ADX Indicator-System Strategy Selection

[greencat]

The ADX is often one of the most misunderstood indicators. It’s true that it can look like a bunch of clutter on the charts but it’s also telling a story. I confess that I probably use it different than anyone I know.

In the forex I am not interested in waiting just for the big move. I want to trade as often as possible. I can use the ADX as a stand alone indicator and make some really nice trades. However, I do use the MACD and the RSI with the ADX to judge the point of pulling the trigger.

The ADX the way I use it may surprise many people because I don't just accept the traditional way of using it, at least I don’t use just the normal way of trading it.

First, I put no levels on my ADX Meta Trader Charts. Why? I find it to be a hindrance to pulling the trigger on some plays that would not be considered because it’s at a certain level. I really don't care what level it is at.

A quick internet search will reveal the traditional way of trading the ADX.

ADX staying below 20 level — there is no trend or the trend is weak.
ADX moving above 20 level — trend is strong.
ADX passing 40 level — trend is extreme.
ADX value rising — trend is going stronger, falling — trend is weakening.
+DI stays on top of -DI — uptrend is in place.
-DI stays on top of +DI — downtrend is in place.
Two DI cross — trend is changing.

That works a lot of the time but I wanted something more to increase my odds of making more winning trades. My charts are labeled:

ADX-- Blue
+DI-- Green
-DI-- Pink

If you will look at the first box in the lower left hand corner of the 15 minute chart there is a white box. This box demonstrates that the ADX can get cluttered and really have no direction until much later.

The Next white line under the ADX letters shows my trick for getting through some clutter and pulling the trigger. When the +DI made a lower low, I will pull the trigger. Especially if the ADX is under the -DI. Because this is not the perfect set-up it becomes a short term trade with me looking for the next opportunity.

The GBP chart does show all the set-ups I will play but the next white arrow shows a nice set-up with a decent move to the upside. The moment the +DI made a lower low I was out and to the short side.

The next white line without and arrow shows a short tern trade to the short when the +DI made a lower low. It hits the Bollinger band and I am out because the ADX doesn't really shoot down and announce a new trend.

The next white line with a half arrow is one of my favorites and I tend to hit them pretty hard. It’s a momentum trade to the downside. The +DI makes a lower low and the -DI makes a higher high and I pull the trigger.

The next white arrow is a simple crossover that I usually don't trade. But I do if I get an indication to enter. In this particular case, I pull the trigger because we did get a lower low on the +DI.

The last white line simply shows I can use the -DI to find trades as well. In this case higher highs which means to go short.

Greencat steps outside the box on his use of the ADX but I can make trades that suit me. It is not without fault and I do not win 100% of the time. It takes some practice to get the hang of it and at times keeps me in some trades that make a bigger move.

GBP 15 Min Chart using the ADX Indicator.