TradingMarkets 10 Trading Rules: #9: Use the ADX to Time and Trade Trending Markets
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
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To read our series “TradingMarkets 10 Trading Rules”, click here for Rule #1, Rule #2, Rule #3, Rule #4, Rule #5, Rule #6, Rule #7 and Rule #8.
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.