How To Use ADX Indicator For Day Trading

How often have you heard “follow the trend” in intraday trading? Quite often, correct? Going along the trend increases the chances of profit in intraday trading, and to identify the trends, a lot of technical indicators are used. One such indicator is the ADX indicator. In this article, we will see how to use the ADX indicator for day trading.

Average Directional Moving Index or Average Directional Index is used to identify the strength of an ongoing trend. However, it is classified as a lagging indicator and can alarm the traders when to the trader and when not to.

Let us now dive into the details of how to use ADX in day trading.

How To Set ADX Indicator for Intraday Trading?

Intraday trading is the buying and selling of shares in a single day. Since intraday trading time is just for around 6 hours, it is crucial that the best is extracted. Also, one of the best intraday trading tips of all times is to study the trends and then to trade accordingly; the ADX indicator is one of the best help.

Just like the trading time is different, the ADX indicator also has to be set accordingly for intraday trading. When it is about intraday trading, shorter time frames work better.

ADX indicator is a trend strength indicator. This means that when the value of the ADX indicator rises, the ongoing trend (bullish or bearish) is strengthening and will go like the same for some time.

It is only when the value of ADX starts falling that we can say the trend has also started weakening.

Now in general, the ADX indicator by default is set in between ranges from 0-100. Each value of the ADX indicators says a lot about the strength of the indicator and make it easier for the trader to make trade decision.

Let see how different value of ADX indicator plays a different role:

0-25-  When the ADX indicator is low, which is anywhere between the range of 0-25, it shows that the market is moving sideways or, in simple words, is in the consolidation or accumulation phase.

Above 25- If the ADX strength moves above 25, it indicates a strong trend. So if you see the bullish trend, then the pressure of buyers will stay, and if the market is bearish, the sellers will dominate.

Also, note that the falling of the ADX indicator is not a signal of a trend reversal; it simply shows that the trend has started weakening.

In the table given below, there are various ranges and what does it mean for a trader.

Best ADX Setting For Day Trading

Now that we know that ADX has several ranges that decide the trend’s strength let us look at the best ADX setting for day trading.

You can use the ADX indicator for various forms of trading and change the time frame accordingly. Intraday trading happens quicker, so the time frame has to be kept shorter to attain the best results.

A lot of experts find the duration of 3-5 minutes the most appropriate one for day trading.

Now, if you want to use the ADX indicator, you can log in to Jiffy, select the scrip and choose the ADX indicator from the studies.

The default period set is 14. You can set the range from anywhere between 7 and 30, but the lower settings usually react quickly to price fluctuations. You also have to stay careful as this can sometimes create false signals as well.

If you use the ADX indicator for day trading, you can keep the following conditions in mind.

• The ADX moves from a consolidation phase to a rising phase and then vice versa. This means that if the value of ADX is around 0-25, the range might rise after some time. Moreover, since it is a non-directional indicator, even when the market is going in a downtrend, ADX will rise.
• If the ADX is around 25 and the market is in an uptrend, then this is the right buying opportunity as the rising ADX indicates that this trend is going to continue. And if the same range appears when the market is in a bearish trend, then it is the right time to sell your positions.

If the ADX range is anywhere below 25, the market is going to consolidate for some time and therefore is not the right opportunity for an intraday trader.

ADX indicator can be beneficial for intraday traders as it can confirm whether the trend is going to continue or not.

Conclusion

You can make money in intraday trading if you are using the right strategies. Using the ADX indicator for intraday trading can help you in choosing the stocks that have a strong market trend and can give you potential gains within a short span of time.

However, it is essential for intraday traders to use a different combination of technical indicators for intraday trading to do flawless trading.

If you are looking to start your trading journey, open free Demat account today with Choice!