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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.

Average Directional Movement Index (ADX)

 

 

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.

ADX indicator combined with DMI- Directional Movement Index

DMI

 

 

ADX and DMI Index

ADX indicator 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.

 

 

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.

Technical Analysis of ADX indicator- Buy Signal

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.

Technical Analysis of ADX indicator- Sell Signal

Sell Signal

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