Average Directional Index (ADX)

Description

The ADX is part of a group of directional movement indicators that make up a trading system developed by Welles Wilder: the Average Directional Index, Minus Directional Indicator (-DI) and Plus Directional Indicator (+DI). Wilder designed ADX with daily prices and commodities in mind; however, these indicators can also be applied to stocks. The Average Directional Index measures the trend strength without taking trend direction into account, while the -DI and +DI complement the ADX by defining the trend direction. When used together, traders can find out both the direction and the strength of the trend.

Wilder talks about the Directional Movement indicators in his 1978 book, New Concepts in Technical Trading Systems, which also features details of Average True Range (ATR), the Parabolic SAR system and the RSI. Although he developed them before the computer age, Wilder’s indicators are extremely detailed in their calculation and are still equally effective today.

Interpretation

The Average Directional Index (ADX) is used to measure the strength or weakness of a trend, not the actual direction. Directional movement is defined by +DI and -DI. In general, the bulls have the edge when +DI is greater than -DI, while the bears have the edge when -DI is greater. Crosses of these directional indicators can be combined with ADX for a complete trading system.

It should be kept in mind that Wilder was a commodity and currency trader. The examples in his books are based on these instruments, not stocks. This does not mean his indicators cannot be used with stocks. Some stocks have price characteristics similar to commodities, which tend to be more volatile with short and strong trends. Stocks with low volatility may not generate signals based on Wilder's parameters. Chartists will likely need to adjust the indicator settings or the signal parameters according to the characteristics of the security.

Further information

http://de.wikipedia.org/wiki/Average_Directional_Movement_Index

Usage

ADX(int period)
ADX(IDataSeries inSeries, int period)
ADX(int period)[int barsAgo]
ADX(IDataSeries inSeries, int period)[int barsAgo]

Return value

double

When using this method with an index (e.g. ADX(20)[int barsAgo] ), the value of the indicator will be outputted for the referenced bar.

Parameters

inSeries Input data series for the indicator

period Number of bars included in the calculation

Visualization

Example

//Output of the current value of a 20 period ADX
Print("Value of the ADX: " + ADX(20)[0]);