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Using Average Directional Index to determine trend strength or weakness

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The Average Directional Movement Index (ADX) was developed in 1978 by J. Welles Wilder as an indicator of trend strength in a series of prices of a financial instrument.

A.D.X. has become a widely used indicator for technical analysts, and is provided as a standard in collections of indicators offered by various trading platforms.

The A.D.X. does not indicate trend direction or momentum, only trend strength.

It is a lagging indicator; that is, a trend must have established itself before the A.D.X. will generate a signal that a trend is under way.

A.D.X. will range between 0 and 100.

Generally, A.D.X. readings below 20 indicate trend weakness, and readings above 40 indicate trend strength.

An extremely strong trend is indicated by readings above 50. Alternative interpretations have also been proposed and accepted among technical analysts.

For example it has been shown how A.D.X. is a reliable coincident indicator of classical chart pattern development, whereby A.D.X. readings below 20 occur just prior to pattern breakouts.

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