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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.


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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.

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.

ADX indicator- Sell Signal

Sell Signal

 

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