Average Directional Index – Outline
Different categories of Technical indicators
About ADX (General information)
How to use it in our trades
Try more in live chart
Totally we can divide Technical indicators into 3 different categories:
Trend-following indicators: (some example)
I. Moving averages (both simple and exponential),
II. MACD (Moving Average Convergence Divergence),
III. Parabolic SAR,
IV. ADX (Average Directional Movement Index)
Momentum indicators: (some example)
I. Relative Strength Index (RSI),
III. Commodity Channel Index (CCI)
Volatility indicators : (some example)
I. Bollinger Bands and
II. ATR (Average True Range)
Average Directional Index – General information
1978 by J. Welles Wilder developed another amazing and so useful indicator which is a combination of two other indicators the positive directional indicator (abbreviated +DI) and negative directional indicator (-DI), call Average Directional Index (ADX). ADX by three lines, ADX line, (DI -) and (DI +). This Index mostly to use to measures the strength of a trend and this can be useful to determine if a trend is weak or strong.
ADX lines move between 0 and 100.
ADX below 20 indicate = Weak Trend.
ADX above 40 indicate = Strength Trend.
ADX above 50 indicator = An extremely strong trend.
As you can see below, technically this is the way how this indicator works, however today we will talk about how we can use it and not going into mathematics calculation.
Let’s check on live chart to see when and how ADX can give us Buy or Sell signals.