26. How to Trade the Average Directional Index (ADX)

www.informedtrades.com A lesson on how to trade the ADX for traders of the stock, futures, and forex markets. Link to the formulas behind the ADX: hubpages.com Link to Additional Resources on Trading the ADX: www.informedtrades.com In this lesson we are going to learn about the Average directional Index (ADX), an indicator which helps traders determine when the market is trending, when the market is ranging, when the market may be about to change from trending to ranging or vice versa, and to gauge the strength of the trend in the market. When plotted below the chart the ADX Line is normally accompanied by two other lines which are known as the +DI and --DI Lines. Example of the ADX: I am not going to go into the formulas for the Indicator here however you do need to know that: • The ADX line is composed of two other indicators which are known as the Positive Directional Index (+DI Line) and the Negative Directional Index (-DI Line). • The +DI Line is representative of how strong or weak the uptrend in the market is. • The --DI line is representative of how strong or weak the downtrend in the market is. • As the ADX line is comprised of both the +DI Line and the --DI Line, it does not indicate whether the trend is up or down, but simply the strength of the overall trend in the market. If you would like a deeper explanation of the computation of the indicator you can find it here: hubpages.com As the ADX Line is Non Directional, it does not tell you whether the market is <b>...</b>
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