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ADX - Average Directional Index

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by , 07-03-2019 at 02:04 PM (827 Views)
ADX - Average Directional Index

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This lesson describes the ADX with the DI+ and DI- Directional Indicators, and also shows how they are commonly use.

The ADX is a momentum indicator used to determine the strength of a price trend; it is derived from the DMI –Directional Movement Index which has two indicators
  • +DI- Positive Directional indicator
  • –DI - Negative Directional Indicator

ADX is calculated by subtracting these two values and applying a smoothing function, example a function of ten to come up with a 10 period ADX.

  • The ADX is not a directional indicator but a measure of the strength of the trend. The ADX has a scale of Zero -100.
  • The higher the ADX value the stronger the trend.
  • ADX value below 20 indicates that the market is not trending but moving in a range.
  • ADX value above 20 confirms a buy or sell signal and indicates a new trend is emerging.
  • ADX value above 30 signifies a strong trending market.
  • When ADX value turns down from above 30, it signifies that the current trend is losing momentum.

ADX indicator combined with DMI- Directional Movement Index

Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of the currency pair.
When the ADX is combined with DMI index a trader can determine the direction of the trend and then use the ADX to determine the momentum of the forex trend.

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