Now we will discuss how to apply ADX in stock investment.
ADX Greater Or Lower Than 25?
In practice, most technical analysts use 25 as the threshold for ADX reading - if ADX is above 25, then it indicates a strong trend (note the trend could be up or down since ADX is directionless). A reading of ADX below 20 usually means there is no trend.
ADX Rising or Dropping?
A rising ADX line means the existing trend is strengthening, this is good for some trading strategies. For example, you could use a trading strategy to pick a stock's buy or sell price, but it will be nice to use ADX to confirm the stock is in a strong upward trend before you buying a stock or selling a stock if ADX indicates a stock is in a strong downward trend.
DI+ vs. DI-'s Relative Positions
DI+ line and DI- line complement the ADX line as they help determine the trend's direction. The direction of the trend is positive if the DI+ line is higher than the DI- line. Conversely, the direction of the trend is down when the DI- line is higher than the DI+ line.