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Average Directional Index - ADX Indicator |
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Sun, 18 Mar 2007 15:23:18 MDT
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Written by Tom Plesk
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Average Directional Index - ADX Indicator
Welles Wilder |
Developed by J. Welles Wilder, the ADX is a momentum indicator that measures the strength of a prevailing trend. ADX and can be extremely useful to determine if a trend is strong or weak or to filter out false breakouts in non-trending markets. ADX doesn't tell you if the trend is going up or down, it just tells how strong or weak the current trend is.
ADX is used very often as a trend-confirming indicator in forex trending systems. As a general rule, if ADX >= 25, the trend is confirmed, either up or down.
Formula
ADX = modified moving average of DX (ADX fluctuates between 0 and 100)
Interpretation
ADX readings below 20 indicate sideways movement or a very weak trend, either up or down.
ADX readings at or above 25 indicate a trend, either up or down.
ADX readings above 40 indicate a strong trend, either up or down.
ADX readings above 80 are very rare and indicate an extremely strong trend, either up or down.
ADX can be very useful for the currency trader if combined with a trending system such as the MA Cross trending system.
Chart example
Please remember that ADX, as with all other technical indicators should not be used by itself but should be combined with other indicators / studies to make a complete forex trading system.
Suggested reading: DMI indicator
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