Here is how you correctly read what is saying about the market. Here are 5 aspects regarding the interpretation of the ADX:
- 1- When is above 25, trend strength is strong. Usually, once the gets above 25 this signals the beginning of a trend. Big moves (upwards or downwards) tend to happen when is right around this number. You can experiment with this number, some traders that want faster signals, tend to use a 20 threshold when trading with the .
2- When is below 25, traders must avoid trend trading strategies as the market is in accumulation or distribution phase. So, when we see the line below 20 or 25 level, we forget about trend following strategies and we apply strategies suitable for a ranging market.
3- When is above 25 and Positive Indicator ( ) is above the Negative Indicator ( ). measures the strength of an uptrend. The crossover between the 2 Indicator, as the line is well above 25 can result in an excellent move.
4- The Positive Indicator ( ) should be above the Negative and the should be above 25 signals for a strong upward trend for long opportunities. When is above 25 and Positive Indicator is below the Negative Indicator, measures the strength of a downtrend and short opportunities.
5- Values over 50 of the indicate a very strong trend
There are pros and cons of .
So, why is the useful for traders: First, is excellent at quantifying trend strength. Also, it allows traders to see the strength of bulls and bears at the same time. It is good at filtering out trades, during accumulation periods and is good at identifying trending conditions.
But the also has its limitations. The most important disadvantage is the fact that is a lagging indicator that follows the price, so we must be very careful when we apply this indicator, because we might miss the inception of the trend and join it when it’s nearly over.
Also, it offers many false signals when used on shorter time frames, so it’s advisable to trade it on higher time frames Also, the does not contain all of the data necessary a for proper analysis of price action, so it must be used in combination with other tools or indicators.
Now that we fully covered the good and the bad regarding , let’s see how it is used in a trading strategy.
The trading strategy involves a DMI crossover, confirmed by above consolidation threshold. If crossover, we take long position and if crosses over, we take a short position.
Candles are re-colored for easy demonstration of uptrend, downtrend and consolidation periods.
Green candles – > Consolidation Threshold and >
Red candles – > Consolidation Threshold and <
Black candles – < Consolidation Threshold
Repaint – This is a non-repainting strategy - All the signals are generated at candle closing. All the calculations are made on previous candle’s open, high, low, close. No request security function is used. No data is being used from higher time frame. Trade exit uses close function instead of exit to avoid limit orders. Only one long trade at a time (no pyramiding) is allowed.
Strategy Time frame – D (To filter out false signals, higher time frame is recommended)
Strategy For – Swing Traders
Assets – Cryptocurrencies + Stocks
Strategy now has short trades as well. Short (E/X) and Long (B/S) trades are labelled as well, in case long exit and short entry coincides.
Dentro do verdadeiro espírito TradingView, o autor deste script publicou ele como um script de código aberto, para que os traders possam compreender e checar ele. Um viva ao autor! Você pode usá-lo gratuitamente, mas a reutilização deste código em uma publicação é regida pelas Regras da Casa. Você pode favoritá-lo para usá-lo em um gráfico.
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