What is ADX indicator?
The (ADX) full form of Average Directional Index, which is a popular indicator used by traders to gauge the overall market strength. It's one of many indicators created by J. Welles Wilder. The Average Directional Index can be used to signal when a trend is weakening, which can potentially signal a reversal.
Average Directional Index Definition
Welles Wilder designed the Average Directional Index indicator to help identify trend reversals. He designed the indicator to combine the strength of two other indicators to create one powerful tool.
The best way to identify a strong trend is by watching the price action over the last 20 or so trading sessions. If the price has consistently risen or fallen over the last 20 sessions, this could indicate that a trend is developing.
Importance of ADX indicator in trading
If you are a trader then you must need to determine the market trending or ranging, the ADX tool will help you to understand the trend of the current market and trading strategies. If the market situation the tool also can help you to identify the right trading strategy. You will be surprised to know that, Wilder's book is using today's modern trading concepts to avoid losing capital.
If you can use the ADX properly, then you can be sure you are going to earn more consistent profits with it, because if you understand the trend-following or rang trading strategies you can gain every time in trading.
Using the ADX indicator in trading
With the Normal Directional List, a broker can recognize a pattern and check how solid it is. A perusing of under 20 or 25 is viewed as a frail pattern or nonappearance of a pattern, while readings up to 75 just show an expansion in pattern strength, while readings north of 75 frequently advise a merchant to avoid position, as the pattern is so solid, it will undoubtedly be near running out and switching, probable bringing about a strong retracement.
How the Average Directional Index Indicator Works
A +DI indicates that the price has moved higher in a recent period of time. C: A -DI indicates that the price has moved lower in a recent period of time.
The Directional Movement Index is a measure of the strength of an uptrend. It is calculated by adding the positive directional indicator to the negative directional indicator.
A negative directional indicator (NDI) is a momentum indicator that measures the strength of a trend. When the NDI is trending down, it suggests that the trend is increasing in strength.