ADX and MACD

Typically, traders will look for an ADX above 30 to confirm that the currency pair is trending either up or down.

Any value below 30 in ADX curve would mean a pair has been moving sideways and trend based systems should be cautiously used or completely avoided.

The signals that occurred while the ADX was above 30 are much more reliable to make trade.

Trading in the direction of a strong trend reduces risk and increases profit potential. The average directional index (ADX) is used to determine when price is trending strongly.

ADX is used to quantify trend strength. ADX calculations are based on a moving average of price range expansion over a given period of time.

ADX can be used on any trading vehicle such as stocks, mutual funds, exchange-traded funds and futures.

ADX is plotted as a single line with values ranging from a low of zero to a high of 100. ADX is non-directional; it registers trend strength whether price is trending up or down.

ADX values help traders to identify the strongest and most profitable trends to trade. The values are also important for distinguishing between trending and non-trending conditions.

The direction of the ADX line is important for reading trend strength. When the ADX line is rising, trend strength is increasing and price moves in the direction of the trend.

When the ADX line is falling, trend strength is decreasing, and price enters a period of retracement or consolidation.

A common misperception is that a falling ADX line means the trend is reversing. A falling ADX line only means the trend strength is weakening, but it usually does not mean the trend is reversing unless there has been a price climax.

The series of ADX peaks are also a visual representation of overall trend momentum. ADX clearly indicates when the trend is gaining or losing momentum.

ADX can also show momentum divergence. When price makes a higher high and ADX makes a lower high, there is negative divergence, or nonconfirmation.

ADX tells you when breakouts are valid by showing when ADX is strong enough for price to trend after the breakout.

The best profits come from trading the strongest trends and avoiding range conditions. ADX not only identifies trending conditions, it helps the trader find the strongest trends to trade.