ADX Analysis and ADX 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 is not a directional technical indicator but a measure of the strength of the trend which has a scale of Zero to 100.
Higher the indicator value the stronger the market trend.
A value of below 20 indicates that the market is not trending but heading in a range.
A value of above 20 confirms a buy or sell 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 - Directional Movement Index Indicator
Since the ADX alone is a directionless indicator it's combined with the DMI index to figure-out the direction of the currency pair.
DMI
ADX & DMI Index
When the ADX is combined with DMI index one can determine the direction of the market trend and then use the this trading indicator to determine the momentum of the prevailing trend direction.
FX Analysis and How to Generate Signals
Buy Forex Signal
A buy signal gets generated when +DI is above –DI, and the ADX indicator is above 20
The Exit signal gets generated when indicator turns down from above 30.
Buy Signal
Sell Signal
A short signal gets generated when –DI is above +DI, and the ADX indicator is above 20
The Exit signal gets generated when indicator turns down from above 30.
Sell Trade Signal
