Use of ADX indicator to develop trading strategies - Articles - Dukascopy Bank

Thu, 09 Jan 2020 17:12:35 GMT
Source: Dukascopy Bank SA
 

The average directional index (ADX) is a technical analysis indicator that helps to determine the overall strength of a trend. It is useful to discover market condition because a trader can decide on his or her trading strategy.

The indicator is calculated in several steps. The calculation is based on a 14-period moving average of price spread. Note that the 14-period indicator setting is a recommendation of the ADX creator Welles Wilder.

Moreover, Wilder suggested that the indicator is more precise on daily charts. However, the ADX can be used on other time frames.

On JForex platform, the ADX indicator is represented by a line that corresponds to its value. If the value is between 75 to 100, it means that the market has an extremely strong trend. The value between 50 to 75 is a sign of a very strong trend. If the ADX value is between 25 to 50, this indicates that a strong trend exists. If there is a weak trend or no trend at all, the indicator value is between 0 to 25.

Note that the ADX indicator does not determine direction of the trend. Therefore, it is useful to use the tool with directional indicators to filter signals and control risk.

The Technical Analysis widget provides an overview of an instrument from a perspective of technical indicators on eight time-frames (5M, 15M, 30M, 1H, 4H, 1D, 1W and 1MN). Value of each indicator points at either ‘Buy', ‘Neutral' or ‘Sell' signal.



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