ADX MT4 Stock Indexes Indicator and ADX Indices Trading Signals
The ADX is a momentum indicator developed by J. Welles Wilder.
This indicator is used to measure the strength of market trends on a scale of 0 - 100; the higher the value the stronger the current Indices trend. It should be noted that while the direction of stock indexes price is important to the ADX calculation, the ADX itself is not a directional indicator. Indicator values above 30 indicate a very strong trending market, while values below 20 indicate non-trending or ranging market.
Traders typically use the average directional movement index as a filter along with other indicators to create a more concrete trading methodology.
Many traders view levels turning up from below 20 as an early signal of a new emerging indices trend while declining levels turning down from above 30 as deterioration of the current stock indexes trend.
Wilder suggests using the ADX as part of a indices trading system that includes the +DI and -DI lines. Most indices trading platforms integrate the original average directional movement index with the +DI and -DI indicators (DMI Index) and collectively refer to the whole system as the ADX.
In the stock indexes trading example explained and illustrated below:
ADX is the light green line
+DI is the blue line(bullish line)
- DI is the red line(bearish line)
- Bullish Indices Trend - when the +DI, blue line is above the -DI, red line
- Bearish Indices Trend - when the -DI, red line is above the +DI, blue line
A bullish signal is generated when the +DI line is above the -DI line, when the blue line is above the red line.
To identify a strong bullish signal we wait until the indicator values above 20, and the blue line is above the red line. This is a bullish stock indices signal because the DMI system identifies the stock indices signal as a buy, while levels above 20 shows there is a strong upward stock indexes trend.
A bearish signal is generated when the red line is above the blue line i.e. The -DI line is above the +DI line. A strong short signal will be generated when this bearish signal is accompanied by an ADX value of above 20.