Investors are probably not unfamiliar with ADX. Among numerous indicators, the average trend indicator (ADX indicator) is one of the more common trend indicators. It studies the rise and fall process of stocks (or other securities) and uses the changes in long short trends to determine the trend of securities price changes.
The Average Trend Index (ADX) is another commonly used trend measure. Similar to the Trend System (DMI), WellesWilder used the difference and sum of long short trends to determine the average trend of stock price changes, which can reflect the high and low turning points of stock price trends, but cannot control the profit level of the band. Therefore, there are many signal frequencies and profits are unstable, and it is commonly used to assist other indicator systems in operation.
Analyze the price first, and then interpret ADX in the context of the price. When using any indicator, we should include something that cannot be easily told by price alone. For example, the best trend occurs during the consolidation period of the price range. When there is a difference in price between the buyer and the seller, a range break occurs, leading to a balance between supply and demand. Whether supply exceeds demand or demand exceeds supply, it is the price difference that creates price momentum.
1. Determine market trends.
When the ADX value is higher than the previous day, it can be determined that the current market situation is still maintaining the original upward trend, that is, the stock price will continue to rise. If+DI and - DI increase simultaneously, it indicates that the current upward trend will be very strong.
2. Determine whether the market is consolidating.
When the market situation consolidates slightly within a certain area, the ADX value will decrease. When the ADX value drops below 20 and moves horizontally in a narrow range, it can be determined that the market is bullish consolidation, and the upward or downward trend is unclear. Investors should mainly wait and see, and cannot buy or sell stocks based on the cross signal of+DI - and DI.
3. Determine whether the market is turning around.
When the ADX value changes from high to low, it indicates that the market is about to reverse. The ADX in the upward trend has shifted from an upward trend to a downward trend, indicating that the upward trend is about to come to an end; The ADX value during the decline has dropped from a high point, indicating that the decline may stop.
Tips for using ADX indicators:
1. The ADX index cannot reflect the trend of foreign exchange rate fluctuations, it reflects the degree of such trend changes.
2. The entry signal of the ADX indicator is+DI14 crossing, and the exit signal is - DI14 crossing.
3. If the extreme trading rules begin to take effect, Rule 2 will no longer apply. If the DI index breaks through, investors can use the extreme point as their stop loss point. And in the next few trading days, if the stop loss effect does not occur at the stop loss point, there is no need to worry about the penetration signal issued by DI again.
4. If the position of the ADX line is higher than that of the two DI lines, and the direction of the ADX line changes, it generally indicates that the trend is about to turn around, and investors can profit early and exit. When the DI line breaks through the stop loss point, Grandpa is the extreme point that triggers the stop loss, the final closing can be done.
5. If the ADX line is higher than the two DI lines and the ADX value is higher, it indicates that the current trend of exchange rates has been running for some time and is not a particularly good time to build positions, as the trend is likely to change in the future.
6. When the position of the ADX line is lower than that of the two DI lines, do not enter at the end because there is no particularly obvious trend at this time.
7. If the value of the ADX line is lower than 25, it also indicates that there is no obvious fluctuation trend in the foreign exchange market, and there is no need to pay attention to the position of the DI line at this time.
8. Usually, the ADX line represents the strength of the trend force. At this time, the+DI line and - DI line, which rise together with the ADX line, indicate that the fluctuation trend of the exchange rate is in that direction.
ADX indicators can timely and accurately reflect changes in foreign exchange trends, and traders can further understand and apply ADX indicators in actual trading.
Looking for markets with clear trends
It requires some experience to determine which market or market conditions are particularly easy to trade in. The lateral trend of extreme volatility is difficult to trade, and the frequency of signals sent by the trading system is very high. On the contrary, clear markets are easy to trade. If there is a clear trend in the market, there is no need to frequently move in and out. If you want to keep the position until the end of the trend, not only can you achieve good returns, but you can also save commission costs.
If the trend is clear, the stop point is relatively easy to set and is not easily induced by some false trends. If the trend is clear enough, even if you miss the opportunity to enter, there is no need to chase prices. Wait until the market returns to near the trend line before entering. By using ADX indicators appropriately, markets with clear trends can be identified.
【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.