ADX Stock Analysis & ADX Trading Signals

Created by J. Welles Wilder

This a momentum indicator used to determine the strength of a 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 and applying a smoothing function.

The ADX isn't 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 is not trending but moving in a range.

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

Values above 30 shows a strong trending market.

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

Directional Movement Index Technical Indicator

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

DMI

ADX and DMI Index

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

Stock Analysis and How to Generate Signals

Buy Trade Signal

A buy stock signal is generated when the +DI is above -DI, & the ADX technical indicator is above 20

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

Buy Signal

Sell Signal

A short signal is generated when the -DI is above +DI, & the ADX technical indicator is above 20

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

Sell Trade Signal