Day trading using ADX identifies when the market is trending versus non-trending and when a trader can expect a pullback.  A trending market requires a trend following technique, while a non-trending market requires a different type of trading technique (like a congestion zone trade setup).  Plus, no trader wants to buy the high or sell the low (entering when the market is overbought or oversold).  The ADX indicators can help a trader define which style of trading to use for a given day.

Day Trading Using ADX on Futures and Forex

On the Gold 720 minute chart below, we see periods of all three types of day trading using TradersHelpDesk ADX indicator techniques.  The market begins in a uptrend and then forms a magenta peak (magenta dot).  This dot indicates that price will begin a retracement (most likely to the ATR).  The ATR (plus sign) flips from a blue color to a red color with a line of congestion dots.  When these dots form, we know that price is trying to form an area that will resist price and will most likely retest the ATR.  After retesting the ATR, price begins its descent and the ADX gets stronger as evidenced by the bright red followed by magenta.  Once the ADX line on the chart is greater than 70, we know the market is oversold and, if we enter, we have to take profits very quickly.  Then the magenta peaks come in and we know that a retracement to the ATR is likely to occur.  After the ADX magenta peaks occur, price is making new lows and the ADX should be making new highs as it is a non-directional indicator.  This indicates divergence between the ADX and price making new lows.  Then we go into periods of congestion (ATR is going blue, forming resistance at the dots and support at the ATR).  This is typically when a turnover is occurring, also known as accumulation phase. (Click to expand the chart)

Day Trading Using ADX

Day trading using ADX on the Gold 720 minute indicates that Gold may begin an uptrend if price is able to break the congestion dots at 1087.  If this occurs, traders would need to switch from a non-trending (congestion area) technique to a trending technique.