Average Directional Index Rating Study

By Samantha Baltodano

TL;DR:

The ADXR line measures the change in momentum in the ADX. It acts as the averaged ADX over a given period of time. 

What Is the Average Directional Index Rating?

The Average Directional Index Rating (ADXR) accompanies the average directional index (ADX) line and measures the difference in the change of momentum in the ADX. 

The ADXR acts as the averaged ADX over a given period of time. For example, setting a period of 10 means you will measure the change in momentum over the past 10 days.

The interpretation of the ADXR is essentially the same as the ADX. A high ADXR value (25+) corresponds with a very strong upward or downward trend. 

An ADXR and an ADX of both 25+ can be used as an indicator that price has a significant momentum and a trend may be worth trading. Conversely, if both values are less than 25, then this is an indication that trend following strategies should be avoided. 

By combining the ADXR and the ADX into your investment strategy and waiting until they both align, you get more conservative, but likely more accurate, trade signals.

Buy and Sell Signals

Note that the ADXR will generate trade signals only after the ADX does. 

A buy signal occurs when the ADX crosses above the ADXR and the ADX is also above 25.

A sell signal occurs when the ADX drops below the ADXR and and the ADX is also above 25.

Summary

• The ADXR in combination with the ADX can provide trade signals based on momentum. 
• ADXR determines whether ADX is gaining or declining. 
• When ADX is above 25 and is above ADXR (uptrend gaining steam), then buy. 
• When ADX is above 25 and ADXR rises above ADX, then sell. 

Average Directional Index Rating is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.

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