ADX Stock Indices Analysis & ADX Indices Signals

Developed by J. Welles Wilder

This a momentum indicator used to determine the strength of a price trend: it is derived from the DMI - Directional Movement Index which has two lines.

+DI - Positive Directional Movement Index

–DI - Negative Directional Movement Index

ADX is calculated by subtracting these 2 values and applying a smoothing function.

The ADX is not a directional technical indicator but a measure of the strength of the trend which has a scale of Zero to 100.

The higher the technical indicator value the stronger the market trend.

A value of below 20 indicates that the market isn't trending but heading in a range.

A value of above 20 confirms a buy or sell signal and indicates a new trend is emerging.

Values above 30 signifies a strong trending market.

When ADX indicator turns down from above 30, it signifies that the current trend is losing momentum.

Directional Movement Indicator

Since the ADX alone is a directionless indicator it's combined with the DMI index to determine the direction of the stock indices.

DMI

ADX & DMI Index

When the ADX is combined with DMI index a trader can figure out the direction of the trend and then use the this indicator to determine the momentum of the prevailing trend direction.

Indices Analysis & How to Generate Signals

Buy Indices Signal

A buy signal is generated when +DI is above –DI, & the ADX indicator is above 20

Exit trading signal is generated when the indicator turns down from above 30.

Buy Stock Indices Signal

Sell Signal

A short signal is generated when the –DI is above +DI, and the ADX indicator is above 20

Exit trading signal is generated when the indicator turns down from above 30.

Sell Signal