ADX INTERPRETATION The ADX shows trend strength, not direction. The main purpose of the ADX is to determine whether a market is trending or is in a trading range. Determining which mode a market is in is helpful for traders. The first concept to remember is that the direction that the ADX moves doesn’t depend upon the direction of the underlying stock. This means: A strong upward trend = Increasing ADX and a strong downward trend = Increasing ADX Further, a number of parameters have been developed by technical traders over the years that can be used to hone the application of the indicator: •ADX value below 20: Non-trending market. •ADX crosses above 20: Signal that a trend might be emerging; consider initiating buy or sell short in direction of prevailing stock, futures or currency price movement. •ADX value drifting between 20 and 40: If ADX is increasing between 20 and 40, then it is further confirmation of emerging trend. Buy or short sell in the direction of the current market direction. Avoid using oscillator technical indicators, such as the RSI, and use trend-following indicators, such as moving averages. •ADX above 40: Strong trend. •ADX crosses above 50: Extremely strong trend. •ADX crosses above 70: A “power trend” is in place; this is a rare occurrence for any market.
Posted on: Sat, 11 Oct 2014 02:36:47 +0000
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