Forex trading the ADX indicator can lead to success in trading, but only if you know how to interpret the ADX indicator Forex properly. One of the biggest advantages is that it measures both Forex trend and the strength of that trend in one indicator. When traded as taught in the video below, it can be one of the Forex trading strategies that work in real trading.
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VIDEO TRANSCRIPT
Welcome to this video on Forex Trading the ADX indicator. A very very popular indicator and I will tell you how I look at this. One of my trading mentors loved the ADX indicator Forex. And there are some great things about it, and some shortcomings like most indicators. There are no one indicator that makes you money, or that is the magic pill. So let’s take a look at this very honestly and see what’s good about it, what’s bad about it.
The basic thing is that here is your ADX indicator Forex strategy line, the black line. And then you have got your dm positive, dm negative. I am not going to go in all the details of what that is. Just understand I made it green for going up, red for going down, and one of the signals, the primary signal is when the ADX line actually gets above the threshold. Most people put that at 20. Some will put it down at 15. There’s pluses minuses to both of those. But that’s supposed to signify is that one is below 20 or the threshold number if you make it 15. Then the market is just choppy, going sideways in that trending.
The idea is that, so here we get it moving above 20. The problem you could see is by the time it does move above the 20, yeah I guess you are kind of, no, I wouldn’t even call that a trend really but really started all the way back here. I could even say it started all the way back here and this is one of the shortcomings of Forex trading the ADX indicator.
FOREX TRADING THE ADX INDICATOR
It’s always measuring a trend from going below 20 to above 20. Even a downtrend. Even a downtrend. So when it goes from above 20 to below 20 like here that does not mean a downtrend. That means it going back into choppy territory, non trending. What now you could be, when it goes above 20, that could be an uptrend or a downtrend, and you can look at that and see that by price action, or if you want, you can look at the dm, the plus dm or the minus dm and see how they are related.
If the plus dm is up, above the down dm and then it’s an uptrend. That’s a rudimentary understanding but problem is that it is a unidirectional indicator.
So for example if we back up here, alright this is supposed to be indicating a downtrend. So ADX indicator Forex gets above our threshold of 20, the red line is above the green line and it kind of is in a downtrend. It’s moving down a little bit but you can see the signal occurs here, and that was not the optimal time to go short because the market continues to go up a little bit and then it kind of meanders down.
Then it comes back into that low. So not a real powerful downtrend by any stretch of the imagination and then it, the ADX indicator Forex line, the black line come back down below 20 again. So not a real strong signal. Right.
ADX INDICATOR FOREX
Okay so how do we resolve this? What are some better signals? Well here are some things that I have looked at and you can evaluate for your own and then one last little tip here before we finish the video. So here is what I like to look at and to do with it.
So my approach to Forex trading the ADX indicator is more aggressive and that’s because I like to get in before things are clear and confirmed as most professional traders do, because by the time everything is clear and obvious to the trading world, it’s too late. Everybody is jumping on board, their mother and their pet turtle in aquarium and its just way too late. You’ve got to get in before. It’s obvious for everybody, that’s professional trading.
So what I do is, I look for the angle of ADX to be up. But before it reaches the 20 level. By the time it gets to 20, to me it’s often too late. Not always, but often. It comes in at that bar right there. And then what I am looking for is this to be angling up below 20 and for, in this case it’s a downtrend.
FOREX TRADING TUTORIAL
Negative dm to be going up and positive dm to be going down. In other words I want them to be separating from each other. Moving away from each other. It’s very very critical. Alright. And so once I see that I can get another bar and that’s a lot early. Now you also want some sort of timing indicator because the nice thing, I would say the positive thing about ADX is that it is both a trend and a momentum indicator in one.
What it doesn’t really help you with real well is timing. So you need some sort of timing indicator, and I’ll be happy to share with you my timing indicator if you like, there is my email address and you can just send me a quick email and request it, and I’ll send you information on how to get it absolutely free.
So I am looking for these early signals. I want to get in earlier than everybody else. Because it does tend to give late signals. Now when to get out is pretty much the opposite of when we get in. so which kind of makes sense. Right, as soon as Forex trading the ADX indicator starts to trading over, and you get the negative dm and the positive dm line converging back together, alright so all of that happens right about here, you might even be able to get in a bar before. That would be to me a good exit.
Alright let’s look at one more example of the ADX indicator Forex. So here we have a similar pattern, so the ADX had come back down below 20, it starts angling up, negative dm up, positive dm down, separating from each other. That allows us to get in right around this time. Again had our cycle indicator for extra confirmation goes down. Now another thing you want to know is when you get these signals, how late in a trend are you?
ADX STRATEGY
We’ve got a long, oh I am sorry, a short trend indication here. And then you know it gets started here at this cycle low. But actually what’s interesting is the trend continued down. Look we made a much lower low after that. But the ADX indicator did not give us any indication that we should stay short. In fact it reverts back to 40, back to the signal line. Well, what’s up with that?
So this is why Forex trading the ADX indicator not one of my favorites trend strategies. That’s one of the reasons. Number 2, it also is a unidirectional indicator. After it reaches the top, it doesn’t give you any signals to continue the trade and that’s an example of it. So this is where wave counting comes in, and also having a moment indicator that is bidirectional and not just unidirectional.
So you get no trades as its resetting. That’s the problem. But momentum indicator I use is, they do give signal both ways. So if the market turns around, I can still stop and reverse or continue in the same direction.
Now let me show you what is a bad signal with this. This is the one we actually looked at before. So I showed that ADX indicator Forex coming above 40. But the market didn’t really go down very much. Why not? Because you don’t have the separation, the moving apart, the negative ADI, it’s moving down, and so they both are going down. What we would want is for a negative ADI to be going up. And the positive would be going down.
FOREX TRADING TRAINING
To get further away from each other, that’s not what we have. And so the ADX indicator Forex line just getting above 20 is not enough. Look at that signal right there. It just gets above the level of 20 real quickly. We put in that high and it goes right back down. So you got to be very very careful of just choosing this alone. In fact I wouldn’t use it alone, I wouldn’t use any indicator by itself.
My personal trading methodology is based on the 5 energies in the market. 5 energies of money flow in and out of the market. Order flow. And I don’t trust any one of them. Throw with it any further that I can throw them. So each one of these indicators, if that’s what you want to call them, it’s not a bad term because that’s what they do. They indicate. Hey if they made us money, we call them money makers.
Each one can be a valuable piece of information that you put together with other pieces of information. It’s almost being like a detective and each one is a clue. Each one is a piece of evidence. So you don’t want to convict someone on just one piece of evidence. But when you get preponderance of the evidence, okay now you can build a case. So trading is very much like that. Indicators don’t make you money directly but each one could be a valuable piece of evidence.
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