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Saturday, 7 January 2012

Use of ADX indicator in trend trading

I do not use any indicator or moving averages for my trade entry or exit, although in my early days i used a moving crossover system which i developed personally based on observation,i use to track the cross over on 2 different time frames at time (will post a separate blog).

From past few days i am working use of ADX indicator in trend trading.
Trading decisions always as per price action but ADX as an aid. what i observed that when ever the the ADX moves above 40 and also above both the DMI lines(see image below), conditioning of price action happens.

Idea is to exploit this conditioning of price action, so i turns to lower time frame n apply the same price action rules of trading on lower time frame then regular time frame.Getting excellent results in intraday trading.
If i turn to lower time frame without the aid of adx then normally results in loss or minor profits with too much headache n strain.
Similarly when the ADX is below 20 n below both the DMI lines i switch to higher time frame n trade as per price action on higher time frame and again doing this avoids unnecessary trades n therefor prevents the unnecessary trading strain.

Sharing few actual trades in past few days.
For intraday i normally trade 5 minute time frame and as discussed when ADX is above 40 n above both the line i turn to 1 minute time frame n make few additional quick grand.
See chart below, on 5 minute time frame unable to see any specific price action, just a rally.

But at that time the ADX was bove 40 n also above both the DMI lines so turned to 1 minute time frame and able to see up trending price action ie higher pivot high n higher pivot low and therefor able to enter a quick long trade n got 250 points in few minutes addition to regular gains.


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