The best ADX strategy built by professional traders

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All Forex traders try to build their own profitable strategies. Well, this day is your lucky day! We are ready to share the best ADX strategy with you, built by a professional trader. Our team at Trading Strategy Guide firmly believes that the easiest way to become a profitable trader is to imitate the behavior of professional traders.

We have talked a lot about trend trading strategies. You can find a lot of proof here: MACD Trend Following Strategy – Learn Simple Trading Strategy here: How to Profit From Pullback and here: Effective Swing Trading Strategy fruit .

However, we have not covered how to measure trend strength in any possible timeframe. You can only measure the strength of the trend by using a special trading indicator. For example, ADX, it’s an acronym for One verage D irectional I Ndex.

Spotting a strong directional move is the most important skill for all traders to have. No matter what type of trader you are, after you enter a position you need a strong move. To make a profit, the move must be in the direction of your trade.

The ADX indicator trading rules can help you achieve your financial goals.

Before moving forward, we must determine which technical indicator we need for the best ADX strategy. We will define the ADX indicator trading rules. Also, read the hidden secrets of moving average , for more information.

ADX Indicators for the Future

The principles of the Average Directional Index are applicable to almost all tradable assets including stocks, exchange-traded funds, mutual funds, and futures. The ADX has become particularly useful in the futures markets for several reasons:

With a standard range of 14 bars, the ADX provides a larger picture of France than many other technical indicators.
The ADX is time adjusted, which means that the most recent data is given special weights.
The ADX helps you determine the strength of a trend, which will be useful for any contract made in the near future.
ADX makes it easy to compare mutually exclusive futures contracts at the same time.

Futures traders love to use ADX as a metric because it provides the perfect blend of current and past data and future predictability. Successfully buying a futures contract will require you to identify which potential contracts are undervalued in the status quo. Using regular ADX readings for futures contracts makes this possible.

Using the ADX readings for major indices (such as the DJIA, S&P 500, and others) can also help you determine whether the overall market is experiencing bearish or bullish conditions.

ADX . indicator trading rules

Before diving deeper into the ADX indicator trading rules, let’s define what the ADX indicator is and how you can profit from it.

The ADX indicator simply measures the strength of a trend and whether we are in a trading or non-trading phase. In other words, the ADX is a trend strength indicator. This method of technical analysis is used to identify the occurrence of strong downtrends and buy signals.

We need to be very careful about how we read and interpret the ADX indicator. It is not an up and down indicator. The ADX moving average only measures trend strength.

So, if the price is UP, and the ADX indicator is also UP, then we have a strong bullish case.

The same is true if the price is going DOWN and the ADX indicator is happening UP . Then we have the case for a strong bearish case.

The first ADX indicator trading rule says, a reading below 25 signals a period of no trading or market divergence. The second ADX indicator trading rule says, when ADX above 25 is enough to signal the presence of a strong up/downtrend.

Going forward, keep in mind that the ADX indicator does not give you any information about the direction of the market. It only gives you information about the strength of a trend.

ADX . indicator settings

The ADX indicator uses a smoothing moving average in its calculation. We found that the best ADX indicator settings to use are 14 periods. With our ADX indicator setting you will have more accurate signals and it will help you to trade sooner.

The ADX indicator works best when used in conjunction with other technical indicators .

The best ADX strategy also incorporates RSI to time the market. The ADX indicator can only help us to gauge the strength of the trend. We need the RSI for an entry signal.

The RSI uses a 20-period setting, just like the ADX indicator setting.

Finally, your chart setup should be at the bottom of both the ADX and the RSI. It will look like in the image below.

Now let’s see how you can effectively trade with the best ADX strategy. You will learn how to make a profit by applying the ADX indicator trading rules.

Best ADX Strategy

The ADX indicator trading rules will ensure that you only trade when there is a strong trend on the 5 minute chart or the daily chart. In this regard, the best ADX strategy is a universal strategy that performs the same, regardless of the timeframe used.

Moving forward, we will look for sales opportunities.

Step #1: Wait for the ADX indicator to show a reading above 25.

Before we look to see if the market is bullish or bearish, we must first wait for the ADX indicator to show a reading above 25. Based on the ADX indicator trading rules, a reading above 25 is signaling a strong trend. strong and likely a growing trend.

We all know that the trend is our friend, but without the real power behind the trend, the newly formed trend can quickly disappear.

To gauge the direction of the trend, we also need to look at the actual price action. This brings us to the next step of the best ADX strategy.

Step #2: Use the last 50 candles to identify the trend. For sell signals, look for prices to develop a downtrend.

Regardless of your timeframe, we need a realistic way to determine the direction of the trend.

By using a sample size of 50 candles to identify the trend, we ensure that we trade in the current moment. We like to keep things simple, so if the price is falling throughout the last 50 candles, we are in a downtrend.

Now it’s time to focus on the catalyst that will trigger our sell signal for the best ADX strategy.

Step #3: Sell when the RSI is broken and shows a reading below 30.

For our entry we will be using the RSI using the same settings as the ADX indicator settings. Usually, an RSI below 30 indicates an oversold market and a reversal zone. However, smart trading means looking beyond what the textbook is saying.

In a strong trend as identified by the ADX indicator, that is exactly what we want to see. We want more sellers to the market.

So we want to sell when the RSI is broken and shows a reading below 30.

The next important thing we need to set up is where to place your protective breakpoint.

See below…

Step #4: Protective Stop Loss should be placed at the high of the ADX.

To locate the stop loss for the best ADX strategy, first identify the point where ADX hit its last high before entry. Second, find the corresponding high on the price chart from the ADX high and there you have your SL.

Last but not least, the best ADX strategy also needs a place where we need to make a profit, which brings us to the last step of this unique strategy.

Step #5: Take profit when the ADX indicator breaks back below 25.

The best ADX strategy seeks to take only those profits due to the presence of a strong trend. Once the prospect of a strong trend disappears, we look for profits and wait for another trading opportunity.

To do this, we take profits as soon as the ADX indicator breaks back below 25.

An ADX read back below 25 shows that the prevailing trend is exhausted.

Note ** The above is an example of a SELL trade using the ADX indicator trading rules. Use the same rules but in reverse, for a BUY trade. In the image below you can see an actual BUY trade example.

Watch:

Conclusion – ADX . Indicator

The best ADX strategy gives us very useful information because a lot of times we as traders don’t want to get into something that is going nowhere and not following a strong trend. By applying the ADX indicator trading rules, one can leverage the strength of the trend and cash in quick profits. The bottom line is that the best profits come from capturing strong trends and the best ADX strategy can help you accomplish your trading goals.

You can also read about Trader Profile Quiz.

The Best ADX Strategy is similar to the Best Trading Strategy for Fast Profits as both strategies seek to capitalize on the strength of the trend.