ADX Technical Analysis & ADX Stock Trade Signals

Developed by J. Welles Wilder

This a momentum indicator used to determine the strength of a price trend: it is derived from the DMI - Directional Movement Index which has 2 lines.

+DI - Positive Directional Movement Index

–DI - Negative Directional Movement Index

ADX is calculated by subtracting these two values & applying a smoothing function.

The ADX isn't a directional technical indicator but a measure of the strength of the trend which has a scale of Zero to 100.

Higher the technical indicator value the stronger the market trend.

A value of below 20 indicates that the stock market is not trending but heading in a range.

A value of above 20 confirms a buy or sell stock signal and indicates a new trend is emerging.

Values above 30 demonstrates a strong trending market.

When ADX indicator turns down from above 30, it signifies that the current trend is losing momentum.

ADX combined with DMI Indicator

Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of indices.

DMI

ADX and DMI Index

When the ADX is combined with DMI index a trader can determine the direction of the trend and then use the this indicator to determine the momentum of the prevailing trend direction.

Technical Analysis & How to Generate Trading Signals

Buy Trade Signal

A buy signal is generated when +DI is above –DI, & the ADX indicator is above 20

The Exit signal is generated when indicator turns down from above 30.

Buy Trading Signal

Sell Trading Signal

A short signal is generated when the –DI is above +DI, & the ADX indicator is above 20

The Exit signal is generated when indicator turns down from above 30.

Sell Trade Signal