Read Part 5a Here First Before Proceeding
It is important to re-emphasize that the direction of price doesn’t affect the ADX; it is the strength of the stock, futures, or currency’s trend that matters.
Below, we see the E-mini Russell 2000 Futures contract, but here the e-mini future is in a downtrend, a strong downtrend. Note that the ADX is rising even though the price of the e-mini future is falling.
In his book, New Concepts in Technical Trading Concepts, Welles Wilder, Jr., the creator of the ADX also created the DMI+ and DMI- indicators to generate potential buy and sell signals specifically for the ADX technical analysis indicator. In fact the ADX is derived from the DMI+ and DMI- calculations.
The most recent information on the ADX indicator is chronicled in the book ADXcellence by Dr. Charles B. Schaap.
Sourced from OnlineTradingConcepts.com All copyrights belong to their respective owners.