How to use ADX (Average directional index) indicator

Average directional index (ADX)

Average Directional Index (ADX) is a measure of the strength of the current market trend. ADX was developed by J. Welles Wilder. The ADX is gotten from two directional indicators, known as DI+ and DI-, which are  gotten from the directional movement index] (DMI). 

The ADX is also scaled from 0 to 100. A value of 0 shows that the market will probably move in either a positive or negative direction, implying that there is no overall market trend. A value of 100 shows that the market is solely moving in either a positive or negative direction which indicates an incredibly strong trend.

How to use ADX;

ADX oscillates from 0 to 100, readings below 20 indicate a weak trend and readings above 50 indicate a strong trend. At the point when the ADX is low, it highlights periods when price is typically ranging (going sideways). At the point when the ADX has moved above 50, it shows that the price has picked up momentum in one direction (strong trend). 

In contrast to Stochastic, ADX doesn’t decide if the trend is bullish or bearish. Instead, it only measures the strength of the current trend. Hence, ADX is also used to identify whether the market is starting a new trend or ranging. 

ADX is a viewed as a “non-directional” indicator. It is not based on comparing the highs and lows of bars and doesn’t utilize the close of the bar. 

The stronger the trend, the larger the reading, regardless of whether it is an uptrend or downtrend. 

Let’s look at the practical example of ADX and its value;

From the image above, you would notice that the ADX is at 15.6983 (below 20) which mean that the trend is weak and has no direction (ranging). It’s better not to enter the market.

Let’s look at another example;

From the image above, you would notice that the ADX is at 58.78 (above 50) which mean that the trend is strong and the trend is an upward trend. So, if you are already on a buy order, you can relax and not worry to close it. Also, if you are planning to open a buy order after confirmation from other indicators, then you can confidently enter the market.

So, that’s basically how to use your ADX.