ADX Analysis & ADX Trading Signals

Created by J. Welles Wilder

This a momentum indicator used to determine the strength of a trading price trend: it is 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 two values & applying a smoothing function.

The ADX is not a directional indicator but a measure of the strength of the trend which has a scale of Zero to 100.

Higher the technical indicator value the stronger the trend.

A value of below 20 indicates that the market isn't trending but heading in a range.

A value of above 20 confirms a buy or sell signal & indicates a new trend is emerging.

Values above 30 indicates a strong trending market.

When ADX indicator turns down from above 30, it demonstrates that the current trend is losing momentum.

Directional Movement Index Indicator

Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of gold.

DMI

ADX & DMI Index

When the ADX is combined with DMI index one can determine the direction of the trend & then use the this indicator to determine the momentum of the prevailing trend direction.

Trading Analysis and Generating Signals

Buy Trade Signal

A buy trading signal gets generated when +DI is above –DI, and the ADX indicator is above 20

The Exit signal gets generated when indicator turns down from above 30.

Buy Signal

Sell Signal

A short signal gets generated when –DI is above +DI, and the ADX indicator is above 20

The Exit signal gets generated when indicator turns down from above 30.

Sell Signal