’s it! Simple but productive!
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