How to Use ADX Indicator to Trade Stock & Binary Options
The ADX, or Average Directional Index measures the strength of a trend and can be useful to determine whether an asset is currently in a trending market or a ranging market.
The ADX indicator ranges from 0 to 100. An ADX reading of 20 and lower indicates ranging or weak trend. An ADX reading of 30 and above indicates a trending market.
+DI Line & -DI Line
The ADX, or Average Directional Index, is actually a composite average of the +DI indicator and -DI indicator.
The +DI or Positive Directional Index indicator is representative of how strong or weak the buyers of the market are.
The -DI or Negative Directional Index indicator is representative of how strong or weak the sellers of the market are.
As the ADX is comprised of both the +DI and -DI indicators, it does not indicate whether the trend is up or down but simply the strength of the overall trend in the market.
DI Line Crossover Signals
When the +DI line crosses above the -DI line, this is an indication that buyers are taking control of the market and traders can look to go long or buy call options.
When the -DI line crosses above the +DI line, this is an indication tht the sellers are taking control of the market and traders can look to go short or buy put options.