Using ADX in a Ranging market
Like we discussed earlier on using ADX to identify a trending market, it can also be used to determine a ranging market.
The Average Directional Index (ADX) is composed of three lines indicator that includes the ADX line, Minus Directional Indicator (-DI) and Plus Directional Indicator (+DI)
The three indicators in one are used to tell both the trend direction and the trend strength. When the +DI is above the -DI, buying is stronger than selling. When -DI is above the +DI, selling is stronger than buying and when ADX is below 20, signals weak trend and above 50 strong trend.
ADX indicates a ranging market when the scale reads below 25. A trend continues to weaken as the indicator approaches 20 and falls below.
Take a look at the USDJPY, 30-minute chart below;
From our chart above, you can clearly see that when price was ranging the ADX indicator reading values were below 25. This area is shaded with lavender color on our chart above. The lime color represents the ADX above 25 indicating price out of range.
By just looking at the ADX readings, you can now easily tell if price is in a ranging market or trending market.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...