ADX and ATR: How to Use These Indicators Like a Pro

Trend trading is a widely used technical strategy among both institutional and retail traders, and it’s especially popular with individual traders. If you’re already familiar with platforms like NinjaTrader, chances are you’ve used some form of trend trading already.

This strategy can be highly effective when paired with indicators like ADX and ATR for deeper trend analysis. Here’s how you can incorporate them into your trading approach.

Advanced Trend Analysis for More Informed Trades

Using a trend strategy successfully requires more than just identifying trends. You need to analyze them effectively to make sound trading decisions.

Simply spotting a trend may leave you under-informed, and under-informed traders often struggle to grow their portfolios. Holding too long after a trend ends can lead to losses, while exiting too early may limit your gains. This combination of small wins and preventable losses makes it harder to build consistent long-term growth.

ADX and ATR offer more detailed insights into trends, helping you make smarter, more confident decisions.

What is ADX?

The Average Directional Index (ADX) measures the strength of a trend. It doesn’t indicate whether a trend is up or down, only how strong the current trend is. A strong reading suggests the trend is likely to continue, while a weak reading may signal a reversal or slowdown.

ADX values range from 0 to 100, though it’s rare to see values at the higher end. Even strong trends typically fall between 40 and 60. Here’s a basic breakdown:

• 0–10: No trend

• 10–20: Weak trend

• 20–40: Moderate trend

• 40–50: Strong trend

• 50+: Very strong trend

Beyond single readings, watching how ADX changes over time can give you more context. A rising ADX suggests strengthening momentum, while a falling ADX shows a trend that’s losing steam.

What is ATR?

The Average True Range (ATR) measures volatility over a set period. Traders use it to estimate how much price is fluctuating, and when price moves beyond the expected range, it may signal the start of a new trend.

Like ADX, ATR is direction-neutral. It simply tracks how much price is moving, regardless of whether it’s going up or down.

ATR is calculated as a moving average of the True Range (TR), which is the highest value among:

• The current high minus the current low

• The current high minus the previous close

• The current low minus the previous close

The default setting for ATR is 14 periods, which gives a two-week average on a daily chart. However, you can adjust this based on your trading style.

ATR values vary widely. If a stock or contract has been moving more dramatically—whether inside a range or during a breakout—the ATR will be higher.

Using ADX and ATR Together

Each of these indicators provides valuable information on its own, but they’re even more powerful when used together. Because they both operate independently of price direction, they can support both long and short setups.

Confirm Breakout Trends

Breakout traders can use ADX and ATR to validate whether a breakout is likely to have follow-through.

If a breakout appears to be forming, check if the ADX is above 20 (the higher the better) and whether ATR is rising. This combination suggests that the trend is gaining strength and volatility is increasing, which supports the validity of the breakout.

You might also use ATR to pinpoint when a breakout officially begins. ADX may show a trend developing, while a rising ATR confirms a move beyond the recent price range.

These indicators can also support candlestick patterns or other technical setups.

Example of Breakout Confirmation

A candlestick pattern shows price breaking above resistance. ADX reads 30, and ATR is spiking. This supports a long entry.

Stop Losses and Profit Taking

Risk management is essential, and both ADX and ATR can help you fine-tune your exit points.

Use ADX to manage scaling, if it’s falling, you might reduce exposure. If it’s strong, you may choose to hold longer.

ATR helps define how far prices typically move, so you can set stop losses or profit targets based on expected volatility.

Example of Stop-Loss Adjustment

ATR is 6 and ADX is 30. A standard stop might be set at 1 to 2 times ATR, which equals 6 to 12 points. Your plan is to sell half at 12 points.

But if ADX remains strong at 30 when that level is reached, you might sell only one-third and let more run. If ADX has dropped to 20, you might decide to exit fully instead.

Avoid False Signals

Each indicator alone can produce misleading signals. A strong ADX might reflect a persistent trend, but if the price remains within a tight range, it could be a false read. A spike in ATR may indicate increased volatility, but if ADX is weak, that move may not sustain.

Using both together can reduce false positives and help filter noise.

Example of False Signal

ATR spikes but ADX is below 20. Likely no action.
ADX is strong at 40, but ATR is flat. Consider waiting before entering.

Understanding Order Flow

You can get even more from ADX and ATR by pairing them with Order Flow Analysis. Order flow shows where buying and selling is happening, and how much volume is moving.

ADX and ATR give you the context behind that movement—how strong and volatile the trend is. Our Impact Order Flow Indicator makes integrating all of this simple.

Using ADX and ATR in NinjaTrader

Adding ADX and ATR to your NinjaTrader charts is straightforward. Here are a few ideas to get started:

• Plot both on separate panels for clear visibility

• Set alerts when ADX crosses key levels (like 20 or 40)

• Set alerts when ATR spikes beyond its recent average

• Use Strategy Builder to automate entries or exits, while still monitoring trades manually

If you’d like help setting alerts, our NinjaTrader Signals Package includes easy tools to add ADX and ATR alerts to your watch list.

Set Up ADX and ATR

At Affordable Indicators, we offer the Best ADX Indicator and Best ATR Indicator for NinjaTrader. These tools are designed to make it easier to integrate advanced trend and volatility analysis into your strategy.

If you trade breakouts or rely on trend strength, these indicators can give you the insight you need to make more informed decisions.