The ADX only measures whether the strength of a trend is strong or weak, but the indicator itself does not play a role in determining the direction of the trend. That means the trend can go up or down, the ADX is only responsible for measuring whether the trend is strong or weak.

When the ADX falls below 25 it is a signal that the market is flat, or low volatility. When the ADX is above 25 it is a signal that the bullish/bearish trend is stronger and clearer. As shown below:

Market sideways, ADX below 25:

Market trend, ADX is above 25:

ADX should be combined with other technical indicators to get better quality trading strategies. In this article, our strategy will combine ADX and only RSI cells.

In which, ADX plays a role in assessing trend strength. The RSI is in determining the time of entry.
RSI and ADX both set to cycle 20.


Step 1: Wait for the ADX indicator to rise above 25

The ADX above 25 indicates that the market might have a new trend with strong momentum. As shown below:

Step 2: Use the previous 50 nearest candles to determine the trend

If the price is falling in the last 50 nearest candles, we will identify it as a downtrend and vice versa. See the picture below:

Step 3: Open a short position when the RSI falls below 30

When the RSI is below 30 indicates strong selling pressure in the market, along with trends and signals from ADX, we can see that the price is likely to continue to decline. We can open a short position when the RSI falls below 30. As shown below:

Step 4: The stop loss is located at the top of the nearest ADX indicator

Identify the previous high that ADX made, then find the corresponding high on the price chart and place your stop loss slightly above that high. As shown below:

Step 5: Take profit when the ADX indicator drops below 25

When the ADX falls below 25, the trend weakens. This is the moment when we should exit and look for or wait for another trading opportunity.

As shown below:

Above is the principle for the strategy of selling. As for the buying strategy, there will be the same principle but the opposite. As the photo below is an example of a buying strategy.

In short, traders can use ADX to capture a new trend that is beginning and have strong momentum to follow the trend when it ends.

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