Trend Indicator: Average Directional Indicator

Another indicator that may catch your eye is the ADX , the strength indicator of the trend.

The MT4 indicator automatically includes 3 lines:

  • The Directional Average Index (ADX) itself (thick yellow line)
  • Positive Directional Indicator (+ DI) (green line): difference between two consecutive highs
  • Negative Directional Indicator (-DI) (red line): difference between two consecutive lows

How to interpret:

+ DI and -DI define the directional movement. In general, bulls prevail when + DI is greater than -DI, ​​while bears dominate when -DI is higher. + DI and -DI crosses make a commercial system in combination with the ADX.

The ADX (yellow line) is used to determine whether the currency pair is showing a trend or not. A strong trend exists when the ADX is above 25 and there is no trend when the ADX is below 20. There appears to be a gray zone between 20 and 25.

The “Buy” signal occurs when + DI crosses above -DI (ADX must be above 25). Stop-loss is usually placed at the low of the signal day. The buy signal remains in effect as long as this low holds, even if + DI crosses down from -DI.

Similarly, the “sell” signal occurs when -DI crosses above + DI (ADX must be above 25). The high of the day of the signal becomes the initial stop loss.

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