I received an email this week asking why I don't use the ADX indicator to keep me out of trendless markets when using my 4 hour trading strategy. So I thought it might be a good idea to answer this question on this blog.

The answer is simple. While I am a big fan of the ADX indicator, I don't feel it's needed with this trading strategy because I don't necessarily need huge price moves from every single set-up. As regular readers will know I always close half the position for 50 points (or 40 points for the USD/JPY and EUR/GBP pairs) and let the other half run, at which point I move my stop loss to break-even.

So what you will find is that even during trendless markets the price will still move just about enough to bank a safe 50 points or so, and from then on it's essentially a free trade.

If I were to use the ADX indicator with this particular strategy and only opened a position when the ADX was above 25, for example, then I would be missing out on a lot of these opportunities.

For example if you look at the 4 hour chart of the GBP/USD pair for the last 3 or 4 months, you will see that the ADX (14) has been below 25 for much of this time so you would have missed out on lots of good trading opportunities.

So to sum up, I'm not knocking the ADX indicator at all. It's a vital component of some of my short-term strategies. However for my main 4 hour trading strategy I don't think it's really needed.

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