If we could determine the direction of the trend, we have a direction to trade. However, the strength of the trend is also very important. The ADX indicator measures the strength of a trend and can help determine if a trend is strong or weak. If the ADX numbers are higher it indicates a stronger trend and lower numbers which indicate a weaker trend. If the ADX indicator is showing a lower number, the trend is weaker and a range or channel is likely to develop.
You would rather look for investments that have higher readings thus indicating a stronger trend. It should be noted that the ADX indicator measures the strength of a trend not the direction of the trend either bullish or bearish. Therefore, a high ADX number could indicate either a strong uptrend or a strong downtrend.
It does not tell you if the trend is up or down, it just indicates to you how strong the current trend is. If the ADX indicator is between 0 and 20 then the stock is generally in a trading range. It is likely just chopping around sideways.
Once the ADX indicator gets above 20 then you will often to see the beginning of a good trend. Big moves tend to start at about When the ADX indicator gets above 25 then you have at a stock that is in a strong trend up or down.
Notice when the ADX is showing a low reading the price is moving more in a sideways channel. These are the trends either up or down that are the best to trade! So how do most traders use the ADX indicator? Traders often will look for ADX values of 25 or greater to help determine a strong trend for trading. The ADX indicator is not used to give buy or sell signals.
Therefore, it is generally used along with other indicators for entry and exit signals. Skip to content If we could determine the direction of the trend, we have a direction to trade.
How to interpret the ADX Scale: If you have lower numbers, you have a trading range or the beginning of a trend.More...