Average Directional Index

November 22nd, 2011Comments closed

average-directional-index technical-analysis tutorial

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Adding to our arsenal of technical analysis tools, we intoduce Average Directional Index (ADX) at techpaisa.

ADX tells us whether a stock or a commodity is in a trend or not. It also tells us the strength of the trend. However using ADX only, one can not determine whether a stock is in a downtrend or uptrend, that is, ADX only tells whether a stock is in a trend or a trading range.

Reading ADX values is pretty straight forward. If ADX is less than 25, then stock is in a trading range. If ADX is greater than 25 then the stock is in a trend. If ADX becomes very large (around 50) then it generally means, the trend is weak and expect ADX to fall from here.

As ADX does not tell us the direction of trend, it can not be used to generate buy or sell signals. However, you can combine ADX with other technical indicators to get an idea of stock's movement in next few weeks.

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Happy Investing!

Techpaisa Team.

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