When you’re using the ADX indicator, keep an eye on the 20 and 40 as key levels.
here’s a little cheat sheet to help you interpret ADX values.
|Below 20||Weak trend|
|Between 20 and 40||Strong trend|
|Above 40||Extreme trend|
Take a look at these neat charts we’ve pulled up:
In this first example, ADX lingered below 20 from late September until early December.
As you can see from the chart, EUR/CHF was stuck inside a range during that time.
Beginning in January though, ADX started to climb above 50, signaling that a strong trend could be waiting in the wings.
And would you look at that! EUR/CHF broke below the bottom of the range and went on a strong downtrend. Ooh, that’d be around 400 pips in the bag.
Book it, baby!
Now, let’s look at this next example:
Just like in our first example, ADX hovered below 20 for quite a while.
At that time, EUR/CHF was also ranging.
Soon enough, ADX rose above 50 and EUR/CHF broke above the top of its range.
A strong uptrend took place. That’d be 300 pips, signed, sealed, and delivered!
Looks simple enough, right?
If there’s one problem with using ADX, it’s that it doesn’t exactly tell you whether it’s a buy or a sell.
What it does tell you is whether it’d be okay to jump into an ongoing trend or not.
Once ADX starts dropping below 50 again, it could mean that the uptrend or downtrend is starting to weaken and that it might be a good time to lock in profits.
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