Usage of the Average Directional Movement Index Indicator

The Average Directional Movement Index (ADX) indicator is based on comparing two other indicators — a 14-period +DI and a 14-period -DI. These lines can also be used themselves. If the DI+ rises above the DI-, it is time to open a buy position, and if it falls below the DI-, it is time to open a sell position.

The ADX shows the strength of the current trend. Low values tell that the trend is weak, and high values indicate that it is strong. If the ADX starts to fall after a peak, this can be a warning of a change. It is better to close any open positions in this situation. If the ADX rises from a low level, it is a sign that a new trend is starting. In this case either a buy or a sell position can be opened depending on the current price behavior.