Average Directional Movement Index
Developed by J. Welles Wilder
This a momentum indicator used to determine the strength of a oil price trend: it's 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 isn't a directional technical indicator but a measure of the strength of the oil trend which has a scale of Zero to 100.
The higher the technical indicator value the stronger the trend.
A value of below 20 indicates that the crude oil market isn't trending but heading in a range.
A value of above 20 confirms a buy or sell oil signal & indicates a new oil trend is emerging.
Values above 30 signifies a strong trending market.
When ADX indicator turns down from above 30, it indicates that the current oil trend is losing momentum.
ADX combined with DMI Indicator
Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of oil.
DMI
ADX and DMI Index
When the ADX is combined with DMI index a trader can figure out the direction of the oil trend and then use the this indicator to determine the momentum of the prevailing oil trend direction.
Crude Oil Trading Technical Analysis & Generating Trading Signals
Buy Trading Signal
A buy oil signal is generated when the +DI is above –DI, and the ADX trading technical indicator is above 20
The Exit signal is generated when the indicator turns down from above 30.
Buy Trading Signal
Sell Trading Signal
A short signal is generated when –DI is above +DI, and the ADX trading technical indicator is above 20
The Exit signal is generated when the indicator turns down from above 30.
Sell Trading Signal
