Monday, May 07, 2007

 
Technical Indicators

Average Directional Movement Index Rating

The Average Directional Movement Index Rating (ADXR) is an attempt to quantify momentum change in the ADX. It is calculated by adding the current ADX value and an ADX value n periods back then dividing that sum by two.

This smoothing step results in the ADXR being slightly less responsive than the ADX. Where the ADXR shines is its ability to compensate for the variance of excessive tops and bottoms. It is especially helpful when used in conjunction with trend-following strategies. Strategies that rely on volatility as an indication of movement often fail to take into account movement does not necessarily indicate volatility. ADXR provides information pertaining to the strength of a trend, helping to manage the risk of trading in volatile markets that fluctuate between trending and non-trending. The interpretation of ADXR is the same as that for ADX, the higher the value, the stronger the trend

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