Trend trading is a true and profitable approach. To recognize the existing strong tendency in market, usually used are various known methods, technical instruments and graphics. And ADX is great for determining trends.
In 1978, Wells Wilder is a well-known trader, who is the first to offer general public the idea of an index of directional movement in author’s work (New Concepts in technical trading systems).
ADX immediately gained popularity among traders. Since this instrument can not only recognize tendency, but also find good points for opening / closing trading positions in market.
ADX is a standard indicator set in all trading terminals, including IQ Option.
ADX indicator settings
To enable and configure ADX, you need to do following:
- in broker’s trading room, click the icon of technical indicators menu;
- select ADX from the instruments list.
So, in open window of indicator settings, a graphical parameters of lines of financial instrument (thickness, colour) and one main variable (period) are available for changes. By default, the period is set to 14.
Users with little experience are advised to leave the default settings of indicator, as this is a proven and optimal solution for developer.
Graphical solutions of ADX indicator
ADX technical indicator is visually similar to oscillator. Index scale is located in basement of trading terminal. Instrument consists of three graphic elements: drop line (- Dl) and growth line (+ DL), as well as a tendency strength curve (ADX).
Users can choose the colour and thickness of lines, at site of IQ Option broker. However, ADX graphical solutions offered by default are intuitive and easy to trade.
- Red curve is a drop line (- Dl).
- Green is a growth line (+ DL).
- Yellow line is an average directional index (ADX).
How to use ADX in trading on IQ Option
Using ADX elements, one can recognize the current trend and strength of current market tendency. Mechanism is simple, but requires attention.
To determine a tendency in market and which transaction to open, consider such cases:
- Growth line (+ DL) increases (-Dl), and ADX curve exceeds 30, market is dominated by a strong bullish trend (you should open a long position);
- when curve (- Dl) moves above growth line (+ DL), and ADX passes above the level 30, then the downward tendency in market (you need to open a short position);
- if all lines of indicator are intertwined and move alongside, that the correction period had come (you is better not to trade with ADX until a new tendency is formed).
The buy/sell indicator signals are the intersection points of falling and growing curves with growing ADX line.
Summary
So, Average Directional Index is an original instrument of trade, which has the following positive qualities:
- reliability (indicator is time-tested, since it has been used successfully since 1978);
- ease of use (no special knowledge required);
- compatible with other technical instruments (Parabolic SAR, MA, Bolinger Bands, etc.).
Negative features of ADX:
- trading signals are formed with a delay;
- growth and fall lines can cause noise when making trading decisions.
In article the main features of work with financial indicator ADX are considered. This knowledge is enough to start trading with average directional index.
Attention! First of all, ADX should be tested on historical charts and a training account. Only then really need to trade with this instrument. Since a systematic and competent approach reduces the risk of losing personal funds and increases the chances of earning money.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future
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