The directional movement index is a momentum indicator that is typically shown below or above the price chart. The technical analysts calculate it by comparing the current price with the previous price range. The directional moment index then displays the result as an upward directional index and a downward directional index with a symbol (+DI) and (-DI) respectively. It is also implemented to calculate the strength of the upward or downward movement. It then displays the result as a trend strength line, which is known as Average Directional Index or ADX.
Technical analysts use the Directional Movement Index in ranging as well as in trending markets. Generally, it is assumed that when the +DI line is above the -DI line, the market is moving upwards. Similarly, when the -DI line is above the +DI line, the market is moving downwards.
When you are trading a trending strategy, you must favor long positions when the +DI is above the -DI line. You need to avoid long trades when the -DI is above the +DI. Similarly, keep in mind when the -DI is above the +DI, favor short positions, and avoid taking short positions when the +DI is above the -DI.
Average directional index line represents the strength of the price move. Analysts believe that the market is trending when the ADX line is above 25, and ranging when the ADX line is below 25.
There are many investors, who consider an ADX reading above 20 as trending, and below 20 as non-trending.
The average directional index can actually act to further filter or confirm trade signals. One must use these momentum indicators to generate the accurate stock market tips. If you want to approach the experienced technical analysts then visit the official website of money Classic Research.
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