Average Directional Index (ADX) Is The Best Trending Indicator
So the first important question that you need to ask before swing trading is whether this market is trending or not. The easiest way to determine a trend in the market is to take a look at the security chart. If you see a series of higher highs and lower lows in the chart, you know there is a trend. If not then it is ranging. In that case, you need to see clear support and resistance areas meaning the security prices clearly rises and falls between these two levels. Discover an award winning Forex Trading System that made 2,956% PROFIT in just 1 month. Get these Swing Trading Informants FREE! Watch this Freedom Forex Formula video that shows a FREE Forex Method that makes 7,913 pips from just one market move and helped grow a $34M forex business. Get this special manuscript that explains the Forex Method in step by step detail FREE!
As a swing trader, you should only rely on the hourly and daily charts. Anything longer is only appropriate for position traders or buy and hold investors. Now, if you are satisfied with your eyeballing the charts, you can use an indicator that can tell you about the strength of the trend.
As long as you are not able to determine whether the security is trending or non trending (ranging), you should avoid planning any sort of a swing trade or for that matter any trade at all. The onus is on your to determine whether the security is trending or non trending. The best way is to use the ADX indicator!
If the ADX is below 20, the security is in a trading range and if the ADX is above 30, the security is considered to be trending. Readings between 20 and 30 are mostly ambiguous. When the reading is between 20 and 30, if the ADX is rising and above 20, you can take it as trending. And if ADX is falling and below 30 but above 20, you can take it as the security is in a trading range.
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