ADX Indicator – knowing if a market is trending or not
BY Chris Andreou
|January 7, 2021The logic behind ADX is to help solve the problem of knowing whether a market is trending or in a trading range.
ADX can help determine, at least, when a market is likely to breakout of a trading range.
Directional movement systems measure each market on a scale of 0 to 100.
Directional Movement
Directional movement is the difference between the extreme part of the current period (today) that falls outside the range of the previous period (yesterday)
DM+ prices moving up
DM- prices moving down
Plus, DM (+DM)
+DM is the difference between Point E, or the high, in day two and Point A in day one is called “Plus DM” (+DM) because price is moving up.
+DM = positive or plus DM = High – Previous High
Minus DM (-DM)
Minus DM would occur when the price declined between the two period. In effect, the distance between the low today and the low yesterday would represent the minus DM because price is moving down.
Putting DM together
Directional Movement “Plus DM” (+DM):
Normally when DM+ is above DM- indicates prices are trending higher
Minus DM (-DM):
When DM- is above DM+ this would imply that prices are trending lower
Directional Movement CrossoversBuy signals are generated when +DI (14) and -DI (14) cross
Sell signals are generated when -DI (14) and +DI (14) cross
Conclusion:
ADX is used as a market timing points for entering and exiting the markets.
- Sell Signals are generated when the +DI moves below the -DI
Buy Signals are generated when +DI moves above the -DI
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