IAMLEGEND LESSON OF THE DAY!!! ~~ ADX ~~
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Average Directional Index (ADX) The Average Directional Index (ADX)
, Minus Directional Indicator (-DI) and Plus Directional Indicator (+DI) represent a group of directional movement indicators that form a trading system developed by Welles Wilder. Wilder designed ADX with commodities and daily prices in mind, but these indicators can also be applied to stocks. The Average Directional Index (ADX) measures trend strength without regard to trend direction. The other two indicators, Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI), complement ADX by defining trend direction. Used together, chartists can determine both the direction and strength of the trend. Directional Movement
Directional movement is positive (plus) when the current high minus the prior high is greater than the prior low minus the current low. This so-called Plus Directional Movement (+DM) then equals the current high minus the prior high, provided it is positive. A negative value would simply be entered as zero.
Directional movement is negative (minus) when the prior low minus the current low is greater than the current high minus the prior high. This so-called Minus Directional Movement (-DM) equals the prior low minus the current low, provided it is positive. A negative value would simply be entered as zero.
ADX Shows Trend Strength
The first concept to remember is that the direction that the ADX moves doesn't depend upon the direction of the underlying stock. All the ADX shows is the trend strength.
1.Strong upward trend of stock = Increasing ADX
2.Strong downward trend = Increasing ADX Examples Video on ADX
http://www.youtube.com/watch?v=0LPagXSPxL0 http://www.youtube.com/watch?v=CU3j2dFJbzA ADX Quick Summary
Trading with ADX indicator involves the following signals
* ADX staying below 20 level — there is no trend or the trend is weak.
* ADX moving above 20 level — trend is strong.
* ADX passing 40 level — trend is extreme.
* ADX value rising — trend is going stronger, falling — trend is weakening.
* +DI stays on top of -DI — uptrend is in place.
* -DI stays on top of +DI — downtrend is in place.*
* Two DI cross — trend is changing.