Average Directional Movement (ADX)

The ADX is a volatility indicator that was invented by J. Welles Wilder. It measures the current volatility in the market. When the market is not volatile, it will remain low and very probably with a value below 20. However, when the volume starts entering the market and the price becomes more volatile, the ADX will rise. This indicator is commonly used to anticipate the end of ranging markets and the beginning of a trend. The ADX generates signals when it rises above a specific threshold. When it’s above the threshold, the indicator will send a confirmation signal. This signal will let the other indicator(s) open or close a position. Likewise, if the ADX is below the threshold, no confirmation signal will be sent and it won’t let the other indicator(s) to open or sell a position.

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