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Average Directional Movement Index

Average Directional Movement Index

Average Directional Movement Index Technical Indicator (ADX) determines a price trend and its direction. It was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems".

This method implies comparison of the 14-period +DI one and the 14-period -DI either by putting the charts of indicators one on top of the other, or + by subtracting +DI from -DI. When +DI is higher than -DI it is recommended to buy, and to sell when +DI drops lower than -DI.

In order to eliminate false signals W. Wilder added "a rule of points of extremum". This rule implies that the "point of extremum" is the point when +DI and -DI cross each other. If +DI raises higher than -DI, this point will be the maximum price of the day when they cross. If +DI is lower than -DI, this point will be the minimum price of the day they cross. This points are essential for determining a market entry level.

Calcaulation:

ADX = SUM ((+DI - (-DI)) / (+DI + (-DI)), N) / N

Where:

N - number of periods used in the calculation;
SUM (..., N) - sum for N periods;
+DI - positive directional index;
-DI - negative directional index.

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Similar information about indicators you can find in information system of trade platform MetaTrader 4 (Help-> Help Topics [F1] -> Ananlitics -> Technical Indicators).