Average Directional Index (ADX)

The Average Directional Index (ADX) is a trend strength indicator that measures how strong a price trend is, whether upward or downward. Unlike other indicators, ADX does not indicate trend direction, only the strength of the trend. It is typically plotted along with +DI (Positive Directional Indicator) and -DI (Negative Directional Indicator) to determine trend movement.

💡 Significance
  • Measuring trend strength – A higher ADX value indicates a stronger trend.
  • Filtering weak trends – Helps traders avoid false signals by identifying weak trends.
  • Confirming breakout trends – Useful for identifying whether a breakout is real or false.
  • Determining market conditions – If ADX is low, the market may be in a range rather than trending.
📊 Indicator Components
  1. ADX Line (Main Line)
    • Measures the overall strength of the trend.
    • Below 20 → Weak trend, sideways movement.
    • 20-40 → Moderate trend, trend gaining strength.
    • Above 40 → Strong trend, good for trend-following strategies.
  2. +DI (Positive Directional Indicator)
    • Measures the strength of upward movements.
    • A rising +DI suggests buyers are in control.
  3. -DI (Negative Directional Indicator)
    • Measures the strength of downward movements.
    • A rising -DI suggests sellers are in control.
🎯 Trading Strategy
  • Identifying Trend Strength
    • If ADX is above 25, the market has a strong trend—trade in the trend’s direction.
    • If ADX is below 20, the market is weak or sideways—avoid trend-following trades.
  • Buy & Sell Signals
    • Buy when +DI crosses above -DI and ADX is rising.
    • Sell when -DI crosses above +DI and ADX is rising.

Related Posts

WordPress Lightbox
error: Content is protected !!
Scroll to Top