How to use the ADX indicator in Forex | adx indicator formula

What is ADX?

The Average Directional Index (or ADX indicator) is a technical tool designed to measure the strength of a market trend. The ADX indicator is used for various purposes, such as measuring trend strength, as a trend and range finder, and as a filter for different Forex trading strategies.

Forex ADX Indicator Calculation Explained
The ADX technical indicator is derived from two of Wilder’s directional indicators:

The positive directional indicator (+DI)
The negative directional indicator (-DI)

These indicators complement the ADX by providing a guide to the trend’s direction, and they come from quite simple measures of the market’s directional movement. They define directional movement by comparing the high and low of the current period with the high and low of the previous period. Wilder defined two terms that help here:

Plus directional movement (+DM)
Minus directional movement (-DM)
Directional movement can either be positive, negative, or zero. It cannot be both positive and negative, and it is either up or down. So when the +DM has a value other than zero, the -DM is zero. And when the -DM has a value other than zero, the +DM is zero. Directional movement is positive when the current high minus the previous high is both positive and greater in value, than the current low minus the previous low.

Negative directional movement is defined in a similar way. Directional movement is negative when the previous low minus the current low is both positive and greater in value, than the previous high minus the current high. When the +DMI is above the -DMI, prices are moving up and the ADX measures the strength of the uptrend. When the -DMI is above the +DMI, prices are moving down, and the ADX measures the strength of the downtrend.

For traders, the good news is that modern trading software performs these calculations for you automatically. The standard MetaTrader 4 platform comes with the ADX indicator included, so there’s no need for a separate ADX indicator download. If you want to step your Forex & CFD trading up with a wider selection of indicators that can also complement the ADX, the innovative MetaTrader 4 Supreme Edition plugin (MT4SE) has you covered, with over 55 extra tools, such as the ‘Mini Terminal’, the ‘Correlation Matrix’ and many more!

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