ADX Technical Analysis & ADX Stock Trade Signals

Developed by J. Welles Wilder

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

+DI - Positive Direction Movement Index

–DI - Negative Directional Movement Index

ADX is calculated by subtracting these 2 values and applying a smoothing function.

The ADX is not a directional trading indicator but a measure of the strength of the market trend which has got a scale of Zero to 100.

Higher the indicator value the stronger the 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 shows a new market trend is emerging.

Values above 30 demonstrates a strong trending market.

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

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 & then use the this trading indicator to determine the energy of the prevailing trend direction.

Technical Analysis and How to Generate Signals

Buy Trade Signal

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

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

Buy Trade Signal

Sell Trade Signal

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

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

Sell Signal

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