What is the ADX Indicator and how to use it?

crypto49er (45)in #trading • 6 years ago (edited)

Average Directional Index - objectively tells you the strength of a specific trend.

Consist of 3 lines:

+DI Line - strength of the buyers, above -DI, bulls have the edge
-DI Line - strength of the sellers, above +DI, bears have the edge
ADX Line - Strength of a trend, below 20 = no trend, above 25 (or 40) = strong trend

Strategies

-Sell when -DI is above +DI and ADX is below 20
-Buy when ADX is 40 and up and +DI is above -DI (too late???)
-Don’t trade when ADX is below -DI and +DI even when ADX is above 20 (extremely rare)
-The longer the ADX is below 20, the more significant the trend is when it goes above 20

If ADX is above 40 and +DI and -DI and turns down, signals trend reversal (for bear only?)
If +DI crosses above -DI, buy, -DI crosses above +DI, sell (works when ADX heads to 40+)

My observations / potential strategies
Buy when ADX flattens and prices dips below BB (while previous dips saw ADX gaining)?
Even when there is no trend (ranging), the price goes up slightly during bull markets?

Additional Resources:

https://www.investopedia.com/terms/a/adx.asp
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_directional_index_adx