ADX Analysis and ADX Signals
Developed by J. Welles Wilder
This a momentum indicator used to measure the momentum of a price trend: it is derived from DMI - Directional Movement Index which has two lines.
+DI - Positive Direction Movement Index
–DI - Negative Direction Movement Index
ADX is calculated by subtracting these two values and applying a smoothing function.
The ADX is not a directional technical indicator but a measure of the momentum of the trend which has got a scale of 0 to 100.
Higher the trading indicator reading the stronger the market trend.
A value of below 20 reflects that the market is not trending but heading in a range.
A value of above 20 confirms a buy or sell trading signal and shows a new market trend is emerging.
Values above 30 demonstrates a strong trending market.
When ADX turns down from above 30, it signifies that the ruling market trend is losing momentum.
ADX combined with DMI - Directional Movement Index Indicator
Since 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 price trend and then use the this indicator to identify the energy of the current trend direction.
Forex Analysis and How to Generate Trading Signals
Buy FX Signal
A buy signal is derived & generated when +DI is above –DI, and the ADX trading indicator is above 20
Exit signal is derived/generated when indicator turns down from above 30.
Buy Signal
Sell Trade Signal
A short signal is derived and generated when the –DI is above +DI, and the ADX is above 20
The Exit signal is derived/generated when trading indicator turns down from above 30.
Sell Signal
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