ADX. Something that we should have come in contact with before. But alas! We are only learning about it right now, as we have only come to the place where we can really make a use of it.
ADX in markets is another oscillator that helps us determine whether we are dealing with the trending or with the ranging market. ADX means Average Directional Index indicator and it is very easy to use it.
Virtually, the higher ADX number is, the stronger is the trend in the market and the more likely it is that you are dealing with the trending market. ADX varies between 0 and 100 and trending markets begins after 25th point is crossed. Here is the best example of it:
You see how the lower ADX is, the calmer is the market and the higher the oscillator rises, the more obvious it is that we are in a trending market.
It is that simple. All you need to know is where to look and when to turn your attention. Of course, it is also necessary to know when the trend is going to be over and we need to take action. And there is when ADX is not going to help us.
You see, ADX is a lagging oscillator and therefore can often be wrong about the future direction of the asset. But this doesn’t mean that it is totally wrong all the time. It is just good for ‘in-the-now’ moments, that is all.