How to Use ADX (Average Directional Index)

When you visit the Exolix exchange, you may ask yourself when it is a good time to act and make transactions. This question is of great importance for every trader, especially if we talk about the cryptocurrency market. The thing is that you will profit only when the trend is strong. Therefore, you need some reliable instruments to trace such moments and act immediately. One of the best such instruments is the Average Directional Index or ADX for short. Let’s learn more about its basics and how to use ADX indicator to profit.

ADX indicator: how to use and what it is

This tool reveals the strength of a trend using a trend line together with a pair of directional movement indicators. You will easily find ADX under a price chart with the value from 0 to 100, and there is also an ADX black trend line. As for the directional indicators, there is a positive green (+DI) and a negative red (−DI) one. According to the presented values, the strategy and decisions for actions are developed. How to use ADX? The strength of a given trend is determined via an accurate analysis of black, red and green lines and their relationship. In addition, one can plan entry and exit points based on this information. Keep in mind that ADX utilizes a moving average for the price for a certain period. In most cases, you will see two weeks period by default or you can change it if needed. There are calculations behind each line. However, it is more important to understand the analysis, not the formulas. At last, before answering the question of how to use ADX in crypto trading, we should mention the high uncertainty and volatility of this type of asset. Therefore, the proper prediction is even more valuable in this area and it can be made with the help of this indicator.

How to use the ADX Indicator

How to use ADX indicator for day trading? First of all, follow the moves of the lines up and down. When the +DI is going up, the trend is strong. If the −DI is moving down, that is a sign of the weakening of the market. In addition, the following ADX values are associated with the current situation: • 0–25 – weak; • 25–50 – strong; • 50–75 – very strong; • 75–100 – extremely strong.

Here the navigation is quite simple and convenient. If the ADX value is moving up and reaching 25, you observe the strengthening of the trend. Thus, if you wish to purchase an asset, wait until this point and only then open the trade. On the contrary, when the figure decreases from 80 to 70, you observe the weakening of the trend. Another essential point is the crossover between −DI and +DI. When the positive is moving above the negative one with an ADX value of more than 20, the buying trend is going to continue. In the opposite situation, there is a downtrend and it is better to start selling. Furthermore, the behavior of lines gives you a hint about the stability of the trend. If you see stable higher highs or lower lows, then the situation is stable. If in such a situation, you follow the trend, your chance for profits becomes higher. One can also utilize a multiple-period analysis together with this indicator, and open trades in lower periods. Still, the ADX can be an indicator of a neutral trend. Therefore, in a volatile market, it can move sideways because of insufficient liquidity.

Advantages and disadvantages of ADX

Now you know how to use ADX to trade but still remember that this is not a complete solution. Experienced traders always use a set of indicators and carefully check them when they wish to swap or convert something.

That is because each tool has its limitations. As for the ADX, it is associated with the following benefits: • High accuracy and reliability in the determination of market trends; • Quick help in searching for profitable trends; • Accurate quantification of the trends’ strength; • Easy combination with other instruments; • The possibility to utilize it for both bullish and bearish markets. Still, one should remember some disadvantages, namely: • It is a lagging indicator; • Sometimes there are false signals on sideways markets; • It is not a complete solution and other tools are required as well.

Altogether, this tool is easy to understand and convenient to use. One can apply it as a basic one but better with the combination with other instruments. In this case, you will be able to see the trends clearly and build up a reliable profitable strategy even in such a volatile market as the crypto market.

FAQ

How do you use ADX indicator Crypto?

Check the ADX value to understand the situation in the market. In addition, utilize the lines that show the directional movement. Then, you will see the strength of the trend and its nearest future.

What is the best setting for ADX?

When the ADX is more than 20, the positive line is moving up and the negative line is moving down for two weeks, this reveals a strong buying trend. In most cases, two weeks period is enough for evaluation.

What is the best length for ADX?

The standard length is two weeks and it is set this way on most platforms. However, you can change the setting if required.