Sometimes you may wonder why the ADX indicator and Average True Range indicator are so important when trading. This morning is an excellent example of why they are.
First, we get an ADX indicator that shows a magenta peak (yellow dot because it is a subsequent peak in NinjaTrader) on the 180 minute chart. This indicates that price will retrace to the Average True Range indicator (+ sign), which is at 16,074. In other words, we have a potential move from 15,958 to 16,074 (pretty large move). And, if price does pullback to that level, this will generate another ADX indicator peak on the 720 minute chart — which will then cause price to go to around 16,303 (another large movement up). However, the price of the Average True Range indicator (plus sign +) must be broken on the 180 minute chart before price can continue upwards.
And, best of all, we knew this before the market even opened at 9:30 am EDT. That is why I was filtering all trades to the upside this morning. I knew the move was coming, that it had a large range, and that it would likely be the highest probability setup for the day.
ADX indicator and Average True Range indicator
The green arrow shows where the peaks came in. This enables intraday traders to identify where the markets will go and gives very low risk entries into these intraday trends.