ADX/Trend strength indicator Flashcards
Trading in the direction of a strong trend reduces _______ and increases ________ potential.
Risk
Profit
The average directional index (ADX) is used to determine _____________________. In many cases, it is the ultimate ________________
when the price is trending strongly
trend indicator.
ADX calculations are based on a_____________________ over a given period of time.
moving average of price range expansion
ADX is a __________ type indicator.
Ocsillator
ADX is plotted as a single line with values ranging from a low of _______ to a high of ______________.
0 to 100
ADX is _____________; it registers trend strength _______________________.
non-directional
whether price is trending up or down
Many traders will use ADX readings above ___ to suggest that the trend is strong enough for trend-trading strategies. Conversely, when ADX is below ______, many will avoid trend-trading strategies.
25
25
ADX Value Trend Strength
0-25 ?
25-50 ?
50-75 ?
75-100 ?
ADX Value Trend Strength
0-25 Absent or Weak Trend
25-50 Strong Trend
50-75 Very Strong Trend
75-100 Extremely Strong Trend
Low ADX is a usually a sign of _______________________
accumulation or distribution.
When ADX is below 25 for more than 30 bars, price enters ___________________, and price patterns are often easier to identify. Price then moves up and down between resistance and support to _________________, respectively.
range conditions
find selling and buying interest
From low ADX conditions, price will eventually ____________________.
break out into a trend
Periods of low ADX lead to _________________.
price patterns
The direction of the ADX line is important for reading trend strength. When the ADX line is rising, trend strength is _____________, and the price moves in the direction of the trend. When the line is falling, trend strength is decreasing, and the price enters a period of _______________________.
increasing
retracement or consolidation
A common misperception is that a falling ADX line means the trend is reversing. A falling ADX line only means that the trend strength is _______________, but it usually does not mean the trend is reversing, unless there has been a price climax. As long as ADX is above 25, it is best to think of a falling ADX line as simply___________________.
weakening
less strong
The series of ADX peaks are also a visual representation of overall trend___________. ADX clearly indicates when the trend is gaining or losing ____________.
momentum
Knowing when trend momentum is increasing gives the trader confidence to __________________ However, a series of lower ADX peaks is a warning to _____________________.
let profits run instead of exiting before the trend has ended.
watch price and manage risk
ADX can also show momentum divergence. When price makes a ________high and ADX makes a _____________ high, there is negative divergence, or non-confirmation. In general, divergence is not a signal for a reversal, but rather a warning that _______________. It may be appropriate to tighten the stop-loss or take partial profits.
Higher
Lower
trend momentum is changing
__________ is the single most important signal on a chart. Read ______ first, and then read ADX in the context of what _____ is doing. When any indicator is used, it should add something that ________ alone cannot easily tell us.
Price
the best trends rise out of periods of ________________________. Breakoutsfrom a range occur when there is a disagreement between the buyers and sellers on price, which tips the balance of supply and demand. Whether it is more supply than demand, or more demand than supply, it is the difference that creates _____________.
price range consolidation
price momentum
Breakouts are not hard to spot, but they often fail to progress or end up being a trap. But ADX tells you when breakouts are valid by showing when ADX is strong enough for ____________________. When ADX rises from below _______to above ______, price is strong enough to continue in the direction of the breakout.
price to trend after the breakout
25
it is often hard to see when price moves from trend to range conditions. ADX shows when the trend has weakened and is entering a period of range consolidation. Range conditions exist when ADX drops from above ____to below _____.
ADX will meander sideways under ___ until the balance of supply and demand changes again.
25
ADX gives great strategy signals when combined with price. First, use ADX to determine whether prices are _____ or ______, and then choose the appropriate trading strategy for the condition. In trending conditions, entries are made on _______ and taken in the direction of the trend. In range conditions, trend-trading strategies are not appropriate. However, trades can be made on reversals at support (long) and resistance (short).
trending or non-trending
pullbacks
The best profits come from trading the strongest trends and avoiding ________________. ADX not only identifies trending conditions, it helps the trader find the strongest trends to trade. The ability to quantify trend strength is a major __________for traders.
range conditions
edge
ADX also identifies range conditions, so a trader won’t get stuck ____________________.
trying to trend trade in sideways price action
