The Secret to Trading Choppy Markets
03/15/2012 8:00 am EST
In choppy markets, sometimes the best trade is no trade at all, says professional trader Hubert Senters, who uses the Average Directional Index (ADX) to discern when to stay on the sidelines.
One of the best ways to trade choppy markets is to avoid them at all cost. A great way to do that is to use the Average Directional Index (ADX).
It sounds complicated, but it's really not. Think of it this way: the Average Directional Index (ADX) is really just a trend-strength indicator.
See related: The Pure Technician’s Indicator: ADX
How to Use ADX
Place it on your favorite time or tick frame. The best setting to use is the default, which is 14 periods.
Next, add a horizontal line at the 20 level.
If the ADX reading is above 20, you know that the market that you are trading is in trend mode. If the ADX is below the 20 reading, then you are in chop mode.
See also: A Pro’s Favorite Safety-First Indicator
Watch this video for an example and more detail:
By Hubert Senters, co-founder, TradeTheMarkets.com