ADX trend-strength filter

Filter · Difficulty: Intermediate

Education only. Delayed data. Past results do not predict future results. Not financial advice, and no strategy here promises a profit. Every strategy can lose money, and a rule that worked on past charts may stop working. Practise with virtual money first.

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The idea

ADX measures how strong a trend is, regardless of direction. High readings favour trend strategies and low readings favour range strategies. It helps you choose which playbook to use.

Indicators and settings

ADX 14 (with +DI and -DI) and EMA 50.

Entry rule

Use as a gate: only take trend-following setups (such as pullbacks or crossovers) when ADX is above about 25 and rising, with +DI above -DI for longs.

Exit rule

Tighten up when ADX turns down from a high reading or the DI lines cross against you.

Stop-loss and risk rule

Same as the underlying strategy. ADX is not a stop rule.

Best conditions

Deciding between trending and ranging conditions.

Pitfalls

ADX lags and rises after a trend has already begun.
A high ADX can also appear in a strong downtrend: check the DI lines for direction.

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Illustration only; ignores slippage, tax and most costs. Not financial advice.