publish2018-03-12 9:12 pm

Average Directional Index

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The Average Directional Index (ADX) is a trading strength indicator. It is used in technical analysis of the asset’s price to determine the strength of a trend regardless its direction. The best investment entry point is the beginning of a strong trend to increase profits and the ADX helps you identifying it.

What is the Average Directional Index (ADX)

The average directional index is employed to measure the trend strength. This consists of the graphical representation of three lines on a price chart. The ADX line, which is the middle line, receives a value from 0 to 99, This indicator identifies a strong trend every time it has a value equal or greater than 25, on the other hand, it discards a trend when its value is lower than 20. The average directional index uses a 14 days period for its calculation; however, it can be calculated using any 14 periods, even for binary options with minutes expiration, the ADX has proven to be an excellent strength trend indicator.

Understanding the average Directional Index (ADX)

  • The ADX is the graphical representation of three lines

a)ADX line is the middle line this is drawn on the average directional index of the 14 periods

b)DI+ line is the upper line, which is obtained by calculating the true range

c)DI- line in the lower line, which is obtained by calculating the true range

  • When the DI+ prices are above DI-, the trend is moving upward, prices are increasing and the ADX is measuring an uptrend strength.
  • When the DI- prices are above the DI+, the trend is moving downward, prices are decreasing and the ADX is measuring a downtrend strength.
  • True range is the greatest value among (Current high – current low), or (Current high – previous closing price).
  • The Directional movement is (the absolute value of DI+ minus The value of DI-) / divided (by the sum of DI+ + DI-)
  • ADX does not give a buying or selling signal. It identifies a strong trend, which is in place; you need to analyze the Di+ and DI- line crossover to identify properly the trend direction and possible market action.

Best Average Directional Index uses (ADX)

1.The average Directional Index is an excellent scanner to eliminate all the possible assets in trend and focus only on those with a strong trend and better net income potential.

2.The ADX can be used alone without any other oscillator or technical indicators on the price chart, since those may be confounding factors, The ADX will identify a strong trend, and then you will review if this is a downtrend or uptrend.

3.Each time the ADX is equal or greater to 30, is a clear signal for you to enter in the trade to maximize your potential investment revenue. Keep in mind this is the best sign you could ask for to trade.

4.Price is the most important data; you need to pay all your attention to it and the ADX value to identify correctly your best entry point.

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