Average Directional Movement Index

An asset’s price moves in the direction of the trend. Trading with the trend, especially if it is a strong trend, may help a trader reduce potential risks and increase potential profits.

The Average Directional Movement Index chart or ADX chart is based on the asset’s one-hour, six-hour, and one-day price range expansion across a span of 30 days. The chart can display its data across numerous selectable time periods, up to a three hundred and sixty-five-day period if desired.

The chart incorporates market data from our proprietary data warehouse and is displayed as an oscillating line graph chart with a scale of zero to one hundred, illustrating the overall trend strength. The position of the oscillating ADX line can aid you in identifying whether a trend is present and, if present, whether it is strong or weak.

A rising ADX line indicates that the current trend is strengthening, no matter whether that trend is bullish or bearish. Conversely, a descending ADX line indicates that the current trend is weakening (not necessarily reversing), no matter whether that trend is bullish or bearish.

– Any reading below 20 signals that a trend is absent.

– Once the oscillating line breaks above 25 it is a signal for the commencement of a trend.

– From 25 to 50 is classified as an indicator of a strong trend.

– A reading of 50 to 75 indicates a very strong trend.

– While 75 to 100 is a signal for an extremely strong trend,

An absent trend indicator (below 20) does not mean that the asset’s price is not moving; it may be moving but gearing up for a trend change.

Traders may wish to consider trend trading strategies from an ADX reading of 25 and above particularly if it rises by 5+ points on the scale in a single period.

When breakouts occur on an asset’s price chart it may be helpful to consult the ADX chart to assess whether it indicates if the trend is strong enough for the price to continue the trend after the breakout.


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