The ADX indicator (Average Directional Index) is amongst the most widely used indicators in Forex trading. The reason for its use is because it provides us with 2 factors:
1. It tells us if the market is trending
2. It shows us how strong that trend is
It’s purpose is to allow us to get into trends just after they are formed and get out before the market reverses back.
The period setting for the ADX indicator is 14 (this is a default setting) and you should be using this setting if you are trading any time frame at or above H1. If you are trading time frames that are lower than H1, then you should use a period setting such as 10.
We are looking for 2 factors when trading the ADX indicator:
1. A cross over the 25 line to indicate a trend is likely to happen
2. ADX indicator needs to rise to show us that trend strength is increasing.
It is only at this point that we should take the trade. One thing to bear in mind is that the ADX indicator is a lagging indicator so it can take time to adjust to prices. This is why you may find that a few trades are misses.
Commodity price index allows to identify when prices are out of their ‘normal’ trading range. The way in which we do this is by waiting for a reading above 100 if we are trading up (buying), and a reading below 100 when we are trading down (selling).
Howevber, before we use the Commodity Channel Index, we firstly must establish that a trend is already taking place. We do this by using additional indicators such as Moving averages and the Momentum indicator. Once we have a confirmation in both indicators that a trend is taking place, we use the CCI indicator to take the trade. Watch the full Forex training video to see how we use moving averages and the momentum indicator to establish a trend and the CCI indicator for our entry.
Momentum indicator is a ‘must’ for any trend trader. The reason why is because it measures strength and weakness of a trend. Therefore, it provides us with good signals for entering and exiting a trade.
The momentum indicator is a ‘leading’ indicator which means that it works slightly ahead of prices. This means that it can be used to recognize trends before they actually form.
1. When the momentum indicator is above the centre line traders should look to get into a up-trend. When it is below the centre line, we should be getting into a down-trend. The only factors you must remember is not to trade in the opposite direction i.e. trading downwards when the momentum indicator is above the centre line and vice versa.
2. We can also use this indicator to trade divergence between itself and prices. So, when prices are making lower lows and the momentum indicator is making higher lows, we have divergence. It is here that we look to trade in the upward direction because the indicator has shown us signs of a weakening down-trend in the price chart.
3. The last way to use the momentum indicator is to wait for a breakout. After drawing a trend line in our price chart we would draw the same line in the indicator window. Once we have a breakout in both prices and the indicator, we can take a trade. Watch the full Forex training video to see how this powerful indicator can be used.