The Average Directional Index, or ADX for short, is another example of an oscillator.
ADX fluctuates from 0 to 100, with readings below 20 indicating a weak trend and readings above 50 signaling a strong trend.
When the ADX is low, it highlights periods when price is usually going sideways or trading in a range. When the ADX has risen above 50, this indicates that the price has picked up momentum in one direction.
Unlike Stochastic, ADX does NOT determine whether the trend is bullish or bearish. Rather, it merely measures the strength of the current trend.
Because of that, ADX is typically used to identify whether the market is ranging or starting a new trend.
ADX is a considered a “non-directional” indicator. It is based off comparing the highs and lows of bars and does not use the close of the bar.
The stronger the trend, the larger the reading regardless of whether it is an uptrend or downtrend.
Take a look at these neat charts we’ve pulled up:
In this example, ADX lingered below 20 from late September until early December.
As you can see from the chart, EUR/CHF was stuck inside a range during that time.
Beginning in January though, ADX started to climb above 50, signaling that a strong trend could be waiting in the wings.
And would you look at that! EUR/CHF broke below the bottom of the range and went on a strong downtrend. Ooh, that’d be around 400 pips in the bag.
ADX fluctuates from 0 to 100, with readings below 20 indicating a weak trend and readings above 50 signaling a strong trend.
When the ADX is low, it highlights periods when price is usually going sideways or trading in a range. When the ADX has risen above 50, this indicates that the price has picked up momentum in one direction.
Unlike Stochastic, ADX does NOT determine whether the trend is bullish or bearish. Rather, it merely measures the strength of the current trend.
Because of that, ADX is typically used to identify whether the market is ranging or starting a new trend.
ADX is a considered a “non-directional” indicator. It is based off comparing the highs and lows of bars and does not use the close of the bar.
The stronger the trend, the larger the reading regardless of whether it is an uptrend or downtrend.
Take a look at these neat charts we’ve pulled up:
In this example, ADX lingered below 20 from late September until early December.
As you can see from the chart, EUR/CHF was stuck inside a range during that time.
Beginning in January though, ADX started to climb above 50, signaling that a strong trend could be waiting in the wings.
And would you look at that! EUR/CHF broke below the bottom of the range and went on a strong downtrend. Ooh, that’d be around 400 pips in the bag.
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