An Important Trending Indicator
August 22nd, 2010
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Forex Technical Indicators. RSI Divergence
Charts and technical indicators are the two most important things for a trader. Charts combined with technical indicators are powerful tools in the hands of a savvy trader. You can find the trend in the market by looking at the charts. But you can never find the strength of a trend by simply looking at the chart. For this you need to master one basic technical indicator.
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First, you need to eyeball the chart to determine if the market is in a trend. You can also use the ADX ( Average Directional Index) Indicator to determine the trend. Unlike the oscillators that have a range between which they oscillate, a trending indicator has no upper or lower bound. The higher the trending indicators reading, the stronger the underlying trend!
ADX, and +DMI, -DMI. +DMI oscillates between 0 and 100. +Mi tells you how the bulls are doing the market and are they successful in pushing the prices higher than last day’s close. -DMI also oscillates between the two numbers 0 and 100. -DMI shows how effective the bears were in the market. Were the bears effective in pushing prices below last days’s low.
ADX plot measures the difference between +DMI and -DMI at any point of time. ADX tells ou about the strength of the trend. If it is less than 20, the market is ranging strongly and if it is above 30, the market is trending strongly.
Sometimes +DMI and the-DMI will cross each other again and again. This is an indication that the market is not trending but rather is ranging. When the market is ranging, you need to adopt different trading strategies.
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