I have been learning how to use ADI indicator and am really finding it very useful. One aspect which I am not sure how to interpret is when ADX line moves up quite high, in response to a big buy trend as an example, but then falls at a similar rate in response to an immediate sell trend. Then as this downward trend confirms it will then curve back up.
What is the best way to take the downward moving ADX line as it eventually must come down to indicate trend movement by its upward indication.
Good morning haggis (may I take a guess where you’re from)??? LOL!!!
ADX rises no matter whether there is an uptrend or a downtrend and indicates the strength of the trend. As Wilder (Mr. J. Welles Wilder Jnr. who developed the indicator) says: the moment ADX turns down ‘it is seldom a bad time to take profits’. The turning down of ADX after it has risen from being below both +DI and -DI is, in my experience, the strongest and most reliable signal ADX generates. Take any chart you like, look for a where there has been a trend, and look at what has happened to ADX within only a day (bar) or two when the trend has paused (note I said ‘paused’ i.e. a downturn in ADX does NOT necessarily indicate the end of the trend as the trend can continue and ADX can reverse direction and continue to move up).
And just in case you’re wondering: I’ve made a veritable study of Wilder’s systems and indicators and that’s all I trade.
As with most all of Wilder’s systems and indicators: many of them of misinterpreted or misunderstood.
The good news is that you can download his book ‘New Concepts In Technical Trading Systems’ from my forums found at techtradercentral.proboards.com (guaranteed no spam, virus free, but sorry about the file size i.e. I didn’t scan it myself because I own the book and and if you download it PLEASE BUY the original anyway. It’s ‘the right thing to do’. See my disclaimers on my forums). In the book you will find everything you need to know about ADX and all of it’s MANY MANY ‘nuances’ that most people are not aware of. You will find, however, that it has it’s onw inherent ‘shortcomings’ as well (most of which are detailed on my forums). You’ll also find everything you need to know about Wilder’s other indicators and details of his trading systems based on his indicators. And if there is anything more you need to know or something you don’t understand: then believe me when I say that I (as in ‘me’) am the person to ask (even if I have to say so myself) and it will be a pleasure to assist!!!
Please note (everyone): the book is no longer subject to copyright (I checked this with Mr. Wilder’s Organisation called ‘The Delta Society’ that’s why I’m hosting it as a download). I found the scanned copy on some or the other website so I’m simply providing a ‘no nonsense virus and spam free’ environment for it to be downloaded is all.
In closing: Wilder (to me) is THE market technician OF ALL TIME and always will be. His indicators have ‘stood the test of time’ and his trading systems ‘cannot be beat’.
If you’re that interested in ADX: then I KNOW that THIS post (reply) is going to be of benefit to you. You’ll also be surprised at just how misunderstood and misused some of his other indicators are e.g. RSI and Parabolic SAR!!!
Good (Wilder) trading.
Regards,
Dale.