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    ADX/DMS How-To Guide

    ADX/DMS

    The Average Directional Index (ADX) and the Directional Movement System (DMS) are powerful technical analysis tools that can help you assess the strength and direction of a market trend.

    1: Add the ADX/DMS to your Chart

  • Look for the ADX/DMS indicator from the list of our available Studies.

  • Adjust the settings if desired, such as the period length (commonly set to 14) or the color scheme for better visualization. You can do this by right-clicking on the ADX/DMS and choosing “Edit Settings”.

    • 2: Understand the Components of the ADX/DMS

  • The ADX line represents the strength of the trend, ranging from 0 to 100. A higher ADX value indicates a stronger trend.
  • The Positive Directional Indicator (+DI) line shows the strength of upward price movement.
  • The Negative Directional Indicator (-DI) line shows the strength of downward price movement.

    • 3: Interpret the ADX Values

  • ADX values below 20 indicate a weak or non-existent trend, suggesting a ranging or consolidating market.
  • ADX values between 20 and 40 suggest a developing trend with moderate strength.
  • ADX values above 40 indicate a strong trend.

    • 4: Analyze the +DI and -DI Lines

  • When the +DI line is above the -DI line, it indicates a bullish trend.
  • When the -DI line is above the +DI line, it indicates a bearish trend.
  • Crossovers between the +DI and -DI lines can signal potential trend reversals.

    • Tips and best uses:

  • Use the ADX to filter out noise and identify trending markets, which are more favorable for trend-following strategies.
  • Adjust the period length of the ADX/DMS based on your trading style and timeframe, but be cautious of excessively short periods that may generate false signals.

    • To better understand the concepts used in this guide, check out our ADX/DMS Reference Guide.