ADX Indicator.

Do you know what the ADX indicator is and what is it for?

Technical indicators are much more than colored lines that intersect in your graphic. They are the tools that help us work in our trading operations. For this reason, we are going to analyze the indicator ADX (Average Directional Index) in depth.

What is the ADX’s origin?

This indicator was created by the currencies and commodities trader Welles Wilder, in his book "New concepts in technical trading" whose purpose is to identify whether there is a trend in a market or not and the strength of it.

The indicator oscillates within a parameter between 0 and 100 and is calculated according to the differences of the lines + DI and -DI (directional indicator).

To understand how the calculation of both directional indicators is formalized, first, we must explain the concepts DM (directional movement) and True Range (true range).

The DM is calculated by the difference of a maximum or minimum of the session about its maximum or minimum of the previous session, therefore in a bullish move we will obtain + DM (maximum difference), and in a bearish movement, we will obtain -DM (minimum difference).

How to use the ADX indicator as a trend filter?

As the ADX compares the differences between + DI and -DI are increasing it means that the market is in trend, and the ADX will reflect a positive slope, on the contrary, if between + DI and -DI there are hardly any differences, it will result in an ADX in negative slope, which means that the market is lateral without bullish or bearish dominate the market.

Traditionally if the ADX reflects readings higher than 40 is a sign of strength, on the other hand, readings below 20 reflect weakness in the market.

If you want to trade in the stock market following trends, you need to find movements that give you enough margins to be able to perform profitable operations. That is why it is necessary to filter.

According to Welles Wilder, in his book "New Concepts in Technical Trading Systems," a trend-following system should not be used when the level of the ADXR is less than 20. In this way, we block any input signal - long or short- of a trend system until you have the indicator ok.

Another tip that can be useful is to use the ADX indicator to filter, but do not use it to give signals because when looking to follow trends, it is better to use the ADX indicator to condition the entries to the market.

ADX is not as recommended to signal the outputs, why? Because the theory says that when the ADX goes down the trend is losing strength.

Very well, it may be losing strength but still be very profitable. For departures, it is preferable to use some trailing stop that allows you to take advantage of the trends and control the risk.

Why is it useful?

If you know how a technical analysis indicator is calculated, you will be able to know what it does and how it does it.

Once you know this you will be able to adjust it better to your type of operative, adjust the temporalities, to identify with what other indicators to combine it, and obviously you will be able to interpret your signals better.

Moving Average Indicator.

The moving average is based on past prices and can be categorized as an indicator that follows the trend. It shows the average value of the price of an instrument during a certain period. When the Moving average is calculated, the price of the instrument is mathematically averaged over a given period. Its average value increases or decreases depending on the price change.

There are several types of moving averages: simple (also called arithmetic), exponential, smoothed and weighted.

The Moving average can be calculated for any sequential set of data, including the opening and closing prices, minimum and maximum, trading volume or other indicator values. Often the moving averages of the same moving averages are used.

The only thing in which the Moving averages of different types differ substantially is different weight coefficients that are assigned to the latest data.

In the case of the Simple Moving average, all the prices of the considered period have the same weight. The Exponential Moving average and the Pondera (Exponential Moving average and Linear Weighted Moving average) assign more value to the latest prices.

The most common way to interpret the moving average of the price is to compare its dynamics with the dynamics of the same price. When the price of the financial instrument rises above the value of the Moving average, the purchase signal appears, when it drops from the indicator line - the sales signal jumps.

How to use the Moving average Indicator?

It is really important to know the characteristics of the indicators that we use since this will help us to understand which situations work best and how to get the most out of the information they provide.
This trading system using the Moving average is not designed at all to guarantee entry to the market strictly at its lowest point, and the exit from it - just at its peak.

It allows you to act according to the current trend: buy after prices have hit bottom, and sell after the peak has been formed.

Depending on the method there are three types of mobile media: simple mobile average (SMA), smoothed mobile medium (SMMA) and exponential moving average (EMA).

The analysis of moving averages has the following principles:

• The direction of the moving average shows the direction of the movements of the prevailing prices
• The smaller the period of the moving average, the more false signals can occur, and the longer the period, the greater the backwardness of the indicator
• To increase (decrease) the sensitivity of the moving average, it is necessary to decrease (increase) its period.
• The use of moving averages is more reliable when the trend is evident.

Comparison of the dynamics of moving averages with the dynamics of asset prices:

• A strong signal for the purchase (sale) is considered the intersection of the lower part (top) of the moving average an increase (low)
• A weak signal for the purchase (sale) is considered the intersection of the lower part (top) of the moving average low (growth).

Comparison of the dynamics of moving averages with different periods:

• A strong signal for the purchase (sale) appears when the growing (decreasing) moving average, with a small period, crosses for the lower part (top) a growing average (low) with a considerable period
• A weak signal for the purchase (sale) appears when the growing, moving average (decrease), with a small period, crosses the lower part (top) a mean in low (growth) with a significant period.

Moving Average Convergence Divergence (MACD).

MACD is not just any indicator; intelligent use of this indicator can help us to be in tune with the market and gain precision when positioning ourselves in the profit line. The MACD indicator allows us to measure the intensity of the market, see if the trend of the movement is going to continue or is going to turn in the opposite direction. It is based on the use of moving averages combined with a histogram of the oscillator.

How does MACD work?

The first thing you have to know is that it is an indicator of the trend-following type with two parts. The MACD itself (the lines) and the MACD histogram (the bars). The MACD histogram (known as MACDh) only measures the distance between the two MACD curves, but visually it is advantageous because it tells us at every moment who is in charge, whether the bulls or the bears.
Not only that, but it also shows us if those in charge are still strong or if, on the contrary, they are losing ground.

MACD is a measure of how two moving averages (usually two exponential averages of 12 and 26 periods, respectively) come together and move away.
Subtracting the position of these two means, you get the mainline of MACD The second line considered the signal line, is not more than a moving average of the first line (specifically an EMA9, an exponential of 9 periods) and that will be crossed every few time with the mainline.

How do we use that information?

MACD lines can be used in two ways:

• Either we buy and sell attending to the crossings between these two lines
• Or, we buy when both go above zero and sell when they go negative.

Keep in mind that the first is more nervous (typical of swing trading) and the second more oriented to a medium or long-term operation, where you are willing to take strong corrections without disheveling.

These are the two classic ways to use MACD as an input and output signal in your operations.
But, why stay there?

MACD and Stochastic: A Double-Cross Strategy.

Using this strategy, you will be able to change the intervals, finding optimal and consistent entry points. That way both active, traders and investors, can be in the first line with a simple adjustment.
Don’t be shy about using both indicator intervals and you will realize how the crossovers will line up differently, so the rest is select the number of days that is more suitable for your trading style.
Just for fun, add a relative strength index (RSI) indicator into the mixer and get a profit drink.

Botton line

The MACD Indicator is an exciting source of price direction changes when looking for trend lines, supports or resistances.

It is very dangerous to trade only with the signals given by the indicator; this can make a strong profit when we enter vertically but also to a minor in stages.

The divergences between the MACD and the price chart can anticipate partial or permanent address changes of the asset, but they are just a message, they should not be taken as a definitive signal.

AUDUSD Breakout Signal March, 4

AUDUSD Breakout Signal March, 4

How Do You Trade In FOREX ?

First, you need to understand what a broker is, because you will need one.

You see, you don’t directly interact with each exchange in the FOREX market; brokers do.
Brokers are agencies hired by traders. They perform the trades as commanded by investors with the money they deposit in said firm’s accounts.
A broker works in the following way:

1. You open an account with them.
2. Deposit the capital you wish to invest in.
3. With that, you’ll gain access to their trading platform with which you’ll proceed to evaluate the market and set the orders.
4. Establish orders in which you tell them how much you wish to buy or sell and at what price.
5. They take the money given and start to perform according to what you told them, following quantities and risk management strategies set by you or any trader employing them.
6. Once everything is done, they proceed to hand each investor the result of their operations.

What you need to do to start trading in FOREX is choosing a broker (remember to read the reviews to find the most trustable ones) and follow those exact instructions.

Other things to take into consideration is the fact that many brokers offer training programs and DEMO accounts aimed towards training you to become a more efficient trader. DEMO accounts, additionally, let you simulate trades without spending real money so that you can train until you feel confident in your trading skills.

All in all, there are not many valid reasons not to start trading in FOREX. Just remember the golden rule: never invest more than what you can afford to lose.