Average Directional Movement (ADX) is an indicator used to determine the strength of the current trend. This indicator is a derivation of two different Direction Momentum Indicators (DI). The difference between ADX and DI is that the latter is used to trace the direction of the trend, while ADX measures the strength of the trend.
ADX is mostly used on trending markets and is measured on a scale from 0 to 100. When the indicator is below 20 it means that the trend is weak and is probably changing direction. When it is above 40, the trend can be treated as a strong one with a possibility of future change. The ADX is frequently used in conjunction with DI in making trading decisions.
Methods of use:
| 1. | When +DI (blue) is above -DI (red), it is a signal to buy. |
| 2. | When +DI (blue) is below -DI (red), it is a signal to sell. |
Note: ADX measures the strength of the trend but not its direction. Wait until DI cross each other before making any trading decisions.
