Average Directional Index or ADX

Average Directional Index (ADX) is a popular indicator used by traders to resolve the strength of a prevailing trend of a trading instrument and to confirm trading signals. It was developed by J. Welles Wilder. The ADX indicator does not differentiate bullish and bearish trends, it only tells about the trend strength or is there any trend.



Average direction index is a simple to understand indicator with values 0 to 100. It is usually calculated based on last trading price of last 14 trading days. Values below 20 indicate weak trends or sidewise market movements, values above 40 indicate strong trends and values above 60 indicate extreme trends but are very rare. Average direction index is not used for generating buy/sell signals. Most traders use ADX only in conjunction with other trend indicators and technical analysis tools to confirm the existing trend.

Average direction index itself is derived from two other indicators – Positive Directional Indicator (+DI) and Negative Directional Indicator (-DI). Positive DI measures the upward movement strength and negative DI measures the downward movement strength for a time period. Many trading systems plot these two with ADX. These two indicators are used by many systems to generate buy and sell signals.

NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage