ADX Indices Technical Analysis & ADX Stock Indices Trade Signals
Developed by J. Welles Wilder
This a momentum indicator used to determine the strength of a indices price trend: it is 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 is not a directional technical indicator but a measure of the strength of the indices trend which has a scale of Zero to 100.
Higher the technical indicator value the stronger the market trend.
A value of below 20 indicates that the stock indices market is not trending but heading in a range.
A value of above 20 confirms a buy or sell stock indices signal and indicates a new indices trend is emerging.
Values above 30 indicates a strong trending market.
When ADX indicator turns down from above 30, it signifies that the current indices trend is losing momentum.
ADX combined with DMI Indicator
Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of indices.
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 indices trend direction.
Stock Indices Technical Analysis & How to Generate Signals
Buy Trading Signal
A buy stock index signal is generated when +DI is above –DI, and the ADX technical indicator is above 20
The Exit signal is generated when indicator turns down from above 30.
Buy Trading Signal
Sell Trading Signal
A short signal is generated when the –DI is above +DI, and the ADX technical indicator is above 20
The Exit signal is generated when indicator turns down from above 30.
Sell Trading Signal
