Indicators

Average Directional Index

141 views 0

What is the Average Directional Index (ADX)?

The average directional index (ADX) is a technical analysis indicator used by some traders to determine the strength of a trend. The trend can be either up or down, and this is shown by two accompanying indicators, the Negative Directional Indicator (-DI) and the Positive Directional Indicator (+DI). Therefore, ADX commonly includes three separate lines. These are used to help assess whether a trade should be taken long or short, or if a trade should be taken at all.

Paratica ADX Indicator

Paratica ADX Indicator


Key Takeaways

  • Designed by Welles Wilder for commodity daily charts, but can be used in other markets or other timeframes.
  • The price is moving up when +DI is above -DI, and the price is moving down when -DI is above +DI.
  • Crosses between +DI and -DI are potential trading signals as bears or bulls gain the upper hand.
  • The trend has strength when ADX is above 25. The trend is weak or the price is trendless when ADX is below 20, according to Wilder.
  • Non-trending doesn’t mean the price isn’t moving. It may not be, but the price could also be making a trend change or is too volatile for a clear direction to be present.

The Formulas for the Average Directional Index

(ADX) Indicator are

The ADX requires a sequence of calculations due to the multiple lines in the indicator.

Paratica ADX Indicator - 2

Paratica ADX Indicator – 2


Where:

+DM = Current High – Previous High

-DM = Previous Low – Current Low

Smoothed +/-DM = sum 14 periods of DM – (sum of 14 periods DM / 14) + Current DM

ATR = Average True Range

Calculating the Average Directional Movement Index (ADX)

  1. Calculate +DM, -DM, and True Range (TR) for each period. 14 periods are typically used.
  2. +DM = Current High – Previous High.
  3. -DM = Previous Low – Current Low.
  4. Use +DM when Current High – Previous High > Previous Low – Current Low. Use -DM when Previous Low – Current Low > Current High – Previous High.
  5. TR is the greater of the Current High – Current Low, Current High – Previous Close, or Current Low – Previous Close.
  6. Smooth the 14-period averages of +DM, -DM, and TR. The TR formula is below. Insert the -DM and +DM values to calculate the smoothed averages of those.
  7. First 14TR = Sum of first 14 TR readings.
  8. Next 14TR value = First 14TR – (Prior 14TR/14) + Current TR
  9. Next, divide the smoothed +DM value by the smoothed TR value to get +DI. Multiply by 100.
  10. Divide the smoothed -DM value by the smoothed TR value to get-DI. Multiply by 100.
  11. The Directional Movement Index (DX) is +DI minus -DI, divided by the sum of +DI and -DI (all absolute values). Multiply by 100.
  12. To get the ADX, continue to calculate DX values for at least 14 periods. Then, smoothe the results to get ADX
  1. First ADX = sum 14 periods of DX / 14
  2. After that, ADX = ((Prior ADX * 13) + Current DX) /14

What Does the Average Directional Index (ADX) Tell You?

The Average Directional Index (ADX) along with the Negative Directional Indicator (-DI) and the Positive Directional Indicator (+DI) are momentum indicators. The ADX helps investors determine trend strength while -DI and +DI help determine trend direction.

The ADX identifies a strong trend when the ADX is over 25 and a weak trend when the ADX is below 20.

Crossovers of the -DI and +DI lines can be used to generate trade signals. For example, if the +DI line crosses above the -DI line and the ADX is above 20, or ideally above 25, then that is a potential signal to buy.

If the -DI crosses above the +DI, and ADX is above 20 or 25, then that is an opportunity to enter a potential short trade.

Crosses can also be used to exit current trades. For example, if long, exit when the -DI crosses above the +DI.

When ADX is below 20 the indicator is signaling that the price is trendless, and therefore may not be an ideal time to enter a trade.

The Difference Between Average Directional Index (ADX) and the Aroon Indicator

The ADX indicator is composed of a total of three lines. The Aroon Indicator is composed of two. The two indicators are similar in that they both have lines representing positive and negative movement, which helps to identify trend direction. The Aroon reading/level also helps determine trend strength, like the ADX does. The calculations are different though, so crossovers on each of the indicators will occur at different times.

Limitations of Using the Average Directional Index (ADX)

Crossovers can occur frequently. Sometimes too frequently, resulting in confusion and potentially lost money on trades that quickly go the other way. These are called false signals. This is more common when ADX values are below 25. That said, sometimes the ADX reaches above 25, but is only there temporarily and then reverses along with the price.

Like any indicator, the ADX should be combined with price analysis and potentially other indicators to help filter signals and control risk.

Was this helpful?

34 Comments
  • Aurora says:

    I visit day-to-day a few web sites and information sites to read posts, however this website
    presents feature based writing.

    21 April 2021 at 04:53
  • Howdy I am so thrilled I found your blog, I really found you by accident, while I was browsing on Bing for something else, Nonetheless I am
    here now and would just like to say cheers for a remarkable post and a all round interesting blog (I also love the theme/design), I don’t have time to
    look over it all at the minute but I have saved it and also added in your RSS
    feeds, so when I have time I will be back to read a great deal more,
    Please do keep up the excellent jo.

    Look at my homepage – lionking888 Download

    21 April 2021 at 10:42
  • This is a topic which is near to my heart… Take care! Exactly where are your contact details though?

    Feel free to visit my web site :: agen ok388

    21 April 2021 at 11:11
  • Pretty! This has been a really wonderful post.
    Thanks for providing these details.

    Stop by my web blog … kiosk ace333 (918kiss-m.com)

    21 April 2021 at 11:55
  • Hi there, yeah this post is actually pleasant and I have learned lot of
    things from it about blogging. thanks.

    Also visit my web-site; wukong333 game – https://918kiss-m.com,

    21 April 2021 at 12:55
  • Thank you for the good writeup. It in truth used to be a enjoyment account it.
    Glance advanced to more brought agreeable from
    you! However, how can we keep in touch?

    Look at my website: 918Kiss 2 company

    21 April 2021 at 13:06
  • certainly like your web site but you have to take a look at
    the spelling on several of your posts. Many of them are rife with spelling problems and I find it very bothersome to tell the reality however
    I will certainly come again again.

    Have a look at my site :: wigoslot live22 (918kiss-m.com)

    21 April 2021 at 14:01
  • If some one wants to be updated with latest technologies afterward he must be pay a
    visit this web page and be up to date all the time.

    Here is my web page – kiosk sky777

    21 April 2021 at 14:49
  • What’s up friends, how is everything, and what you want to
    say regarding this post, in my view its truly amazing in support of me.

    Feel free to visit my blog :: 918kiss lama

    21 April 2021 at 19:28
  • Shawnee says:

    Hi, I do believe this is a great website. I stumbledupon it 😉 I am going to return yet again since i have book-marked it.
    Money and freedom is the greatest way to change,
    may you be rich and continue to guide other people.

    23 April 2021 at 00:46
  • If you have had high search rank then there are chances that simple, more will visit could.
    Myths: People say that SEO own to stuff a lot of keywords
    to one’s meta keywords tags.

    23 April 2021 at 03:36
  • You can definitely see your skills within the article you write.
    The world hopes for more passionate writers such as you who are not afraid to mention how they believe.
    Always follow your heart.

    Also visit my blog post 918kiss download pc

    23 April 2021 at 17:05
  • First off I would like to say superb blog! I had a quick
    question in which I’d like to ask if you don’t mind. I was curious to find out how you
    center yourself and clear your thoughts prior to writing.
    I have had a tough time clearing my thoughts in getting my thoughts
    out. I do enjoy writing however it just seems like the first 10 to 15
    minutes are lost just trying to figure out how to begin. Any suggestions or tips?
    Thanks!

    My web-site; download game joker388

    23 April 2021 at 19:04
  • Good day! This is mү first comment һere so I just
    wanted to giv ɑ quick shut ouut and twll you I really enjoy reading your blog posts.
    Can you recommend аny other blogs/websites/forums that go over the sɑme suƅjects?

    Thanks a ton!

    23 April 2021 at 20:32
  • This desіgn is steller! You most certainly know how to keep
    a rewader entertained. Between your wit andd your videoѕ,
    I ԝas almost moved to start myy own blog (well, almost…HaHa!) Wonderful joЬ.
    I reallу enjoyed what yоu had to say, and more than that, hⲟw you presented it.

    Too сool!

    23 April 2021 at 21:01
  • Sonia says:

    Thanks very nice blog!

    My webb page; Sonia

    23 April 2021 at 22:27
  • For latest information you have to pay a visit web and on web I found
    this website as a most excellent web page for most up-to-date updates.

    Here is my web blog tm918kiss

    24 April 2021 at 01:09
  • Saya akan segera ambil rss feed Anda karena saya tidak bisa
    Tersimpan sebagai favorit , Saya suka situs web Anda!

    Take a look at my web page: Joker888 hack

    24 April 2021 at 01:24
  • Hey I know this is off topic but I was wondering if you knew of any widgets
    I could add to my blog that automatically tweet my newest twitter updates.
    I’ve been looking for a plug-in like this for quite some
    time and was hoping maybe you would have some
    experience with something like this. Please let me know if you
    run into anything. I truly enjoy reading your blog and I look forward to your new
    updates.

    Feel free to surf to my website :: download slot joker123 (918kiss-m.com)

    24 April 2021 at 02:22
  • My partner and I absolutely love your blog and find nearly all of
    your post’s to be what precisely I’m looking for.
    Do you offer guest writers to write content for yourself?
    I wouldn’t mind publishing a post or elaborating on some of the subjects you write in relation to here.
    Again, awesome website!

    Look at my blog post; 918kiss lama

    24 April 2021 at 02:32
  • I’m not sure where you’re getting your information, but great topic.
    I needs to spend some time learning more or understanding more.
    Thanks for great information I was looking for this information for
    my mission.

    Feel free to visit my homepage; joker128 login

    24 April 2021 at 11:20
  • Whats up vеry nice web site!! Guy .. Beautiful .. Amazing ..
    I will bookmark your web site and tɑke the
    feеɗs additionally? I ɑm gⅼad to seаrch out
    so many helpful infoгmation here within the submit, we need work out extra strɑtegiеs on this regard, thank you foor sharing.
    . . . . .

    24 April 2021 at 14:02
  • Hi it’s me, I am also visiting this website daily, this site is genuinely nice and the visitors are actually sharing
    nice thoughts.

    My blog: pussy888 2021

    24 April 2021 at 14:36
  • We are a group of volunteers and starting a new scheme
    in our cߋmmunity. Yߋur website proviԁed us with valusble information to work on.
    Y᧐u have done a formidable job and our whole community
    will be thankful to you.

    24 April 2021 at 16:04
  • sky 777 says:

    We absolutely love your blog and find nearly all of your post’s to be
    what precisely I’m looking for. Do you offer guest
    writers to write content available for you?
    I wouldn’t mind writing a post or elaborating on a
    lot of the subjects you write about here. Again, awesome weblog!

    24 April 2021 at 16:15
  • Saya tidak bisa menahan diri dari berkomentar. Sangat baik ditulis!

    My web page :: Joker123 Contact number

    24 April 2021 at 19:34
  • Apprecisting the dedication уou put into yohr blog and detɑiled information you offer.
    It’s nice to come across a blοg every once iin a while that isn’t the
    same οutt of date rehashed materіal. Ԍreat read! I’vе bookmarқed your site
    aand I’m adding your RSS feeds to myy Goоgle account.

    24 April 2021 at 20:10
  • Very ɡooⅾ site you have here bսt I was ѡondering if you
    knew of any user discussion forums tyat cover tthe same topicѕ
    talked about in thiѕ article? I’d really love to be а pаrt of online community where I can get
    rеsponses from ther experienced individuals that ѕhare the ѕame interest.
    If you have any sugɡestions, please let mee know.
    Kudos!

    25 April 2021 at 22:15
  • I am гeally thankful to the owner of this site who has sharеd thіs
    wonderful paragraph at here.

    26 April 2021 at 01:00
  • Hell᧐ There. I found your webl᧐g the uѕaցe of msn. That iѕ ɑ very well written aгticle.
    I ᴡill be sure to bookmark it and return to read more of you useful informatiօn. Thanks for the post.
    І’ll definitely comeback.

    26 April 2021 at 16:21
  • After looking аt a handful of the articles on your web site,
    I truly appreciate yoսr technique of writing a blog. I book
    maгked it to mmy bookmаrк site liѕt and will be checking
    back soon. Ꮲlease visit my web site as well and let me know what you think.

    26 April 2021 at 17:20
  • Vera says:

    Hello Dear, are you genuinely visiting this website on a regular basis, if so afterward you will absolutely take nice know-how.

    27 April 2021 at 01:27
  • Even if there should be a few IP per day, however,
    you could also dig out the earnings type. Still put up good content within your blog.
    Being visible will be the first critical thing.

    27 April 2021 at 04:06
  • Hello I am so delighted I found your weblog, I really found you by accident, while I was searching on Askjeeve for something else, Regardless I am here now and would just like to say thank you for a remarkable post and a all round entertaining blog (I also love the theme/design), I don’t have time to look over it all at the moment but I have book-marked it and also included your RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the awesome job.

    4 May 2021 at 00:42
Leave A Comment