User Name: Password:      Register - Lost password?
Search In...
 
 

Categories
  Topics
         A Live Learning/Help Forum
             VIDEOS - TradingClinic.com
                 Mov Avgs (6)
         Currency Futures
         Market Terminology
         Options
         Posting a Forum Chart
         Trade Execution
         Trade Management
         Trading Fundamentals
             Economic Indicators
             Flows/Central Banks
             Risk Aversion
         Trading Psychology
         Trading Technicals
             Charting
         Trading Techniques

  VIDEOS: FOREX TRADING
         Module 1: The Basics of Forex Trading
         Module 2: The Logistics of Forex Trading
         Module 3: The Logistics of Forex Trading Part 2
         Module 4: What Moves the Forex Market
         Module 5: Trading the US Dollar
         Module 6: Trading the Euro
         Module 7: Trading the Japanese Yen

  VIDEOS: Trading Basics
         Module 1: Technical Analysis Basics
         Module 2: Chart Patterns
         Module 3: Technical Indicators
         Module 4: Candlestick Chart Formations
         Module 5: The Psychology of Trading
         Module 6: Money Management
         Module 7: Position Sizing
         Module 8: Intro to Fundamental Analysis
         Module 9: Economic Releases that Move the Markets
         Module 9a: Pulling It All Together


  Help/Learning Forum Topics
 
 

Found In....
 
Category Name: VIDEOS: Trading Basics
 
» Sub-Category Name: Module 3: Technical Indicators
 
 
Lesson 9: The Average Directional Index
By: Informedtrades.com
Lesson 9: The Average Directional Index

In our last lesson we went over Bollinger Bands, an indicator which helps traders gauge the volatility in the market as well as how high or low current prices are relative to historical prices. In this lesson we are going to learn about the Average directional Index (ADX), an indicator which helps traders determine when the market is trending, how strong or weak a trend is, and when a trend may be about to start or reverse.

Example of the Average Directional Index (ADX)


I am not going to go into the formulas for the Indicator here however you do need to know that:

  • The DI Line is representative of how strong or weak the uptrend in the market is.
  • The –DI line is representative of how strong or weak the downtrend in the market is.
  • As the ADX line is comprised of both the DI Line and the –DI Line, it does not indicate whether the trend is up or down, but simply the strength of the overall trend in the market.

If you would like a deeper explanation of the computation of the indicator you can find it here: ADX Indicator

As the ADX Line is Non Directional, it does not tell you whether the market is in an uptrend or a downtrend (you must look to price or the DI/-DI Lines for this) but simply how strong or weak the trend in the financial instrument you are analyzing is. When the ADX line is above 40 and rising this is indicative of a strong trend, and when the ADX line is below 20 and falling this is indicative of a ranging market.



Example





So one of the first ways traders will use the ADX in their trading is as a confirmation of whether or not a financial instrument is trending, and to avoid choppy periods in the market where many find it harder to make money. In addition to a situation where the ADX line trending below 20, the developer of the indicator recommends not trading a trend based strategy when the ADX line is below both the DI Line and the –DI Line.

Example


Another way that traders use this indicator is to identify the potential start of a new trend in the market. Very simply here they will look from below the 20 line to above the 20 line as a signal that the market may be beginning a new trend. The longer the market has been ranging, the greater the weight that most traders will give this signal

Example


Another way traders use the ADX is as a signal of trend reversals. When the ADX is trading above both the DI line and the –DI line and then turns lower this is often a signal that the current trend in the market is reversing and traders will position themselves accordingly:

Example




The final example that I am going to cover on how traders use the ADX is to position to trade long when the DI crosses above the –DI (as this is a sign that the buyers are winning out over the sellers) and to position to trade short when the DI line crosses below the –DI (as this is a sign that the sellers are winning over the buyers). As with the other crossover strategies that we have covered used alone, the DI crossover is prone to many false signals.

Example




That completes our lesson for today. You should now have a good understanding of the ADX and several different ways that traders use this in their trading. In tomorrow’s lesson we are going to look at a new indicator which is called The Parabolic SAR, which many traders use to set stops when trading trends in the market.

 
 

 



Actionable trading levels delivered LIVE to YOUR charts

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 27 May 2019
AAGB/US- Holiday
Tue 28 May 2019
A 14:00 US- Consumer Confidence
C 13:00 US- Case-Shiller
Wed 29 May 2019
A 08:55 DE- Employment
AA 18:00 US- BOC Decision
A 18:30 US- EIA Crude
Thu 30 Mar 2019
AAEZ/CH- Holiday
A 12:30 US- Weekly Jobless
Fri 31 Mar 2019
AA 10:00 EZ- Flash HICP
A 12:30 US- Personal Income, Spending, Deflator
AA 14:00 US- Final Univ of Michigan


Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube




pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
The Amazing Trader
Forex Opportunities
Forex Affiliates
Forex CopyTrading
GVI Forex