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Average Directional Movement Index

The average directional movement index was designed for use with the directional movement index. Although the program enables the time parameters of the ADX to be set independently of the DMI, the parameters of both studies can be adjusted so they work in tandem.

Calculating ADX is a two-step process. First, the difference of +DI and -DI is divided by the sum of +DI and -DI, and the quotient is multiplied by 100; the result is known as DX. Second, ADX is calculated by taking a modified moving average of DX.

Formula:

ADX = modified moving average of DX

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Where:

n = number of periods

+DI = current positive directional index

-DI = current negative directional index

DX = current DX

The ADX is read like an oscillator. A high positive value is commonly interpreted as bullish average movement. A low negative value is interpreted as bearish average movement.

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see, J. Welles Wilder Jr., New Concepts in Technical Trading Systems, McLeansville, NC: Trend Research, 1978, pp. 35-52