avoid trading when the adx is in the chop zone
When the ADX value enters the user-defined “Chop Zone” (default is ADX <
15), it is wise to avoid taking any trades until a discernible bullish or bearish trend
has emerged. Low ADX values occur when there is very little directional up or
down movement, which is the primary characteristic of consolidation or sideways
price action. This type of market environment is especially prone to false DMI
crossover signals that lack significant follow-through.
If price has been consolidating for several bars, we at Fibozachi use a breakout
technique where we draw horizontal trendlines at the highs and lows of the
sideways price channel and wait for an upwards or downwards breakout to occur.
If the DMI Plus is dominant and price breaks above the high of the channel, we may
initiate a long position. If the DMI Minus is dominant and price breaks below the low
of the channel, we may initiate a short position.