ADX is an acronym for Average Directional Index. It is a technical indicator used in the field of financial analysis and trading. The ADX aims to measure the strength of a prevailing trend in the market, be it an uptrend or a downtrend. It was developed by J. Welles Wilder Jr. and is widely employed by traders across various financial markets to assess the strength and potential continuation of a trend.
The ADX value typically ranges between 0 and 100. A high ADX reading indicates a strong trend, while a low reading signifies a weak or non-existent trend. Traders often use a threshold level, such as 25, to determine whether a trend is significant or insignificant. A reading above the threshold suggests a robust trend, while a reading below it indicates a lack of strong directional movement in the market.
Additionally, the ADX indicator comprises three lines: the ADX line, the positive directional indicator (+DI), and the negative directional indicator (-DI). The ADX line shows the overall trend strength, while the +DI and -DI lines display the positive and negative directional movement, respectively. By analyzing the interplay between these lines, traders can gain insights into the trend's strength, potential changes, and possible market entry or exit points.
Overall, the Average Directional Index (ADX) offers traders a valuable tool for assessing the trend strength and making informed decisions about their trades.
