When the 10 period ADX (Average Directional Movement Index) of the market or a stock drops below 20, it usually means the security has become trendless. And as we all know, it’s very, very difficult to make money in a trend-less market. Our research has found that it is best not to trade in securities while they have 10-period ADX readings under 20. And, we have found that the higher the ADX, the better the range the security will likely be.
TradingMarkets has published a variety of articles on ADX. Here is a small sampler on how traders can find trading opportunities using ADX.
Direction is Key to Using ADX Correctly by Charles Le Beau and David W. Lucas
Finding the Strongest Trends with ADX by Dave Landry
Click here to learn exactly how you can maximize your returns with our new 2-Period RSI Stock Strategy Guidebook. Included are dozens of high-performing, fully quantified stocks strategy variations based around the 2-period RSI.
And for a slightly contrarian take on the Average Directional Movement Index, consider this analysis from contributor Loren Fleckenstein: High RS, Low ADX, Flat Base
If you find these TradingMarkets Rules worthwhile, then take the next step and learn more information about our Swing Trading College. The Swing Trading College is one of the most popular courses we have offered and a variety of traders – from real-world professional money managers to end-of-day part-timers – have taken advantage of our 14-week course to give their short term trading the extra tools – or major overhaul – they need in order to profit in volatile markets. To learn about the Swing Trading College in greater detail, Click Here.
You can also read the next installment in our series: Rule #10 – Good Times, Bad Times: Trade the News Like a Pro, by clicking here.
David Penn is Editor in Chief at TradingMarkets.com.