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Get Directions Average Directional Indicator (ADX)

Asking for Directions (ADX)
 The saying goes men never ask for directions.  Somehow we know by instinct which way to go.  Either that or we are simply too proud to admit that we are lost.  I have to admit I am one of those hard heads that will not stop and ask.  And when I finally do I only half listen to what they are telling me.  Come on admit it if you are a male you are probably at least a little like me.  

 When it comes to stocks I do not mind asking for directions.  When my money is on the line I want to know which way to go.  I will ask the chart which direction the stock may go.  One indicator I use for this purpose is the ADX (the directional indicator).  

 The uneducated investor does not even know to ask for directions.  One reason is because he does not know where to ask for them.  Most of the herd is out there guessing the direction on a daily basis; they put money into stocks that are in clear downtrends because they view them as cheap.  They do not know that charts and indicators can give them advance notice of a stocks movement.  Charts are like having a map of the market for you to consult when you are not sure of the direction. 

Average Directional Indicator
 Continuing our indicator series tonight let's talk about the Average Directional Indicator (ADX).  The ADX is another oscillating indicator.  It moves up and down with the strength of the trend and fluctuates between 0 and 100.  Even though the scale is from 0 to 100 readings above 60 are rare.  Readings below 20 indicate a weak trend.  Readings above 40 indicate a strong trend.  The indicator does not take into consideration if a trend is bullish or bearish it will only measure the strength of the current trend.  A reading above 40 may indicate either a strong downtrend or a strong uptrend. 

 The indicator is very simple.  If the ADX line is pointing up the trend is strong regardless if bullish or bearish.  A flat ADX line means there is no direction and the stock is not trending (it is trading flat).  This indicator helps us access the strength of the current trend no matter which direction the stock is going. 
 
 The ADX is further broken down by two separate indicators; they are referred to as DI and DI.  (DI) is short for Directional Indicator.  These two lines will fluctuate more than the ADX (solid black line) indicator.  Both indicators are also used to show the strength within a trend.  DI is normally a green line while DI is a red line.  DI shows the positive strength while DI shows the negative strength.  If DI is on the top of DI with the ADX line trending up this is a signal to trade long.  If DI is on top of DI and the ADX is pointing up this is a signal to trade short.  The key is ADX must be trending up.  If it is not then the indicator is telling you there is no clear direction (the stock is trading flat).  

 The next time you look at a chart look at the ADX for direction.  Those that do not pay attention to direction are likely to end up lost.







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