ADX Technical Analysis & ADX Stock 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.

ADX Analysis - ADX Trading Indicator - ADX Indicator

The ADX isn't 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 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.

ADX Trading Indicator Analysis - ADX - ADX Trading Indicator

DMI

ADX and DMI Index

ADX indicator & DMI Index - ADX Stock Indicator - ADX Indicator

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

Technical Analysis and How to Generate Signals

Buy Signal

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

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

ADX - ADX Analysis - ADX Indicator

Buy Signal

Sell 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.

ADX - ADX Stock Indicator

Sell Signal

Get More Topics and Guides: