Traders love a good dip — especially in a trending market. But not every pullback is worth your money, and chasing the wrong one can turn a high-probability setup into a fast loss.
That’s where the Average Directional Index (ADX) comes in. It’s one of the cleanest ways to confirm whether a trend actually exists — or whether you’re about to buy weakness in a stock that has no real direction at all.
The 25 Line That Separates Real Trends From Noise
ADX doesn’t measure direction — it measures strength. That means a stock can be going up, down or sideways, but unless the ADX is above 25, there’s no real trend. That’s your filter. If the ADX is below 25, skip the dip — you’re in chop zone.
Above 25? Now you’re in business. That’s where a pullback has context — a reason to bet that price will bounce in line with the prevailing move. Above 30 is even better, especially in strong names or sectors. Below that level, the chart might look fine, but the odds are against you.
How to Use It in Real Setups
You start with the bigger picture. If a stock is in a visible uptrend and showing a shallow pullback — maybe to VWAP or a short-term moving average — check the ADX. If it’s under 25, walk away. It might still bounce, but it’s not a high-probability trade.
If the ADX is above 25, you’ve got confirmation that the stock is already moving with intent. That means the pullback is a pause — not a breakdown.
The goal is simple: Stop buying dips in dead stocks. Use ADX to focus on the ones that are actually moving — and skip the rest.
I hope that helps!
Roger Scott
Roger Scott Trading
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