One of the ways to determine the strength or “trendiness” of a trend is through the use of the ADX. While there are some systems that are built around trading the ADX, the most basic use of the ADX is determining the strength of the current trend.
Take a look at the chart of the USDCHF:
(click on the thumbnail, and the chart should float up)
When the ADX (shown by the thick brown line) moves and stays above 20, it generally indicates that the strength of the trend is picking up and getting stronger. When it is below and stays below 20, the strength of the trend is weak.
When you are trading the trend, it helps to have some clue how strong the current trend is. When the trend is strong, you can use a trend trading system to get in on the trend at the most opportune moment. When the trend is weak, even though your trend trading system signals an entry, it may not turn out the way you expect.
While the ADX does show the current strength of a trend, it cannot and should not be used as a trading signal on its own.
The Green Section
The trend of the USDCHF was down, indicated by the 50 and 200 EMA. And the uptrend indicated by the green section would have been a trade against the current trend, using a counter-trend trading system.
The Orange Section
The trend of the USDCHF was down, indicated by the 50 and 200 EMA. The trade taken to the downside would have been with the current medium and long term trend.
Possible Ways of Entry
When the trend is strong, use price patterns, break of support/resistance levels or tests and retests of support/resistance levels for possible entry points.
The Current State of the USDCHF
Although the ADX is above 20, the USDCHF has been trading within a range and has yet to break out to either side. So to trade the trend, there has to be a trend confirmation.
The medium (50 EMA) and long term (200 EMA) trend is down, so there is a stronger possibility of the trend breaking to the downside provided the recent support at 1.1960 is broken, with a 1-2-3 pattern.
Update:
This post is followed up here.