The objective of this educational idea is to explain the use of ADX in 300 words.
I will be using short sentences so that it is easy to grasp and understand.
For a detailed overview, please visit the sources attached after the explanation.
DMS stands for Directional Movement System
*It measures the direction of trend in the market *+DMS (Green Line) measures positive trend (uptrend) *-DMS (Red Line) measures negative trend (downtrend)
ADX stands for Average Directional Index
*It measures the strength of the trend in the market, regardless of direction and confirms price movement (Black line) *It is measured from 0 to 100 *It can also confirm if the market conditions are ranging or trending. *It is a lagging indicator i.e. it is used to confirm the direction of price movement and cannot be used as a trigger.
ADX/DMS indicator consists of 3 lines
Green line which is +DMS, Red line which is -DMS and Black line which is the ADX line ADX is derived from smoothened averages (14 period) of difference between +DMS and -DMS.
Directional movement is calculated by
Comparing the difference between 2 consecutive lows… with the difference between their respective highs. +DMS and -DMS are derived from smoothened average of these differences.
ADX hacks that you can use to understand signals and charts better -
When ADX is below 20 it is a ranging market When ADX moves above 30 it indicates a strong trend. The duration of the trend is based on duration of the range before it. ADX sloping means trending market conditions. ADX with a flat slope means ranging market conditions. When +DMS crosses -DMS, with ADX over 30 and going up, it is a buy signal confirmation. When -DMS crosses +DMS, and ADX is above 30 and going up, it is a sell signal confirmation.
I would love to answer any questions you have on ADX and how to use it. Please ask any doubts you have in the comments below. I would also like any feedback you have to improve the way I explained ADX as this is my first post on trading view.
Thank you for your help. My question is as an intermediate term trader who follows the trend. what is the best setting me to put the ADX? For example ADX smoothing? D1 Length? What does that mean? I mainly use the weekly time frame to asses a chart and then use a daily time frame for my entries.
I would really appreciate your help. Thanks Kindly
leepee
⋅
Great thanks. Does it mean anything when the -DMI crosses above ADX and visa versa?
I would really appreciate your help. Thanks Kindly