Posts Tagged ‘adx’
Forex For Newbies – What Is A Trend Indicator
May 1st, 2011
Watch these Forex Trader PRO 2.0 shocking videos that reveal how powerful this system is. Download this Winners Edge Trading Power Indicator FREE. Try the PRO Trader Bot RISK FREE for 60 days on your demo account. As a forex newbie, the first thing that you need to learn and understand is what is a trend and what is a range. A trend develops in the currency market when a currency pair makes new higher lows or new lower highs. Confused? Well, what it means is that when you see the price action making new higher lows on a consistent basis, the market is an uptrend.
By connecting two new higher lows with a straight line on the chart and extending that line to the right, if you observe that almost all the new higher lows are falling close to the straight line, it means an uptrend. The line will be sloping upward.This upward slope also means that the market is in an uptrend. The steeper the slope, the stronger the trend.
In the same manner, when you connect two lower highs with a straight line and extend that to the right, if almost all the new lower highs are lying close to that straight line, it means that the market is in a downtrend. These straight lines are also known as Trend lines.
So, one of the most basic and the best trend indicators are the trend lines. Simply, by eyeballing the charts and connecting two highs or lows with a straight line and extending that line to the right will tell you whether the market is in an uptrend or a downtrend.
A range develops when there is no clear trend in the market and the price action simply bounces back between two horizontal lines that are also known as the Support and the Resistance. So, when the trendline has a very low slope or is almost horizontal, you can tell that the market is ranging.
But some traders don’t feel comfortable with trend lines. They think of them as too subjective. The reason being, if you tell two or more traders to draw a trendline on the chart, all of them will come up with a different line. So, traders also use ADX (Average Directional Index) Indicator to determine the strength of a trend. Now, an ADX indicator does not give you the direction of the trend. It only provides you with the information on how strong the trend is.
ADX values range between 0 and 100. Values between 0 and 20 mean that the market is ranging and there is no trend. Values between 0 and 30 are inconclusive in telling whether the market is trending or ranging. Values higher than 30 means that the market is trending. The higher the ADX value is, the stronger the trend will be.