Know the Difference Between Trending and Trading
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A couple of weeks ago we looked at the Force Index, which helped you determine the strength of a stock’s current trend. But what if you’re unable to determine if a stock is TRENDING at all? Then Force Index is of no use to you.
This is where ADX — Average Directional Index — comes in. It was invented by J. Welles Wilder, one of the most famous technicians in stock market history, in 1978. The purpose of ADX is to determine if a stock is indeed TRENDING, or if it is instead “trading.”
What’s the difference between trending and trading? Watch the video now, or read on.
In this episode, you’ll learn:
- The distinction between trending and trading (0:40)
- How ADX is calculated (1:46)
- How to read a stock’s Average Directional Index (2:51)
- How you can add an ADX underlay to your custom stock charts, free of charge (3:47)
The video also features an example of an actual stock chart with an ADX underlay so you can see the real thing in practice.
ADX does not measure or CARE if a stock is trending bullishly or bearishly — only if it is indeed TRENDING or instead, TRADING. The reason this is important is because many other technical indicators only work if a stock is actually trending, and a few others tend to work best in sideways markets. Thus, ADX is an invaluable technical tool.
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. Next week I’ll show you how to identify and trade Exhaustion Bars, which are one-day candlestick reversal patterns. See you next week!
Episode 46 – Know the Difference Between Trending and Trading
