FOREX THEORY
ADX in a Trending Market
A way to determine if the market
is trending is through the use of the Average Directional Index indicator or
ADX for short.
Developed by J. Welles Wilder,
this indicator uses values ranging from 0-100 to determine if price is moving
strongly in one direction, i.e. trending, or simply ranging.
Values more than 25 usually
indicate that price is trending or is already in a strong trend.
The higher the number is, the
stronger the trend.
However, the ADX is a lagging
indicator which means that it doesn’t necessarily predict the future. It also
is a non-directional indicator, which means it will report a positive figure
whether price is trending up or down.
Take a look at this example. Price
is clearly trending downwards even though ADX is greater than 25.
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