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Hans,
The Average Directional Movement Index (ADX
At any given time the difference between DI+ and DI- gives us a measure of the
true directional movement. Also at any given time the sum of the DI+ and DI-
gives us a measure of the total amount of directional movement be it all up,
all down or a variable mix of both for the time period for which the DI is
calculated (traditionally 14 days). Remember these DI numbers are calculated as
a percentage. Therefore, if the sum of DI+ and DI- represents the total
percentage of directional movement (up and down) then 100%
minus the sum of DI+ and DI- will quantify the percentage of non directional
movement for the period. Now we can calculate a directional movement index for
the period.
Directional Movement Index for period n:
DX = (DI+)n - (DI-)n x 100%
(DI+)n + (DI-)n
The directional movement index is thus an accounting or a scoring between 0 -
100 of the power of the trend, be the trend up or down, a high score means the
market is strongly trending (up or down) and a low score bespeaks of weak or no
trend.
The familiar average directional movement index (ADX) is simply the directional
movement index averaged for the time period chosen for study related to the
previous day's average directional movement index.
The ADX can be used for two purposes. One is to identify a market which has
likely started a trending move - in contrast to a swing in a trading range.
The second use its to signal the likely end of a trending move.
A true trending move will generally see the ADX steadily rise. An ADX move
above the 40 level and subsequent downturn is a strong signal that a trending
move has ended or stalled.
Use this indicator with others, including a trend line breakout.
Cheers
Larry
____________________________________
"Hans T. Hingst" wrote:
> Would someone please give me the theory behind and an explanation of how to
> read and or use the ADX. Thanks.
>
> Hans
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