Top 3 indicator tips no one tells you

Nov 24, 2024

Trading with the wrong indicator settings can burn your account fast.

One of my favorite indicators for breakout trading is ADX, which can be incredibly powerful when used properly, but I’ve noticed lots of traders use it incorrectly…

It’s like watching someone try to parallel park with their eyes closed. Not pretty!

So today I want to share my top 3 tips for the ADX indicator all breakout traders should know:

Tip #1: ADX Calibration

Here’s where most traders go wrong with ADX:

They optimize the indicator over 1 strategy (or even worse => use the default values).

This can lead to curve-fitting and a strategy that doesn’t perform so well in live trading.

To counteract this, calibrate your ADX settings over many strategies to find the most robust settings across a large sample size. (You can get more details about how to do the calibration process visually in this free download).

Btw, the sweet spot for most indexes is an ADX period of 15 and a threshold between 17.5 and 20.

Tip #2: Use an ADX delay

The ADX indicator is all about measuring the strength of the trend, however…

It’s not always the best idea to enter a trade at the exact moment the trend is established. 

You could get caught at the peak of a momentum surge and be at risk of a pullback and an ugly loss.

By referencing ADX values from a few bars back, you can determine if the trend’s momentum was established earlier, potentially reducing losses by entering after a corrective move.

Tip #3: Double confirmation

A good way to ensure the trend remains strong before entering a trade is by using the “double confirmation” technique.

By combining recent momentum readings with earlier readings, you can create a form of insurance against entering trades prematurely, increasing the likelihood of successful entries during established trends.

So there it is – my top 3 ADX indicator tips you need to know.

This is all stuff I wish I knew years ago, so I hope you find them helpful too!

These techniques won’t work for every market or strategy, so they’re no “magic bullet”, but they’re definitely worth trying.

If you want more details on any of these techniques, you can grab more info here:

 

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