As you all know, the trend is the “key” to open the door to successful Forex trading. There are hundreds, even thousands, of ways to find a trend. But for me, the most effective way to trade Forex is still the use of the ADX technical indicator.
Profits are generated from correctly predicting the market trend. Therefore, understanding the ADX indicator in the most detailed way will help you detect the beginning and end of a trend early. From there, you can find the safest entry points.
Let’s find out what the ADX indicator is. What are its components? How to use it effectively? Finally, how to choose the best entry point? These will turn you into an assassin with a knife called “ADX”.
What is the ADX indicator?
Average Directional Index (ADX) is a trend-defining technical indicator developed by Welles Wilder. ADX helps us to know when prices are trending so that we can use other indicators effectively when opening orders.
The ADX technical indicator is also a measure of the strength of price trends. Therefore, it is considered a very comprehensive indicator. It is calculated based on the moving average of the price over a given period of time, usually 14 days by default in Olymp Trade.
It signals traders that they can continue to stop or resume trading in the direction of the trend to make more profit. However, traders need to be attentive and selective for the safest signals.
Structure of the ADX indicator
The structure of ADX is quite simple which includes the following components:
The ADX line (yellow) is calculated for 14 days and is valid from 0 to 100. This line can be used to measure the strength of current trends.
Next is DMI (Directional Movement Index) with two lines +DI (green) and -DI (red) to help identify buy and sell signals.
How to identify a trend with ADX
– Bullish trend when: The ADX line (yellow) goes beyond 25. Meanwhile, +DI is above -DI (the green line is above the red line).
– Bearish trend when: The ADX line (yellow) goes beyond 25. At the same time, -DI will be above +DI (the red line is above the green line).
– Sideways market when: The ADX line is below 25. At that time, the +DI and -DI lines interweave confusingly.
How to trade in Olymp Trade with ADX
To get good orders with the ADX indicator, you need to combine it with resistance/support levels.
Notes: Since we are trend trading, I will use the 5-minute Japanese candlestick chart. However, the minimum expiration time will be 15 minutes to eliminate signal interference in the short term. From there, I increase the probability of winning an order to the highest possible level.
Open an UP order when: ADX signals an uptrend and the price is above the resistance.
Specifically: The ADX line (yellow) goes above 25 and +DI (green) is above –DI (red). At the same time, the price breaks out of the resistance zone and increases further.
Open a DOWN order when: the ADX indicator provides bearish signals and the price penetrates the support zone.
Specifically: The ADX line (yellow) goes above 25 and –DI (red) is above +DI (green). At the same time, the price penetrates the support zone and falls further.
Review trading orders in Olymp Trade using the ADX indicator
Currency pairs: EUR/USD
Capital management: Balanced investment of $200 for each order
The expiration time: At least 15 minutes.
At EUR/USD on January 27, a Morning Star candlestick pattern appeared. This was a sign of a trend reversal from bearish to bullish. At this time, ADX provided the signal that an uptrend was about to appear (the +DI line was pointing up and above the -DI line).
1st order: The uptrend was clear by using the ADX technical indicator. The entry signal was a bullish candle that broke out of the resistance zone. Opened an UP order with an expiration time of 15 minutes. I won and received a profit of 82%.
2nd order: The uptrend was still going on stably. A strong Marubozu candlestick that broke out of the resistance zone and closed at the upper was a signal to safely open an UP order. Opened an UP order when the signal candle broke out of the resistance.
As mentioned above, the win rate will be very high using this trading strategy. Therefore, when the trend begins to weaken, it’s time to stay out. That’s why I only opened 2 orders in an uptrend.
In the article, I have provided you with a great money-making strategy in Olymp Trade. Don’t sit back and read this article over and over again as it doesn’t make you any money. Take action by experiencing it on a real money trading account with a small investment.
If you are still not confident, sign up for a Demo account right below to test this indicator. They will help you gain more experience and skills to get the most accurate trades.