ADX Basic
Signals
Short Mode
-
ADX > 25
-
-DMI above +DMI
Scalp Mode
-
ADX < 25
-
DMI spikes above 25
Long Mode
-
ADX > 25
-
+DMI above –DMI
Point #1
Low ADX Periods—No Trend
Trading
ADX Trend Strength Rule
-
When ADX is above 25, trend strength is strong enough for trend trading strategies
-
When ADX is below 25, avoid trend trading
strategies (optional: scalp trades)
Born to Chop
Point # 2
Best Trades Begin From Low ADX
Periods
ADX Trendline
Rule
When ADX is below 25 for an extended
period,
draw trendlines on price and wait for a breakout
DMI Breakout
Rule
A valid breakout up requires a new high in
price and
a new high in +DMI (and +DMI > 25)
A valid breakout down requires a new low in
price
and a new high in –DMI (and -DMI > 25)
ADX POWER
Crossover High
(+DMI)
Change of
Dominance
Crossover High
(+DMI)
Change of
Dominance
ADX POWER LONG SETUP
Price has a consolidation period for at
least 30 bars (any timeframe) with a price pattern.
ADX is less than 25 during the consolidation
(preferably less than 15).
Both DMI lines are above ADX prior to the
breakout.
The +DMI makes a crossover high as price
breaks the top trendline.
Price retraces to the 20 EMA and holds
(first retracement) while the +DMI makes a pivot low at or near
25.
Enter long on a price pivot low reversal
(up)
ADX POWER SHORT SETUP
Price has a consolidation period for at
least 30 bars (any timeframe) with a price pattern.
ADX is less than 25 during the consolidation
(preferably less than 15).
Both DMI lines are above ADX prior to the
breakout.
The –DMI makes a crossover high as price
breaks below the bottom trendline.
Price retraces to the 20 EMA and holds
(first retracement)
while –DMI makes a pivot low at or near 25.
Enter short on a price pivot high reversal
(down).
Point #3
Following ADX Peak >25, the
Trend is More Likely to Continue Than Reverse
DMI Continuation High
Rule
During a retracement, when DMI dominance is
maintained, a new high in the dominant DMI confirms continuation of the
trend
New high –DMI and new low in price, or new
high in +DMI and a new high in price
Variation: Cross ADX
TREND
DMI lines cross, but there is no change of
DMI dominance
ADX TREND LONG SETUP
Price makes a new high and ADX rises above
25.
Price retraces down near the 20
EMA.
ADX turns down during the price
retracement.
The –DMI does not cross +DMI on the
retracement.
Enter long when price makes a new high and
+DMI
makes new high.
ADX TREND SHORT SETUP
Price makes a new low and ADX rises above
25.
Price retraces up near the 20
EMA.
ADX turns down during the price
retracement.
The +DMI does not cross –DMI (or crosses
slightly
without a change of dominance).
Enter short when price makes a new low and
-DMI
makes new high.
+DMI Continuation
High
-DMI Continuation
High
Don’t Think! Follow Price/DMI
Pivots
Point
#4
Get Out of a Trend Trade With ADX
Divergence
ADX Divergence
Rule: When ADX is
divergent with
price, exit part or full position
Most trading education focuses on making the
perfect
entry
Exits are harder and more important for
profit
consistency
Divergence =Decision
Sell partial position (half) or full
exit
Divergence Deception =
Climax
Point
#5
ADX Warns a Trend is About to
End/Reverse
Declining ADX peaks suggests trend is
nearing completion
An ADX peak of 25 or less often precedes
trend reversals
The end of a trend is an exit, but not
necessarily a reversal entry
ADX
exhaustion
The ADX exhaustion is a trend reversal
strategy following a series of lower ADX
highs, the last being 25 or less.
ADX exhaustion gets its name from gradual
price exhaustion at the end of a trend
Price is divergent with ADX
peaks
Trend Principle: trends seldom reverse
without warning
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