Wells Wilder developed the index directional half (ADX) to evaluate the strength of the trend, either up or down. It is important to determine whether the market is tending or trading (which is moving sideways), because certain indicators give more useful results depending on the market that one or the other.
ADX combines + DI with - the DI and then smooth the data with a moving average to provide a measure of the strength of the trend. Because it uses both + DI and - DI, ADX does not offer any indication of the direction of the trend, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might find the action with ADX that advances above 20. Conversely, an ADX decline from above 40 might indicate that the current trend is weakening and a trading range may be converted.
ADX FORMULA:
+ DI = the sum of the averages of MOMIVIENTOS DIRECTIONAL upward (+ DM)
TR (true amplitude)
- DI = THE SUM OF THE AVERAGE OF THE LOW DIRECTIONAL MOMIVIENTOS (-DM)
TR (true amplitude)
TR (True Range) = RAGOS ALL AVERAGE GROWTH RATES OF THE MEETINGS OF n FROM TR / n ON NUMBER OF SESSIONS (14 TIPICA).
ADX = is obtained by dividing the difference between + DI and-DI / about the same amount of between 0 and 100 is a fee. To express that tendency should be above 25%
ADX = (+ DM) - (-DM) / (+ DM) + (-DM)
Admission to the market:
Line ADX must be above 25, this indicates that there is broad directional movement, ie trend.
When the + DI crosses the DI - bottom-up entry into the market in the same candle is Buying
When the DI - DI + crosses the bottom up is entering the market in the same candle significant sale.
Note: In this indicator, the signal should always be interpreted in the same north-south direction, from bottom to top.
Crossing + DI-DI on bottom-up signals to buy.
Crossing - DI + DI on bottom-up signal is selling.
ADX is an oscillator that fluctuates between closed 0 and 100. Although the scale is from 0 to 100, readings above 60 are relatively rare.
The low readings below 20 indicate a trend or weak side and the logs high, about 40, indicating a strong trend. While overcoming the area 25 denotes the beginning of the directional amplitudes.
LINE ADX indicator does not qualify as a trend Bearish or bullish, but simply determines the strength of the current trend = THE EXTENT OF THE DIRECTIONAL MOVEMENT. A reading above 40 can indicate a strong bearish trend as well as a strong bull trend. TRIGGER
A buy signal was given when + DI crosses ON - Di
A sign of sale is when - DI crosses + DI l ON
An ADX below 25 is a strong warning to avoid negotiating.
The extreme point rule: we must take the price higher or lower on the day (the price compression that follow) that the + DI and - DI crossed another. + DI determines the high or low point (if it is above + DI - the DI section is the top end of the day, if + DI is down - the DI, the extreme point is the low point for the day).
The end point is then used to signal the actual purchase or sale. For example, if the price rises again on the price level of the extreme, you have a confirmed buy signal. If the price can not get up on the extreme, you should continue to out market. For sales if the price point to the end of the day was not passed down, even with crossing lines DI, it is recommended to wait. When ADX begins to weaken from above 40 and / or moves below 40, is a sign that the trend began to weaken.
Generally, any value of ADX above 40 is considered to be a strong trend, while any value of ADX below 20 indicates low amplitude directional.
