Trading the ADX indicator today really paid off on the Dow, S&P 500 and Nasdaq futures. First, it was overbought indicating that the market would retrace back to the Average True Range Stop Loss. Now on a three minute chart, that may not be very many ticks. However, on a 180 minute chart, that can be a lot of ticks.
As you can see from the charts above, each of the ADX magenta peaks (pink dots on the ADX indicator) today did, in fact, retrace back to the Average True Range Stop Los (plus sign that is located below price).
How did we know the magenta peaks were coming in? The Directional Volume Indicator showed that buyers were decreasing even though the markets were making new highs (volume divergence). Remember, the Directional Volume indicator shows the total buyers and total sellers on every bar.
In other words, price was reaching an area of resistance. Before it could continue up, a support area was needed. Where would the support area be? The Average True Range Stop Loss.