Average Directional Movement Index Rating

Average Directional Movement Index Rating or ADXR is an indicator created by smoothing the Average Directional Index (ADX) indicator. The smoothing helps trend-traders to avoid small and short-term price ups and downs and to properly use other trend-analysis tools. ADXR is calculated by taking the average of two ADX values; one the current ADX value and other the ADX value n periods before.

ADXR = (ADX current + ADX n) / 2

Average Directional Movement Index Rating is interpreted just like ADX indicator and is often plotted with positive (+DI) and negative (-DI) directional indexes. ADXR is also interpreted like ADX, when the rating is at low levels (below 20) the market is considered non-trending and values above that marks definite trends (bullish or bearish). Now trend traders can use other trend-analysis and support/resistance tools to plan their trades.

When used in conjunction with +DI and –DI, average directional movement index rating can be used to generate various signals. Bullish signals are generated when +DI crosses above –DI and there is trend; bearish signal vice versa. When ADXR is at extreme levels (above 60), price reversals are possible, and buy or sell signals can be generated with ADXR cross a specific level.

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