Adaptive ATR-ADX Trend

Constructs the trailing ATR stop above or below the price, and switches directions when the source price breaks the ATR stop. Uses the Average Directional Index ( ADX ) to switch between ATR multipliers. The higher multiplier is used when the ADX is rising, and the lower ATR multiplier is used with the ADX is falling. This ADX criteria further widens the gap between the source price and the trailing ATR stop when the price is trending, and lessens the gap between the ATR and the price when then price is not trending.

The ATR-ADX stop is effectively a double adaptive stop that trails the price, by both adapting to the true range of the price, and the average directional change. When the stop is below the price (long trade) the value never decreases until the price intersects the stop, and it reverses to being above the price (short trade). When the stop is above the price it will never increase until it is intersected by the price. As the true range and ADX change, the stop will move more quickly or more slowly.

http://www.fxtsp.com/1287-doubly-adaptiv...

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Depicted are two instances of the Adaptive ATR Trend Indicator on the chart. One uses a constant 4.0 ATR multiplier (21-TR lookback for both) and the other switches between 4.0 ( ADX Rising) and 1.5 ( ADX Falling). This is to highlight the difference between using a constant ATR multiplier vs. using one that is adjusts based on the "trendiness" of the ADX .