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 and 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 isn't trending but heading in a range.
A value of above 20 confirms a buy or sell signal & 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 trend & then use the this indicator to determine the momentum of the prevailing trend direction.
Forex Analysis and How to Generate Trading 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 Trading 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
