Average Directional Index (ADX)

The Average Directional Index (ADX) is a technical indicator used in technical analysis to measure the strength of a trend. It is calculated by averaging the absolute values of the positive and negative directional indicators (DIs). The ADX is a momentum indicator, which means that it measures the speed and strength of the price movement.

The ADX is a trend-following indicator, which means that it confirms the direction of the trend. It is not a leading indicator, which means that it does not predict the direction of the trend.

The ADX is used to identify trends and to determine when a trend is changing direction. The ADX can also be used to identify trading opportunities.

The ADX is calculated by using the following formula:

ADX = 100 * (EMA of +DI - EMA of -DI) / (EMA of +DI + EMA of -DI)

where:

• EMA is the exponential moving average
• +DI is the positive directional indicator
• -DI is the negative directional indicator

The ADX is a range-bound indicator, which means that it can only have values between 0 and 100.

The ADX is interpreted as follows:

• ADX values below 20 indicate a weak trend.
• ADX values between 20 and 50 indicate a moderate trend.
• ADX values above 50 indicate a strong trend.

The ADX can be used to identify trends in both uptrends and downtrends. In an uptrend, the ADX will increase as the trend progresses. In a downtrend, the ADX will decrease as the trend progresses.

The ADX can also be used to identify trend reversals. A trend reversal occurs when the ADX changes direction from uptrend to downtrend or vice versa.

The ADX is a useful indicator for identifying trends and trend reversals. However, it is important to remember that the ADX is a lagging indicator, which means that it does not predict the direction of the trend. The ADX should be used in conjunction with other technical indicators to confirm the direction of the trend.