Technical analysis is a trading discipline that involves researching and analyzing past market data to make predictions about future performance. Traders in this field are called technical analysts. These individuals look for entry and exit points in the market using historical prices and trading volume. Charts, graphs, and other tools are important to technical analysis. In this article, we look at the average directional index (ADX), the formula, how it's calculꦏated, and how to use it when trading.

What Is the Average Directional Index (ADX)?

The average directional index is a tool used in 澳洲幸运5官方开奖结果体彩网:technical analysis. It is the primary 澳洲幸运5官方开奖结果体彩网:indicator among the five indicators that make up a technical trading system. This indicator was developed by J. Welles Wilder, Jr.. Wilder was a mechanical engineer turned real estate investor and developer. He later became a full-time market and trading researcher, making major advances in the field of technical analysis.

The ADX helps traders understan𒅌d the strength of market trends, which can move higher or lower. This is highlighted by two indicators:

• The 澳洲幸运5官方开奖结果体彩网:positive directional indicator (+DI)
• The 澳洲幸运5官方开奖结果体彩网:negative directional indicator (-DI)
  

These two indicators are also accompanied by a third line. This line is non-directional and is the difference between the positive and negative indicators. Together, these indicators help assess whether a trade should be taken 澳洲幸运5官方开奖结果体彩网:long or short, or if a trade should be taken at all.

Formula and Calculation of the Average D💮irectional Index (ADX)

To calculate the ADX, determine the + and - directional movement (DM). The +DM and -DM are found by calculating the up-move or current high minus the previous high, and down-move or current low minus the previous low.

If the up-move is greater than the down-move and greater than zero, the +DM equals the up-move; otherwise, it equals zero. If the down-move is greater than the up-move and greater than zero, the -DM equals the down-move; otherwise, it equals zero.

• The positive directional indicator, or +DI, equals 100 times the exponential moving average (EMA) of +DM divided by the average true range over a given number of periods (Welles usually used 14 periods.)
• The negative directional indicator, or -DI, equals 100 times the exponential moving average of -DM divided by the average true range (ATR).

The ADX indicator itself equals 100 times the exponential moving average of the 澳洲幸运5官方开奖结果体彩网:absolute value of (+DI minus -DI) divided by (+DI plus -DI).

How to Use and Trade the Average Dir♌ecti🐽onal Index (ADX)

The ADX is used to indicate several things, notably market direction, the existence or nonexistence of a trend, and market momentum. Market direction is determined b🐷y the levels of the +DI and -DI. As such, the market direction is:

• Up if +DI is the higher number
• Down if -DI is the greater number

The ADX indicator, which varies in value from zero to 100, is the primary 澳洲幸运5官方开奖结果体彩网:momentum indicator. A value over 20 indica🃏tes the existence of a trend while a value over ꦅ40 indicates a strong trend.

As with any other technical tool, the ADX works best when it is used with other indicators. Traders may want to consider using it with the 澳洲幸运5官方开奖结果体彩网:relative strength index (RSI). While the ADX can help highlight the strength of a trend, the RSI can identify entry and exit opportunities.

The Bottom Line

Technical traders have a wide range of tools and indicators at their disposal when making important trading decisions. The average directional index helps them determine the strength of market trends as well as their direction. One thing to keep in mind, though, is that the ADX is a lagging indicator. As such, it doesn't keep up with prices. This is why new and experienced traders should consider using it with other indicators. Doing so can help them gain more insight into the market and mitigate their losses.