ADX

 

Average Directional Index was developed by J.Welles  Wilder .  
ADX is derived form two other  indicators known as +DMI  ( Positive Directional Moment Indicator ) and -DMI ( Negative Directional Movement Indicator ). The use of this indicator is to measure the strength of the prevailing trend. 

ADX is usually combined with two other indicators. 

ADX and DMI measurements range form 0 to 100.

ADX quantifies  Strength and helps identify the strongest trends to trade and weakest trends to avoid.

Simple to trade with trend direction and trend strength.

If ADX is above 30 and raising, then the trend is strong. 

If ADX is below 20, then the trend is weak. ADX measures the strength of a trend, but doesn't indicate the direction (up or down ) of the trend.To determine  the direction,  DMI lines are used. 

When the +DMI is above -DMI the trend direction is UP.
When the -DMI is above +DMI the trend direction is Down.
When the +DMI and -DMI are below 25 and moving sideways, the trend has no dominant direction.
ADX is a Lagging Indicator.
Adx is a moving average based on a ratio of  two other moving averages. Moving averages always lag price action and ADX will lag the signals we see for price.

 At the tops and bottoms of trends, ADX will give a late signal for the trend reversal. ADX is not meant to be used for entry/exit signals.


ADX will help with the following trading decisions:

when is a new trend just starting to break out.
When is a trend strong enough to buy on pullback.
When is a trend getting weak .
When is a trend reversing.
When is a trend entering a consolidation.
  
If +DMI is above -DMI  means trend is up it may continue in the same direction. 

If -DMI is above +DMI means trend is down it may continue in the same direction.