All the trend indicators we have reviewed so far are simple to calculate and are quite visual. But there are more complex indicators. Here is one, the Average Directional Movement system more commonly known as ADX. It has just one time period parameter, the value of this parameter should be somewhere between 10 and 20 periods, say 14 and 17 periods. Experiment a little and find what suits. The indicator consists of three lines. All the three lines are measured on the same scale from 0 to 100. The main line is ADX. If it rises, then it means there is a trend on the market and if it falls, then it means that the existing trend has ended, at least for a while, but ADX cannot tell us whether the trend is an uptrend or a downtrend. And that is what the other two lines are for. The red line is called plus di and the green one is minus di. If plus di is above minus di, and ADX is rising, we got ourselves in an uptrend.
If minus di is above plus di and the ADX is rising, then the trend is down. Now, if plus di is above minus di, but ADX is falling, or minus di is above plus di, and ADX is falling, it means that the trend has slowed down, stopped, or even reversed. This indicator has a trait that you should be aware of. ADX will continue to fall at the beginning of even a powerful trend. This is because of the way ADX is formulated. Observe on the chart, that the plus di is above minus di, it is falling. So, is the price. Minus di on the other hand is rising and ADX is falling. ADX will continue to fall until minus DI crosses plus DI above. Now ADX turns up too. ADX also identifies weak trends and trading ranges. ADX signals these by falling below 20 and gives an ever more reliable signal, if it falls below plus di and minus di.
Directional movement system works well on daily and weekly charts. That is where one candlestick represents a day or a week, but it works very badly on hourly charts.
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