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  1. #1
    Administrator Martin Kay's Avatar

    Average Directional Movement Index – The Money Maker? !!!

    Hi guys! The Average Directional Movement Index review is up! How and why using Average Directional Movement Index for trading Binary Options? Let the discussion begin!

    Quote Originally Posted by Bogdan G
    Why ADX sucks?

    Well, the first time I installed it on my computer I wanted to immediately take it off. It just looks like a mess sometimes…but after a while I got used to it and I realized that is actually an advantage because it shows me that price has no clear direction. Look at the picture below, in the lower left box and see how all the lines are tangled and hard to read. It’s a clear indication that price has no trend at the moment. ADX uses a mathematical formula to smooth out price movement and plot its lines, but in doing so, it lags a bit and sudden moves in price can be reflected late by the ADX. Well…nobody’s perfect.


    Why ADX doesn’t suck?

    If you are not used to analyzing the Highs and the Lows to correctly determine whether you are in a trend or not, the ADX is a simple and visual representation of price strength. Just use the levels to determine if price is trending or not or if a possible reversal might come. However, one of the biggest advantages in my opinion comes from the fact that it keeps me disciplined. For example, it stops me from opening a trend continuation trade if ADX is under 25. As soon as the condition is met, I can trade, but never before. This keeps me out of false moves and whipsaws and we know we have a lot of those lately.

  2. #2
    Master Member Bogdan G's Avatar
    For me guys it's like this: no clear direction - no trade. And ADX helps when I want too see if the current move is tradable or not.

  3. #3
    Legendry Member Michael Hodges's Avatar
    I've never used the ADX before...where is it available? Does work as an occilator like stochastic?

  4. #4
    Master Member Bogdan G's Avatar
    Quote Originally Posted by Michael Hodges View Post
    I've never used the ADX before...where is it available? Does work as an occilator like stochastic?
    Michael, you can find the ADX as built-in indicator on MT4. It is not an oscillator like Stochs, because it doesn't indicate direction, but the strength of a trend and it is not caped at predetermined levels. However, extreme values can sometimes be indicative of the fact that a retracement is coming.

  5. #5
    Specialist Member TAllen1429's Avatar
    I have found that the Average Directional Movement Index is a very useful technical indicator although I do not use it as a primary triggering source but more as a backup.

    Over the years, I have developed a number of triggers that I deploy to identify good opening opportunities. They have been proven statistically to provide me with a high win-to-loss ratio.

    I have constructed these triggers using other technical indicators, such as the moving averages, etc. and have optimized their performance using extensive back-testing and live-testing.

    However, I noticed during this process that once a trigger is activated, price still needs enough momentum to propel it pass my targets in order to record wins. I found that this was more likely to happen during strong trends. During range-trading or low volatility, more losses and false signals were recorded.

    As such, I found that by incorporating the Average Directional Movement Index into my trading strategy, it helped significantly to filter out and reduce losses. I now tend to only activate positions when the ADX is climbing in value. I do this by comparing the ADX value for the previous time-frame against the present one.

    I also had to optimize the use of the ADX for every currency pair/timeframe combination I selected. However, I found that this effort was worthwhile as the ADX has helped me to increase my win-to-loss ratio by between 5% and 10%.

    Good luck with your trading.

    Terry

  6. #6
    Master Member Bogdan G's Avatar
    Hi Terry,
    That's how I use ADX too; not as a trigger or a primary indicator, just some extra confirmation that price has enough steam to reach my target. Ranges are account killers for most traders and I try to avoid them. ADX helps me do that. Btw, 5%-10% increase in W:L ration is very good. Congrats.
    All the best
    Bogdan G

  7. #7
    Senior Member Grae's Avatar
    Quote Originally Posted by Bogdan G View Post
    Hi Terry,
    That's how I use ADX too; not as a trigger or a primary indicator, just some extra confirmation that price has enough steam to reach my target. Ranges are account killers for most traders and I try to avoid them. ADX helps me do that. Btw, 5%-10% increase in W:L ration is very good. Congrats.
    All the best
    Bogdan G
    Hi Everyone,
    I agree that ADX can come in late in emphasizing of a trend. Terry, Which time frames do you pay attention to for ADX? Not all time frames are the same in charting trends... Or does it matter?

    Kind regards!

  8. #8
    Rookie Member
    Quote Originally Posted by Bogdan G View Post
    Michael, you can find the ADX as built-in indicator on MT4. It is not an oscillator like Stochs, because it doesn't indicate direction, but the strength of a trend and it is not caped at predetermined levels. However, extreme values can sometimes be indicative of the fact that a retracement is coming.
    I have just recently started using indicators so I was wondering, is ADX something similar to RSI?

  9. #9
    Master Member Bogdan G's Avatar
    Quote Originally Posted by Xenicide View Post
    I have just recently started using indicators so I was wondering, is ADX something similar to RSI?
    Nope, it is very different. RSI is an oscillator and the differences are huge between the 2 indicators. Check out the article I wrote on ADX and maybe some of your questions will be answered there. If not, please ask anything you are interested in and I'll be happy to answer.
    Btw, you say you recently started using indicators. Before that, were you trading naked charts? S/R and Japanese candles?

    All the best
    Bogdan G
    Last edited by Bogdan G; 10-11-2012 at 03:31 PM.

  10. #10
    Master Member Bogdan G's Avatar
    Quote Originally Posted by Grae View Post
    Hi Everyone,
    I agree that ADX can come in late in emphasizing of a trend. Terry, Which time frames do you pay attention to for ADX? Not all time frames are the same in charting trends... Or does it matter?

    Kind regards!
    Trends exist in all time frames and ADX can be used in any time frame you choose. It's just a matter of personal choice.

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