Add the ADX and set the parameters of this indicator
This is the second article in our ADX series. The ADX is often used to determine the potential for market changes depending on the movement of values. If the ADX moves over 20 points from its lower values, then attention is given as it approaches the 40 line. A weakness of this oscillator is that many of the crossovers can be false signals if the currency pair is moving in a sideways fashion. ADX values below 20 are weak trends and strong trends are over Particular attention is the rule when the ADX oscillator moves upward more than 20 points from the lower regions.
The key points of reference are high points and line crossovers.
How to Use ADX Indicator – Complete Guide for Traders
The lower value signals a weaker trend. ADX directional system can also show the changes in market sentiment by tracking changes within the price range. Traders can determine a trend or non-trending market by simply looking at ADX value. During ADX value range between 0 and 25, traders should avoid trend-following strategies. If the ADX line is declining from high value, it means the trend may be weakening. After staying low for a long time, If the ADX line from 15 to 20, it may signal the beginning of a new trend.
How to Use ADX Indicator - Complete Guide for Traders
If ADX is rising, it means the trend is also strengthening. Traders should use following ADX trading strategy on an hourly or daily chart only during a strong trend. Traders often only use the ADX line instead of all three.
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So, in this trading strategy, we only use the ADX line. First, traders have to wait for ADX line to cross 25 readings.
When ADX value is between , it is considered to be a strong trend. But a new trend could be fade away, so traders have to look last 50 candles to determine the trend. To enter the market, traders have to use an RSI indicator.
How to Use ADX
The Relative Strength Index RSI is one of the most popular indicators that can help traders to determine overbought and oversold market condition. In this trading strategy, when RSI show reading 70 or above, it gives buy signal during the bullish trend.
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On the other hand, when RSI show reading 30 or below, it gives sell signal during the bullish trend. Now, the traders can have their entry point. Then traders have to place a stop-loss order to minimizing risk. First, traders have to find last ADX high before the entry point. Second, find the corresponding highs on the price chart. That will a perfect place to put SL.