The Average Directional
Movement Index (ADX) and Exponential Moving Averages (EMA) trading is
an intraday strategy. Setting indicators:
ADX 14 period close;
Exponential Moving
average 20 period, close.
Time Frame 15 min, 30
min, 60 min (strategy for day trading).
Currency pairs: major.
The main focus is buying
during a bullish trend correction and selling during a bearish trend
correction. ADX is used to determine the strength of any tendency to
trend, and EMA is used to indicate entry points as more recent data
has much more weight and older data has much reduced weight. The
strategy works with any currency pairs and any timeframes. However,
the bigger timeframe is used, the more chances to get under influence
of various macroeconomic factors. Therefore, the best time interval
is between 15 and 60 minutes. ADX measures the strength of any
tendency to trend.
The ADX line varies
between 0 and 100. In practice, values higher than 60 are relatively
rare. Small values (under 20) tell you about trend weakness, high
values (over 30) tell you about trend strength. The ADX line itself
does not indicate trend direction (bear or bull); higher values can
point to both bullish and bearish trend strength. EMA generates
trading signal. When the price line crosses EMA upward, it is the
signal to buy and vice versa. 14-period ADX is used to determine
trend strength. An entry point is determined using 20-period EMA when
the ADX line rises above 30.
A BUY position is opened
when the price crosses EMA upward, and ADX is over 30, but under 50.
A SELL position is opened when the price crosses EMA downward, and
ADX is over 30, but under 50.
If the ADX line rises
above 50, the trend may be close to its end, so trading decisions
should not be made. If the ADX line falls below 30, and an entry
point is still not found, the trading strategy will be reset. Target:
A long position will be closed when the price crosses the EMA line
downward. A short position will be closed when the price crosses the
EMA line upward.
On ADX with EMA
ADX measures the strength
of a trend but doesn't distinguish between up trends and down trend.
ADX >= 50 very strong
Power trend.
ADX 25-50 Strong trend.
ADX 15-25 weak no trend.
ADX <15 no trend.
ADX Power trend are
preceded by a consolidation period > 30 bars where adx is <25.
ADX usually hits peaks of
50 and retracement troughs often remain above 25.
Price remain above 20 EMA
the majority of the time.
Trend tend to look
overextended -we think is later to enter.
Power trend allow trader
to let profit run.
Sum trade setup
30 bars of low ADX range
consolidation ADX <25.
DMI lines are above ADX,
movig sideways,
Long DMI + makes a
crossover high signal.
Entry
Buy breakout on
resistance line cross.
On enter on first
pullback near 20 EMA on pivot low completion.
Sell breakout on
resistance line cross.
On enter on first
pullback near 20 EMA on pivot high completion.
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