Technical Analysis, Studies, Indicators:
Average Directional Movement Index Rating(ADXR)
ADXR stands for Average Directional Movement Index Rating. ADXR is a component of the Directional Movement System developed by Welles Wilder. This system attempts to measure the strength of a price movement in positive and negative directions, as well as the overall strength of the trend. The Average Directional Movement Rating quantifies the change of momentum in the ADX (Average Directional Index). It is calculated by adding two values of ADX (the current value and a value n periods back) and then dividing by two:
ADXR = (ADX + ADX N periods ago) / 2
There are several ways to use ADXR:
- The ADXR can be used in the same way as the ADX is used in the Directional Movement system. The technical analysis interpretation is the same as the ADX - the higher the value, the stronger is the trend. It results in more conservative trading signals. The ADXR can be used to determine whether a price movement is sufficiently directional to be worth trading. Welles Wilder's rule is to use a trend following trading system when ADXR is above 25, but not when ADXR drops below 20.
- ADXR is a lagging indicator that behaves like an Averaged ADX. In addition, the ADXR will generate signals after the ADX. In some cases the ADXR is used as a signal line applied to ADX. There is a buy signal when ADX rises above ADXR, and a sell signal when ADX falls below ADXR.
Chart 1: S&P 500 - ADXR (Average Directional Movement Index Rating)
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