Average Directional Movement Index (ADX)

Average Directional Movement Index (ADX) shows

• if there is a trend on the market and
• what potential it has.

ADX represents two opposite +/-DM and ADX lines (Figure 1):

• The first goes in the direction of the price movement (line 1, +DM);
• The second goes in the opposite direction (line 2, -DM);
• The third (ADX) is the absolute difference between +/-DM lines, so the more divergence between +/-DM lines, the greater the value of ADX.

Average Directional Movement Index (ADX) signals:

• Intersection with the extremum lines or reversal at high-low.
• +DM and -DM lines intersection precedes a new trend or strengthens the prevailing one - it is a very strong signal.
• If +DM line is above -DM line, then the trend is bullish, and vice versa.
• If lines diverge then ADX value increases and the trend becomes stronger, and vice versa.
• If ADX is below 20, then the trend is very weak.