Introduction

The average directional movement index (A.D.X.) was developed in 1978 by J. Welles Wilder as an indicator of trend strength in a series of prices of a financial instrument. It is a combination of two other indicators developed by Wilder, the positive directional indicator (abbreviated +DI) and negative directional indicator (-DI). Plus DI represents an absolute up movement and Minus DI represents absolute down movement. Here please note that “+” and “-” denotes only upward and downward movement. “-DI” is not a negative number. But a positive number of downward movement. The A.D.X. combines them and smooths the result with a smoothed moving average.

Indicator type

Momentum

Formula

ADX = {100*([+DI] – [-DI])} / ([+DI] + [-DI])

How to use

Bearish Scenario

Since the ADX value moves from zero to 100. A high value of ADX indicates a bearish trend. Thus when the value is high meaning buyers are dominant thus a selling signal can be generated.

Bullish Scenario

A low value indicates a bullish scenario. Thus when the value is low meaning sellers are dominant thus a buying signal can be generated.

ADX Technical Indicator with Price Trend

Building on Mudrex

ADX moves from zero to 100, a low value of ADX indicates a strong seller’s market meaning prices might go up and a buying signal can be generated and vice-versa.

Strategy

  • Buy:- ADX crosses down 25
  • Sell:- ADX crosses up 85
  • Time Frame:- 5 minutes
  • Stop Loss:- 10%

Creating on Mudrex

Components:- To create this strategy we need 2 indicators. One to buy and one to sell.

For Buying:-

Indicator Block for Buy Signal over Mudrex

For Selling:-

Indicator Block for Sell Signal over Mudrex

Final Strategy:-

ADX Trading Strategy over Mudrex

Testing

Running on Binance Futures: BTC/USDT with tick interval of 5m yielded an overall profit of 14.61%

Back-Test Results for ADX

Quick Links