ADX

Definition:

The Average Directional Index (ADX) indicator measures the strength of a prevailing trend as well as the degree of movement in a market.

Background:

The ADX is non-directional and helps validate the strength of a trend regardless of whether the trend is bullish or bearish.

An ADX value of less than 20 typically indicates a market that is not in a trend. A move above 20 can be an indication that a trend (either up or down) is beginning. If the ADX is over 40 and begins to fall, it can be an indication of a possible stall or reversal (drop) in upward trending price movement.

Practical Use:

ADX entry and exit signals are typically the most meaningful when the price and volume of the chart being analyzed has also set up a bullish or bearish pattern. Using the ADX for additional confirmation of what has already been "read" in the chart can be a powerful addition to the assessment tools used by a technical analyst.