The indicators of the ADX will have large three lines, each one of them for computing the descending and the ascending trends, also better known as the Directional movements or the DM. Then the line of signal which will depict the absolute force of each of the descending and ascending trends.
The Forex traders normally use the technical study for determining the optimal entry and exit points at the market. Their key focus is on the key points of ADX with regards to the reference, which are in show by the form of high lights and line cross over. Like in any other technical indicator, the ADX chart, will by no means present a cent percent correctness in the signals that are present, but those signals are steady enough to give an EDGE to the Forex trader. Technique in decoding and understanding ADX signals are developed eventually. Based on the ADX signals and the alerts, let us build up an easy trading system as below:
The below stated dealing plan is for educational purpose only. The Technical study takes in to consideration only the earlier pricing behavior and tries to predict the future prices, however, we are already let known that the results of the past are never an assurance for the forthcoming performances.
So we can say that an easy system of trading will:
1. Establish your entry and exit spots, at the time when the green line cross over the gold line towards the upward direction, escorted by the ADX signal line which moves in the same direction as that of the green one.
2. For numbers above 2% and 3% of your account, execution of a “BUY” order.
3. Make stop loss order at around 20 pips just below the entry point.
3. Establish your Exit spot, when an upwardly going signal range reaches the value of over the 40 mark, escorted by the growing gold line.
In the above mentioned cases, the 2nd and 3rd steps characterize the recommended risk and the money management concepts that has to be worked upon. This easy dealing plan would have produced two individual 100 “pip” profits, but do make a note that that the previous happenings are never a guarantee for the forth comings. However, uniformity is your purpose, and hopefully, eventually, ADX Technological Analysis will offer that to you with the “edge”.