ADX Technical Analysis & ADX 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.

The ADX isn't a directional technical 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 indicator turns down from above 30, it demonstrates that the prevailing trend is losing momentum.

ADX combined with DMI Indicator

Since the ADX alone is a directionless indicator it is combined with the DMI index so as to determine the direction of the energies.

DMI

ADX 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.

Energy Analysis & How to Generate Trade Signals

Buy Trade Signal

A buy signal is generated when the +DI is above -DI, & the ADX technical indicator is above 20

The Exit signal is generated when trading indicator turns down from above 30.

Buy Trading Signal

Sell Trading Signal

A short signal is generated when the -DI is above +DI, & the ADX technical indicator is above 20

The Exit signal is generated when trading indicator turns down from above 30.

Sell Trading Signal