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How to use ADX? Explained in 300 words.
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. technicianapp.com/resources/adxdms/
2. stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_directional_index_adx
3. babypips.com/learn/forex/average-directional-index
4. investopedia.com/articles/technical/02/041002.as
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. technicianapp.com/resources/adxdms/
2. stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_directional_index_adx
3. babypips.com/learn/forex/average-directional-index
4. investopedia.com/articles/technical/02/041002.as
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