AdityaAhluwalia
教育

How to use ADX? Explained in 300 words.

COINBASE:BTCUSD   比特幣 / 美元
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.


Sources
1. https://technicianapp.com/resources/adxdms/
2. http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_directional_index_adx
3. https://www.babypips.com/learn/forex/average-directional-index
4. http://www.investopedia.com/articles/technical/02/041002.as
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