The Average Directional Index, also known as the ADX Indicator for short, is a very comprehensive technical indicator, calculated based on the moving average of price fluctuations over a given period of time. default rate is 14 days.

The ADX indicator consists of the following components:

  • An ADX line has a value ranging from 0 to 100, often used to measure the health of a trend. Normally, a trend is considered strong if the ADX line is above 25.
  • Two Directional Movement Index (+DI) and (–DI) lines are often used to determine the trend of the market. An uptrend is indicated when the +DI line crosses up or is above the –DI line. Conversely, a downtrend is indicated when the +DI line crosses down or is below the –DI line.

Source: Metatrader 4 Exness​

Above is an illustration of the ADX indicator. The ADX line is the dark yellow line, the +DI line is the pink dashed line, and the –DI line is the white dashed line.

Thus, when combined together, the ADX index groups can help investors understand both the trend and the strength and weakness of the trend in the market.

How to Use the ADX Indicator In Trading

To trade with the ADX technical indicator, you will first use the +DI and –DI lines to identify buy or sell signals, and then rely on the ADX indicator to confirm whether the signals are reliable. trust or not.

A buy signal is highly reliable when:
  • The +DI line crosses up or is above the –DI . line
  • ADX rises above 25
Similarly, a sell signal is highly reliable when:
  • The +DI line intersects or is below the -DI . line
  • ADX rises above 25
Let's look at the following examples for better understanding.

Example 1: Buy signal


Source: Metatrader 4 Exness
In this example, the ADX line (dark yellow) crosses above the 25 level. At the same time, the +DI line (pink dashed line) is above the –DI line (white dashed line). With this signal, you can open a long position on the EUR/USD currency pair.

Example 2: Sell signal


Source: Metatrader 4 Exness
In this second example, the ADX line (dark yellow) also crosses above 25, but the +DI line (pink dashed line) is below the –DI line (white dashed line). With this signal, you can open a sell position on the EUR/USD currency pair.

Conclude

ADX is a comprehensive technical indicator and is used by many professional traders around the world. ADX can identify both the trend and the strength and weakness of the trend; therefore, you can use this indicator independently without combining with other indicators. However, you should combine ADX with candlestick and price patterns; that will make the accuracy of the signals greatly increase.