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Forex trading strategy #14 (ADX Power)

Hi everyone,

Just another simple to follow strategy for you guys, hope you find it useful.

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ADX POWER
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- Timeframe: I use it on 4 hours, feel free to use it on smaller timeframes as well
- Currency Pair: Any

- Indicators: EMA9 and EMA26 and DMI (Directional Movement Indicator with ADX)
- DMI Settings: Draw a horizental line at 25 to watch for the crossovers of DI+ or DI-
- ADX Settings: Ignore signals where ADX is lower 20

GO LONG WHEN:
- EMA9 has crossed over EMA26
- DI+ >= 25
- ADX >= 20
- ADX is in between DI+ and DI-
EXIT LONG WHEN:
- EMA26 has crossed EMA9 AND
- DI- is higher than DI+

GO SHORT WHEN:
- EMA26 has crossed EMA9
- DI- >= 25
- ADX >= 20
- ADX is in between DI- and DI+
EXIT SHORT WHEN:
- EMA9 has crossed EMA26 AND
- DI+ is higher than DI-

WHAT TO IGNORE:
- While in Long Position: DI+ and DI- Cross-overs while the EMA9 is still on top of EMA26
- While in Short Position: DI+ and DI- Cross-overs while the EMA26 is still on top of EMA9
- While searching for Trading Opportunities: The EMAs has crossed over but the DI+ or DI- (depending on whether you're looking for Long or Short positions) are still under 25. Also, wait till the ADX has reached 20 before entering into Trade
- Price breaking the Lower EMA (EMA26 in case of Long Positions) line while the EMA9 is still on top of EMA26

Good luck and happy trading,
Nariman Ghanghro


http://forex-strategies-revealed.com/


Thanks Nariman

What stops do you use? Exactly where do you enter - do you switch to smaller time frames, wait for the 4 hour bar to close, or enter as the last condition is met within the current 4 hour bar?

Marie

Hi Marie,

SL really depends on your personal money management technique, I normally take it as a certain % of my overall portfolio size.

In terms of Entry point, if you look at the screenshots, its exactly at the Open of Next Bar when the DI+ has crossed 25 and ADX is > 20 (of course the EMA9 should already have crossed EMA26). In screenshot you might see a couple of Arrows pointing UP or DOWN, these are my entry and exit points in these particular examples.

Hi Nariman,
Great simple strategy,very well thought out! In your opinion how important is it to have the ADX line between DI+ and DI- to enter a trade? Do you have any exceptions to that rule or do you follow it strictly and pass on any trade where the ADX is not between the + or - lines?
Thank you very much for presenting this to us, Phil

Hi Phil,

Very good question :) I was expecting this to come up, here is what I've found for you in one of the help files explaining how to make the best use of ADX and DI lines:

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Uses of the DI and ADX Lines
DMI can be used either as a trading system on its own, or as a filter for another trend-following indicator (i.e., Parabolic SAR, MACD, CCI or Moving Averages).

In both cases the following general principles apply:

An ADX line rising above 20 or 25 indicates that a trend may be forming that will be a good candidate for a trend following indicator (see filters, below)

+DI crossing over –DI is a signal for going long
–DI crossing over +DI is a signal for going short
ADX line falling below 40 is an early indication of a change in trend
The ADX line should be between the DI lines when the market is trending
An ADX line below 20 is a warning not to trade
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As you can see there are a couple of important points highlighted. First that the ADX should be in between DI lines and the other thing to watch is if the ADX has risen above 40 (and now heading south) as it might be a time for Trend Reversal (however sometimes I've even seen it rising to 60 depending on the strength of trend, I normally keep myself in trade until either the ADX has fallen below 40 or EMAs are crossing each other).

The other thing I forgot to mention while submiting the strategy is that you should also watch for the movement of ADX and ovoid the signals (for example DI+ crossing over DI-) while the ADX is already exhausted and tired and has been above 20 since a long time. Ideally you're looking for a new Trend Build-up which means ADX is rising from below 20 while the DI lines have crossed over (however sometimes you might have to allow exceptions to this rule).

Hope that helps ...

Good luck.

Hi Nariman,
I am just curious - how did you figure out such unusual numbers as EMA9 and EMA26? Why not 10 and 20 or anything else?
Indrek

Hi Nariman,

Does this techinque need you to be constantly in front of your computer. How do you suggest me we catch the trend

Hi Indrek,

I hope that you've found the strategy useful, please don’t forget to post your feedback if you ever apply this strategy on any of the Currency Pair (of course the DEMO account first).

In terms of 9/26 combination, there are multiple reasons for me to choose these in EMA, such as:

I actually used different combinations for this strategy and ended up picking up 9/26 because the smaller combination (such as 5/20) will give you a quick Entry but a very quick Exit as well. While the larger combination such as (20/50) can give you a very solid Entry but sometimes quite a late Exit.

Regards

Hi [User],

In terms of sitting in front of your monitor, NO I dont do that and that is why I prefer using larger timeframes such as 4H. Also, my CFD broker allows me to setup Alerts based on different conditions. Once I've entered into a trade, I would setup an alert for the EMA Crossover in opposite direction.

I'm gussing that by catching Trades, you're looking for a Scanner software perhaps.

To find opportunities for trading, I'm not aware of a Scanner program for Forex, however I've previously used www.stockfetcher.com for Stocks Scans. My current CFD Broker has a built-in feature of Real-time Scanning which also works on Forex and other Instruments on any timeframe.

For Scanning, I'm basically looking for Pairs where ADX is anywhere between 15 and 19 and is on the rise ...

Good luck once again.