Detect Major Market Turns Effortlessly with the ADX Indicator!

The Average Directional Index (ADX) is a leading technical analysis tool, elaborated by J. Welles Wilder, that offers traders insights about the strength of the market trend. It enables traders to identify significant reversals by measuring the force or momentum behind price trends helping them to maximize profits. Understanding the ADX Indicator The ADX indicator is an oscillator that ranges between values of zero to100. Generally, the tool consists of three lines, the Positive Directional movement Indicator (+DI), the Negative Directional Movement Indicator (-DI), and the Average Directional Index (ADX). The +DI and -DI lines are part of the Directional Movement System, which Wilder designed to determine whether a price was trending or merely drifting. The ADX, however, is a smoothed average of the difference between these two lines, and it offers a measure of trend strength, but not trend direction. Measuring Trend Strength Using ADX The ADX measures trend strength without regard to trend direction. Traders find usage of the ADX to be most effective when combined with other types of technical analysis. Values below 20 indicate weak trends, while values above 40 are indicative of strong trends. Spotting Big Reversals with ADX A rising ADX line suggests the presence of a strong trend, while a declining ADX line suggests weakening trend strength or possible trend reversal. Broadly speaking, trading when the ADX is above 20 can give better results, while trading when the ADX is declining could lead to whipsaws and other trading problems. The amount of time that the ADX needs to rise from below 20 to above 20 is often proportionate to the amount of time the trend will last. When the ADX is used with its components, the +DI and -DI, the indicator becomes even more potent. A typical bearish signal could be when the +DI crosses below the -DI, and the ADX is above 20. On the other hand, crossing the +DI over the -DI with the ADX over 20 could denote a bullish signal. Using the ADX indicator to identify market pullbacks can also yield profitable trading opportunities. When strong trends are running up or down, but short-term pullbacks occur, then ADX will maintain a strong reading. These pullbacks can act as an excellent opportunity to enter a trend trading strategy. Combining ADX with Other Technical Indicators Moreover, while the ADX indicator