The average directional index (ADX) is used to determine
when price is trending strongly. In many cases, it is the ultimate trend
indicator. The ADX indicator measures the strength of a trend and can be useful
to determine if a trend is strong or weak. High readings indicate a strong
trend and low readings indicate a weak trend. When this indicator is showing a
low reading then a trading range is likely to develop. Avoid stocks with low
readings! You want to be in stocks that have high readings.
This indicator stands for Average Directional Index. On some
charting packages there are two other lines on the chart, +DI and -DI (the DI
part stands for Directional Indicator). Trying to trade according to these two
lines is a great way to lose money. The only thing that we are concerned with
is the ADX itself. It is rather popular in recent years.
Average Directional Index Indicator is best used for
screening stocks and writing scans. By adding this indicator to your scanning
software, you can eliminate all of the stocks that are in trading ranges. You
can then set up your scan to find only those stocks that are in strong up
trends or strong down trends.
Moreover, the ADX indicator does not give buy or sell
signals. It does, however, give you some perspective on where the stock is in
the trend. Low readings and you have a trading range or the beginning of a
trend. Extremely high readings tell you that the trend will likely come to an
end. Over the last couple of years, the popularity of Average Directional IndexIndicator has drastically increased than before. It has many uses to those
people who are using this indicator while doing trading.
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