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ADX Stock Indices Technical Analysis and ADX Stock Indices Signals

Developed by J. Welles Wilder


This a momentum indicator used to determine the strength of a stock indices 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 stock indices 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 stock indices market is not trending but moving in a range.


A value of above 20 confirms a buy or sell stock indices signal and indicates a new stock indices trend is emerging.


Values above 30 signifies a strong trending market.


When ADX turns down from above 30, it signifies that the current stock indices trend is losing momentum.



Directional Movement Index


Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of the stock indices.

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 stock indices trader can determine the direction of the stock indices trend and then use the this indicator to determine the momentum of the prevailing stock indices trend direction.



Stock Indices Technical Analysis and Generating Stock Indices Signals


Buy Stock Indices Signal

A buy stock indices 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 Stock Indices Signal

Buy Stock Indices Signal



Sell Stock Indices 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 Stock Indices Signal

Sell Stock Indices Signal