ADX Trade AM
The indicator allows you to simplify the interpretation of signals produced by the classical ADX indicator. The position of the thick bars of the histogram relative to zero and the histogram coloring indicate the direction of price movement determined by the intersection of DI+ / DI-. The position of the thin bars of the histogram relative to zero and the color indicate the strength of the price movement. The indicator is a logical continuation of the series of indicators using this classical and efficient technical indicator (ADX_Signal_AM , ADX_Candles_AM , ADX_Trigger_AM , ADX_on_RSX_Signal_AM , ADX_Line_AM).
- A buy signal is generated when the price moves above the high of the last fully formed bar, on which the thick histogram bar is above zero and the previous thick bar was below zero.
- A sell signal is generated when the price moves below the low of the last fully formed bar, on which the thick histogram bar is below zero and the previous thick bar was above zero.
The Average Directional Movement Index (ADX) indicator was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems".
The simplest trading method based on the system of directional movement implies comparison of two direction indicators: the 14-period +DI one and the 14-period -DI included into ADX. W. Wilder recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI. To these simple trading rules, Wells enhanced by the "rule of extremum points". It is used to eliminate false signals and decrease the number of deals. According to the principle of points of extremum, the "point of extremum" is the point when +DI and -DI cross each other. If +DI raises higher than -DI, this point will be the maximum price of the day when they cross. If +DI is lower than -DI, this point will be the minimum price of the day they cross. The point of extremum is used then as the market entry level. Thus, after the signal to buy (+DI is higher than -DI) one must wait till the price has exceeded the point of extremum, and only then buy. However, if the price fails to exceed the level of the point of extremum, one should retain the short position.
The indicator displays signals on the price chart when +DI and -DI intersect, as well as shows signals when an ADX value rises or falls relative to the +DI and -DI positional relationship.
How to use
When the +DI and -DI intersection signal appears, set a pending buy ore sell order at the high or low (including spread) of the bar, on which the signal occurred. When ADX falls and there is an open position, set a pending order to close the position at the high or low (including spread) of the bar, on which the signal occurred. The use of ADX rise/fall signal in the long-term trend direction for opening positions can also be effective.
- ADX_Period - indicator calculation period
- ADX_Price - indicator calculation price