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ADX Average Directional Index

• The Average Directional Movement Index (ADX) technical analysis indicator describes when a market is trending or not trending. When combined with the DMI+ plus and DMI- minus (see: DMI) the ADX can generate buy and sell signals.

• However, the main purpose of the ADX is to determine whether a stock, future, or currency pair is trending or is in a trading range. Determining which mode a market is in is helpful because it can guide a trader to which other technical analysis indicators to use.

ADX Shows Trend StrengthThe first concept to remember is that the direction that the ADX moves doesn't depend upon the direction of the underlying stock. All the ADX shows is the trend strength.

• Strong upward trend of stock = Increasing ADX • Strong downward trend = Increasing ADX

The ADX is an oscillator that fluctuates between 0 and 100, although readings above 60 are relatively rare. In technical analysis, an ADX is compared to two levels:• ADX readings below 20 indicate a weak trend• ADX readings above 40 indicate a strong trend.