ADX Forex Trading Technical Analysis & ADX Signals
Developed by J. Welles Wilder
This a momentum indicator used to determine the strength of a price trend: it's 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 2 values & 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 technical indicator value the stronger the market trend.
A value of below 20 indicates that the market is not trending but heading 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 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 and DMI Index
When the ADX is combined with DMI index a trader can figure out the direction of the trend and then use the this indicator to determine the momentum of the prevailing trend direction.
Forex Analysis and Generating Signals
Buy Signal
A buy signal is generated when the +DI is above -DI, and the ADX indicator is above 20
The Exit signal is generated when the indicator turns down from above 30.
Buy Trading Signal
Sell Signal
A short signal is generated when the -DI is above +DI, and the ADX indicator is above 20
The Exit signal is generated when the indicator turns down from above 30.
Sell Trading Signal
