Average Directional Movement Index - ADX Forex Technical Analysis and ADX Forex Trading 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 two lines.
+DI - Positive Directional Movement Index
–DI - Negative Directional Movement Index
ADX is calculated by subtracting these two values and applying a smoothing function.
The ADX is not a directional indicator but a measure of the strength of the trend which has a scale of Zero to 100.
The higher the indicator value the stronger the trend.
A value of below 20 indicates that the market is not trending but moving in a range.
A value of above 20 confirms a buy or sell signal and indicates a new trend is emerging.
Values above 30 signifies a strong trending market.
When ADX turns down from above 30, it signifies that the current trend is losing momentum.
ADX 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.
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.
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Forex Technical Analysis and Generating Forex Trading Signals
Buy Signal
A buy signal is generated when the +DI is above –DI, and the ADX is above 20
The Exit signal is generated when the indicator turns down from above 30.
Buy Signal
Sell Signal
A short signal is generated when the –DI is above +DI, and the ADX is above 20
The Exit signal is generated when the indicator turns down from above 30.
Sell Signal
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