Average Directional Movement Index

The Average Directional Movement Index ADX is an indicator of technical analysis and is used to determine trend strength of a course. It was developed by Welles Wilder in 1978 and published in his book " New Concepts in Technical Trading Systems". Like all instruments of technical analysis is its expressiveness controversial.

Interpretation

The ADX shows only the strength of a trend and not the direction. So suggests a rising ADX indicates a trend phase and a falling ADX to a trendless phase. Many experts in this case to measure the direction of movement is often more important to than its absolute level. Considering the height of the ADX into account, then values ​​are generally above 15 for a trend phase and values ​​below for a trendless phase.

Since this is an average figure, he only reacts with a delay to changes in the markets.

Calculation

The idea behind the ADX is to compare the respective daily highs and lows of consecutive days. Once the maximum rate of the current day is higher than the highest price of the previous day, so this points to an upward trend. In this case, an upward indicator "DM- Plus" ( Directional Movement -Plus ) is calculated by subtracting yesterday's peak price of today. Lag of today's highest price is not higher than yesterday, DM Plus is equal to zero (there is just no evidence of an upward trend before ).

Similarly, DM -minus calculated as an indicator of a downward trend by the yesterday's low price will be deducted from today. Again, the lowest value is zero.

These indicators are now giving Although information about the absolute motion of the course. For a comparison of the values ​​of different courses but it requires the normalization. To this end, the Direcitonal Movement indicator is divided by the " True Range ". The True Range is either the variation of the current day ( maximum rate low rate) or the change in today's high - or low price compared to yesterday's closing price, depending on which of these values ​​is the highest. With this normalization, we come to the two direction indicators DI Plus and Minus DI.

To calculate the ADX Directional Movement Index of (DX) is now determined. This indicator is calculated by the difference between DI and DI -Plus -minus the sum of the values ​​of DI and DI Plus -minus is shared.

The ADX is then the moving average of DX. For the moving average, it requires the definition of a period over which the average is calculated. Here are elected often 14 or 18 days.