Many traders or
technical analyst used to follow trend in stock market. Technical analyst use
ADX (Average Directional Movement Index)
to find trend in stock market. Actually ADX is not a directional indicator; it
will not give you direction of trend. Instead of direction or momentum, ADX can
give you strength of trend for particular scrip.
Value for ADX
varies in between 0 to 100. As the value of ADX changes the strength of trend
will also change. If the value of ADX is below 20 then it is very poor trend.
And if the value of ADX is above 40 you can say it is strong trend.
There are
lots of strategies to find trend using ADX. Here is one strategy to find trend
using ADX in stock market. ADX is a combination of two other indicators. One is
positive Di and second one is negative DI. We can use positive directional
indicator (+DI) and negative directional indicator (-DI) to find the direction
of the trend.
If the value
of +DI is higher than the –DI you can say it is up trend, while if the value of
–DI goes higher than +DI then you can say it is down trend. +DI or –DI are
nothing but the directional indicators which are used with ADX to find
direction of trend.
Sometimes +DI
/ -DI generates false trend signals, to prevent these false signals we must
confirm the value of ADX. If the value of ADX is above 20 or rising above 20,
than and then you can confirm that trend is up trend or down trend based on the
value of +DI / -DI.
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