Trading can be tricky, but using the right indicators can make a big difference. One of the best tools for this is the ADX, which stands for Average Directional Index. The ADX helps traders understand the strength of a trend in the market. Most people use it with a 14-bar setting as a default, but I recommend using it with a 5-bar setting instead.
When you set the ADX to 5 bars, it becomes more sensitive to market changes. This setting can give you quicker signals about trend strength. But there's more to it. You should also look at the ADX value itself. If the ADX is below 40 or 45, it means the market is not moving too fast. This is important because entering a trade when the market is too fast can lead to mistakes and losses.
Filtering trades based on the ADX value can help a lot with breakout entries. Breakout entries happen when the price moves outside a defined range, either up or down. These are exciting times for traders because they can lead to big profits. But if the market is moving too fast, the breakout might not hold, and you can lose money.
Using the ADX with a low setting and filtering trades when the ADX is below 40 or 45 can lead to better results. This way, you avoid entering trades in markets that are too fast and likely to reverse. Instead, you enter trades when the market is a bit quieter, which can give you a big advantage. When the ADX is low, and a breakout happens, the move is often stronger and more reliable. This gives you a better chance to make a profit.
In summary, if you want to improve your trading, consider using the ADX with a 5-bar setting. Make sure to filter your trades and only enter when the ADX is below 40 or 45. This method can help you avoid many bad trades and give you a better chance at profitable breakouts. It's a simple change, but it can make a big difference in your trading success.
