We need to be very careful about how we read and interpret the indicator. It is not a and indicator. ADX’s moving average only measures the strength of the trend.
So, if the price is going UP, and the indicator is also going UP, then we have the case for a strong case.
The same is true if the price is going DOWN and the indicator is going UP. Then we have the case for a strong case.
Add horizontal 25 line to .
Adjust & to use a 20-period indicator setting.
Step #1: Wait for the indicator to show a reading above 25.
Before we even look to see if the market goes up or down, we must first wait for the indicator to show a reading above 25. Based on the indicator trading rules, a reading above 25 is signaling a strong trend and the likelihood of a trend developing.
We all know that the trend is our friend, but without real strength behind the trend, the newly trend formed can quickly fade away.
In order to gauge the direction of the trend, we also need to look at the actual price action. This brings us to the next step of the best strategy.
Step #2: Use the last 50 to determine the trend. For buy signals, look for price to develop a .
No matter of your time frame, we need a practical way to determine the direction of the trend.
By using a sample size of 50 to determine the trend we ensure that we trade in the moment of now. We like to keep things simple, so if the price is heading higher during the last 50 we’re in a .
Step #3: Buy when the indicator breaks and show a reading above 70.
For our entry signal, we’ll be using the indicator that uses the same settings as the indicator settings (20). Normally the reading above 70 shows an overbought market and a reversal zone. However, smart trading means looking beyond what the textbook is saying.
In a strong trend as it’s defined by the indicator that’s precisely what we want to see. We want more buyers coming into the market.
So, we want to buy when the indicator breaks and shows a reading above 70.
Step #4: Protective Stop Loss should be placed at the last low.
In order to determine the stop-loss location for the best strategy, first identify the point where the made the last low prior to our entry. Secondly, find the corresponding low on the price chart from the low and there you have it your SL level.
Step #5: You determine Take Profit or when the indicator breaks back below 25.
The best strategy seeks to only capture those profits resulted from the presence of a strong trend. Once the prospects of a strong trend fade away we look to take profits and wait for another trading opportunity.
To accomplish this we take profits as soon as the indicator breaks back below 25.
An reading back below 25 suggests the prevailing trend is running out of strength.
Note** The above was an example of a BUY trade using the indicator trading rules. Use the same rules but in reverse, for a SELL trade.
Conclusion - Indicator
The best strategy gives us very useful information because a lot of the time, we as traders don’t want to get into something that’s moving nowhere and not trending in a strong fashion. By applying the indicator trading rules one can take advantage of the strength of the trend and cash in quick profits. The bottom line is that the best profits come from catching strong trends and the best strategy can help you accomplish your trading goals.