ADX MetaTrader 4 Indicator & ADX Signals

The Average Directional Movement Index is a momentum indicator created by J. Welles Wilder.

This indicator is used to measure the strength of market trends on a scale of 0 - 100; the higher the value the stronger the current Forex trend. It should be noted that while the direction of price is important to the ADX calculation, the ADX itself is not a directional indicator. Indicator values above 30 indicate a very strong trending market, while values below 20 indicate non-trending or ranging market.

Traders typically use the average directional movement index technical indicator as a filter along with the other indicators to create a more concrete trading methodology.

Many traders view levels turning up from below 20 as an early signal of a new emerging Forex trend while declining levels turning down from above 30 as deterioration of the current forex market trend.

Wilder suggests using the ADX as part of a trading system that includes the +DI and -DI lines. Most Forex platforms integrate the original average directional movement index with the +DI and -DI indicators (DMI Index) and collectively refer to the whole system as the ADX.

In the example below:

ADX is the light green line

+DI is the blueline(bullish line)

- DI is the red-line(bearish line)

• Bullish Trend - when the +DI, blue line is above the -DI, red line
• Bearish Trend - when the -DI, red-line is above the +DI, blueline

Bullish Trading Signal

A bullish signal is generated when +DI line is above the -DI line, when the blue-line is moving above redline.

To identify a strong bullish signal we wait until the indicator values above 20, and the blue-line is above the red line. This is a bullish Forex trading signal because the DMI system identifies the forex signal as a buy, while levels above 20 shows there is a strong upward trend.

Bearish Forex Signal

A bearish trading signal is generated when red line is above the blue-line i.e. -DI line is above the +DI line. A strong short signal will be generated when this bearish trading signal is accompanied by an ADX value of above 20.