ADX Trading

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The average directional index (ADX) is a technical indicator used by traders to determine the strength of a financial security's price trend. It helps them reduce risk and increase profit potential by trading in the direction of a strong trend. Many traders consider the ADX to be the ultimate trend gauge because it is so reliable.

ADX quantifies trend strength by measuring the degree of directional movement in price. ADX calculations are based on a moving average of price range expansion or contraction over a given period. The default setting is 14 periods, although other settings can be used.

ADX can be used with any financial security, including stocks, exchange-traded funds, and futures.

The average directional index, known as ADX, is a technical tool used by traders to gauge trend strength.
Trading with the trend is considered a fundamental trading practice that reduces risk and increases profit potential.
ADX calculations use a moving average of price range expansion or contraction.
ADX is less useful when prices enter a trading range.
While ADX is a lagging indicator, it is considered reliable.