Directional Movement

Directional Movement, also known as the Average Directional Index (ADX), is a technical analysis indicator that measures the strength of a stock's trend. The indicator is derived from two other indicators known as the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI).

The +DI measures upward movement in price, while the -DI measures downward movement in price. The ADX indicator is calculated by taking the difference between the +DI and -DI and dividing it by the sum of the +DI and -DI. The resulting value is then smoothed using a moving average.

The ADX indicator ranges from 0 to 100, with values above 25 indicating a strong trend in either direction. Values below 25 indicate a weak or range-bound market. Traders may use the ADX to confirm a trend and to identify potential entry and exit points for their positions in the stock.

This strategy is based on the Directional Movement Index (DMI) When a Positive Directional Movement (+DM) is crossing Negative Directional Movement (-DM) in an upward direction then a buy signal is generated. A sell signal is generated when +DM is crossing -DM in a downward direction.

Formula

IF +DI(m) >= -DI(m)
THEN GO LONG
ELSE
IF +DI(m) <= -DI(m)
THEN GO SHORT
where +DI is a positive directional index;
-DI is a negative directional index;
and m is averaging periods; e.g. m = 14

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