One of the things that you must be aware of as a Forex trader is volatility. Volatility can be your friend, but obviously you need to be on the right side of it. If volatility suddenly disappears, that’s also assigned to get out of the market unless of course you are looking at a range bound trading system. All things being equal, one of the best indicators out there to use on most platforms is going to be the ADX indicator, or the Average Directional Index. in this article i will show you How to use adx indicator for day trading hope you enjoy.
What is the ADX?
The ADX, or Average Directional Index, measures the strength of a trend based upon the highs and lows of price bars over a specific amount of periods, with the typical setting being at 14. As a general, when the ADX crosses the 20 level it is a sign that we are beginning a new trend, either up or down. Alternately, a move lower in the ADX is a sign that a trend is ending.
Unlike many other indicators, the ADX isn’t directional. It simply shows strength. What this means is that you are just as likely to see a high reading in a downtrend as you are in and uptrend. This simply measures the strength of the prevailing trend on the chart over the last 14 candles, or whatever setting you choose.
A few words about the ADX
The first thing you should always remember is that it does not indicate the direction of the trend. Most of the time, traders will use something along the lines of a moving average on the chart to determine the overall trend, and simply use the ADX as a guide as to whether or not the trend is likely to continue. Because of this, it’s very rare that a trader will use the ADX by itself in a system. It should be thought of as a secondary indicator, as it is somewhat reliable, but by itself doesn’t give enough information to make an informed trading decision
It should also be recognize that the ADX is a lagging indicator. This means that it reacts to price, not predicts what is about to happen next. It shows a lack of momentum or an increasing momentum when it comes to trading. Obviously, news events can change the entire outlook of a currency pair, in the blink of an eye. You should always use proper money management when using the ADX, and as mentioned previously it makes quite a bit of sense to look to other indicators to confirm anything that the ADX tells you.
All of that being said
All of that being said, the ADX has been trusted by traders around the world in a multitude of systems. There is a reason why it is so popular, and quite frankly it can provide early warnings as to when a trend is about to end, which is obviously a significant piece of information. It also can confirm that the trend is still strong, which is obviously something that you will want to know getting into one.
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