Wednesday, November 12, 2008

ADX as an Indicator

ADX stands for Average Directional Index. It doesn't give buy or sell signals, it simply tells you the strength of a trend regardless of its direction. You'll often see it plotted with two other indicators: the negative direction indicator (-DI) and positive direction indicator (+DI).

I generally ignore the DI indicators and focus on the ADX line itself. A move below 20 indicates shows a weakening trend and a move above 30 or so indicates a developing strong trend. When the line moves sideways below 20, I stay away from those lamers.

I like to see a line above 40 as these trends are winners, assuming an up trend. Just remember, the ADX does not give you the direction of the trend, only its strength.

Have a good one,
Roger

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