ADX Stock Indices Technical Analysis & ADX Indices Signals
Developed by J. Welles Wilder
This a momentum indicator used to determine the strength of a stock index 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 stock indices 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 stock indices market isn't trending but heading in a range.
A value of above 20 confirms a buy or sell signal and indicates a new stock indices trend is emerging.
Values above 30 signifies a strong trending market.
When ADX indicator turns down from above 30, it signifies that the current stock indices trend is losing momentum.
Directional Movement Technical 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 stock indices trend direction.
Indices Technical 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 Indices 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 Stock Indices Signal
