ADX

The ADX is less helpful during sideways markets. During extended consolidation periods, the ADX line will slip toward 10. When ADX approaches 10, a major move is usually about to take place. But the ADX line doesn’t tell you which direction it will go. You have to rely on other indicators for the probable direction of the next move.

The ADX is part of the direction movement system introduced by J.Welles Wilder in his book, New Concepts in Technical Trading Systems. Wilder introduced a 14-day ADX, and Babcock has not found any good reason to vary this time period.

In summary, if the market is trending (whether up or down), the ADX line should be rising. During an extended consolidation period, the ADX line will slip toward a low number.


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