The ADX or Average Directional Index is a measure of the strength of a trend. A high ADX means the trend is strong and a low ADX means the trend is weak. The ADX indicator itself does not provide information on the direction of the trend, just whether the trend is strong or weak. Hence, the ADX is normally plotted together with two Directional Movement Index (DMI) to indicate the direction of the trend. The DMI consists of a Positive Directional Movement (DI+) and a Negative Directional Movement (DI-) lines. When the DI+ line is above the DI- line, it indicates an uptrend. Conversely, when the DI- line is above the DI+ line, it indicates a downtrend.
We use a ADX and DMI window of 14 periods.
The Data Trader ADX Indicator strategy creates a BUY signal when the DI+ is above the DI- line and the ADX is above 20. Exit when the DI- is above DI+ or when the ADX drops below 20. A SELL signal is created when the DI- line is above the DI+ line and the ADX is above 20. Exit when the DI+ is above DI- or when the ADX drops below 20.