✔️ Information reviewed and updated in December 2023 by Eduardo López
If you want to be successful in the world of trading, you must take into account the technical indicators that will help you in your strategies. Trading indicators like ADX are add-ons that you can add to your charts, and they offer you extra help to gain a statistical advantage in your calculations.
All indicators have something in common, but each one has different functions. It all depends on how you use it, and which one is easier for you to use.
In this article we will tell you more about the ADX indicator. One of the most widely used tools that is often used to confirm the formation of a market trend.
✨Adx indicator definition✨
The ADX indicator It is a technical indicator that also belongs to the oscillators, and as it is considered an oscillator, its value is in a defined range between 0 and 100.
The main characteristic of the ADX indicator is that it cannot identify whether a trend is bullish or bearish, unlike other indicators. What this indicator determines is the strength of a trend, be it a very strong uptrend or a very strong downtrend. Either of the two will present the same values in the indicator.
✨What is ADX for? ✨
The ADX indicator it is used to determine if a market is in a lateral situation oscillating in a certain range or, if the market is starting a new trend.
It can be used in any product that is listed on a financial market, such as currencies or stocks. In addition, it serves to adapt trading strategies at all times.
If the ADX indicator is below 25 then it means that the price of an asset is moving without a defined trend. And, if it stays below this value for a while, then the price of the asset is likely to fluctuate within a certain interval.
On the other hand, if the indicator is above 25, then the trader has to change his previous range strategy and apply trading strategies that are based on following trends.
✨ How do you get ADX? ✨
The calculation of the ADX indicator is based on the moving average of the expansion of the price range of an asset in a certain period of time. Typically, a 14-day period is used.
First + DM and -DM are calculated, which represent the directional movement or number of points won in a certain direction. Then a Wilder smoothing is used on + DM and -DM to be able to calculate + DI and -DI. Once you have those results, the DX is calculated. Finally, a Wilder straightener is applied over DX.
✨ How is it interpreted? ✨
In this indicator DI + is represented as a buying pressure, and DI- a selling pressure. When DI + is greater than DI- it means that there can be a buy signal and when DI- is greater than DI + it means that a sell signal can be given.
These indicators (ADX and ADXR) are movement indicators, and the intersections allow to determine which are the entry signals and which are the exit signals.
When ADX / ADXR is higher than the floor of 17 or 23 it means that the market is in trend and a buy or sell signal is given, and if it is lower than 17 or 23 it means that the market is not in trend.