Average Directional Index

The Average Directional Index (ADX) is a technical indicator used in Technical Analysis - 20230221094216 to measure the strength of a trend. It is used to determine whether a market is trending or non-trending and to measure the strength of a trend. It is a trend-following indicator, meaning that it is designed to indicate the presence of a trend rather than its direction.

The ADX is calculated using three separate lines: the positive directional indicator (+DI), the negative directional indicator (-DI), and the ADX line.

The first step in calculating the ADX is to calculate the +DI and -DI lines. These lines measure the strength of the bullish and bearish movements in a market, respectively.
The next step is to calculate the difference between +DI and -DI, and then divide that difference by the sum of +DI and -DI. This value is then smoothed using a moving average.
The final step is to calculate the ADX line. This line is the moving average of the values obtained in step 2.

The ADX line is plotted along with the +DI and -DI lines on a chart. A reading above 25 is generally considered to indicate a strong trend, while a reading below 20 is considered to indicate a weak trend or no trend at all.

Warning

The ADX is not a signal generator but a gauge of trend strength. It can be used to confirm trends, identify potential trend reversals, and to spot potential market tops or bottoms. It's important to use it in combination with other indicators and not in isolation.

Average Directional Index

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