Hi, welcome to Top FX and Binary again. Today, we will discuss about ADX, which means Average Directional Index. This indicator is used for analyzing the current trend. ADX ranges from o to 100. Any reading less than 20 indicates a weak trend and readings more than 50 hints a strong trend. Unlike the stochastic, this indicator does not measure the trend’s strength. Forex traders use ADX for finding out whether a new trade has started or the market is ranging.
However, ADX does not provide any buy or sell signal, it just tells the traders if they should jump in or not. Once the reading goes below 50, it probably means that the trend is weakening and it is a good time to collect the profits and exit the trade. In order to use ADX properly, you should wait for breakouts before taking any trading decision. ADX will confirm you whether the pair will continue its current trend or it will reverse the trend.
You can also use ADX by combining it with other indicators. Indicators showing the direction of the market will be perfect in this instance. ADX could also be used for determining when a trade should be closed early. For example, when ADX provides a reading of 50, it means the current trend is losing strength. From that moment, the pair may move horizontally or go in the opposite direction. Therefore, it will be a good idea to close the open trades and lock in the available profits. ADX will be a big help for you if you use it accordingly.