Definition
ADX is an mt4 indicator that shows the strength of the trend by a value. ADX means the average directional movement index. The divergence in the oscillator indicates a strong trend reversal signal in MetaTrader 4.
How does ADX indicator work?
The ADX indicator in mt4 works by using average directional index DMI. If it is positive then the trend will be a strong trend. If it is negative then the price will be in a weak trend.
It acts as an oscillator that oscillates between a value of 0 to 100. If the value of ADX is greater than 20 then it means the price is in a strong trend either bullish or Bearish. On the other hand, if the value of the ADX oscillator is less than 20 then it means the price is forming a ranging structure and the price is in a weak trend with sideways movement.
How does ADX MT4 Divergence work?
Divergence occurs when the oscillator starts to diverge from the price. For example, if the price is forming a lower low then the oscillator should also make a lower low. But in the case of divergence, oscillator forms lower high instead of lower low. It indicates that the price trend is about to reverse.
Bullish ADX divergence in MT4
If the price trend is forming lower lows while the ADX oscillator is making higher lows then it is called bullish ADX divergence. It is an indication of trend reversal of bearish trend into a bullish trend.
Place a buy trade in case of bullish divergence.
Bearish ADX divergence in MT4
If the price trend is forming higher highs but the ADX oscillator is making lower highs then it is called a bearish ADX divergence indicator mt4. It represents that the price trend is about to reverse from bullish into bearish.
Place a sell trade in case of bearish divergence.
Conclusion
Identifying the divergence is the best way to determine the change of trend. The formation of divergence at a key level increases the chances of a trend reversal. You should not trade divergences on lower. because of the high frequency of signals, it will not work correctly and will generate false signals.
You can also use this ADX divergence indicator in mt4 with other confluences to make a perfect and profitable strategy.