ADX Indicator and 7 more indicator tools for Trend Strength Analysis

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    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / ADX Indicator and 7 more indicator tools for Trend Strength Analysis

Average Directional Index (ADX)


The Average Directional Index (ADX), alongside the Directional Indicator (+DI) and Minus Directional Indicator (-DI), form a trading system developed by Welles Wilder. 

ADX measures trend strength without taking trend direction into account, while the other two indicators represent a complete system that sheds light on both the trend’s direction and its intensity.

What should you know?

  1. The ADX system comprises three elements: ADX, +DI, and -DI.
  1. ADX is utilised to ascertain the intensity of the trend rather than its route.
  1. The ADX can be used to determine the strength of a trend: when the reading is above 25, it’s considered strong, while a figure below 20 suggests that the trend is not very strong. When it falls between 20 and 25, it’s in a grey area.
  1. When the ADX indicator reaches 25, a buy signal is triggered by +DI crossing over -DI.
  1. A sell signal can be triggered when ADX reaches 25, and the –DI line crosses above the +DI line.
  1. Once the buy or sell cue is identified, ensure to establish a stop loss prior to carrying out the transaction.
  1. Stop losses are typically set at the low of buy signals and the high of short signals.
  1. The trade will remain active until the stoploss is triggered, even if the +DI and –DI cross again.
  1. For ADX, the default is a 14-day lookback.

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