Average Directional Movement Index Indicator M4 | MT5

The ADX indicator, developed by J.Welles Wilder in 1978, is a trend-following indicator. While this indicator does not specify trend direction, it is designed to measure trend strength, enabling traders to determine whether the market is trending or ranging.

Moreover, the ADX indicates three key lines:

1. ADX (Blue-colored line): Measuring the trend's strength. A reading below the 20-value level suggests a consolidation market phase, while above it indicates a trending market.
2. +DI(Lime-colored line): Measuring the bullish power in the market.
3. -DI(Red-colored line): Measuring the bearish power in the market.

During a trend market condition, whether bullish or bearish, this indicator can provide traders as well with buying or selling signals with the appearance of a crossover between the +DI and -DI lines:

• When the +DI crosses above -DI, during an uptrend, that signals a long opportunity for the trader.
• When the -DI crosses above +DI, during a downtrend, that signals a short opportunity for the trader.

Furthermore, the ADX can be used to spot potential reversals, signaling traders to exit their positions and be prepared for a possible trend change:

• During an uptrend, when the ADX line peaks, signaling a potential bearish reversal.
• During a downtrend, when the ADX line peaks, that signals a potential bullish reversal.

To sum up, this indicator helps traders make informed trade decisions on several market situations, and to avoid some false signals, it is recommended to combine the ADX with other technical analysis indicators, which are available for FREE on our platform.

For the first trading example using the ADX indicator on an MT4 chart, when the blue line rises above the 20 level, suggesting a strong trend, with a crossover of the +DI line above the -DI line, that signals a long opportunity. At the trend's end, the ADX forms a peak that suggests a potential reversal. As the blue line moves again above the level alongside the red line this time crosses above the green line, that signals a selling opportunity for the trader.

For the second trading example using the ADX indicator on an MT5 chart, when the ADX line moves above the 20-value level, suggesting a strong trend, with a crossover of the red line above the green one, signaling a selling opportunity. Toward the trend's end, the ADX forms double peaks suggesting a potential reversal. When the blue line rises again above the level while the +DI crosses this time above the -DI, signaling a long opportunity for the trader.

To make the best trade decisions and minimize false signals, traders should use other indicators alongside this trend-following and strength indicator.