Hi peeps ,
I am new to trading and am doing a considering amount of reading before taking a plunge .
As highlighted in this thread macd + adx is indeed a cool combo . I read that it is very frequently used by FOREX traders . My understanding of the ideas is this :
MACD : it will help you catch the trend . Ex whenever the cross over occurs it means a downtrend or an uptrend . Remember MACD is a lagging indicator ( since it is calculated from past averages . Hence you cannot be sure if the trend is strong or not ) To know if the trend is strong or not you need to use it in combination with ADX .
ADX : it will tell you how strong the trend is . Its values can range from 0 to 100 . Smaller values mean weak trend ie. ADX < 20 . Higher values mean a strong tread .
Now we know why it works