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Financial Indicator

The Macroaxis Fundamental Analysis lookup allows users to check a given indicator for any equity or select from a set of available indicators by clicking on the link to the right. Please note, not all equities are covered by this module due to inconsistencies in global equity categorizations. Please check also Equity Screeners to view more equity screening tools

Average Directional Movement Index In A Nutshell

There are three components to this indicator, and they are plus directional movement, minus directional movement, and the average directional index. How to read that is the movement is deemed positive if taking the current high and subtracting the prior high is higher than the prior low minus the current low. Negative is if the prior low minus the current low is bigger that the current high subtracting the prior high.

Created by Welles Wilder, the Average Directional Index or ADX for short, is an indicator that helps the investor or trader look for movement within a market. This indicator is helped to measure the potential shift of a trend and even the strength of the move. Strength can be used in different terms such as volume strength, money flow strength, or trading range.

Closer Look at Average Directional Movement Index

Now that you have an idea of what it means, knowing how to use it is the most important part. The ADX is what determines if a potential trend is forming. If the ADX is above 20, there is the potential for a trend. If the ADX is 20 or below, that means a trend may not be occurring or be strong. The direction of the trend depends on whether the plus or minus is nearing the higher digits.  

Be sure to test out the indicator on your current setup and see if it fits. As with any indicator, it is not set in stone, but rather a tool to help notify you in a potential shift in the market. This is a popular tool and there is loads of research available for you to review. Also, check out the tools on MacroAxis to hone in your trading.