ADXR

Overview

The Average Directional Movement Index Rating (ADXR) indicator is an attempt to quantify the momentum change of the ADX indicator. It was developed by J. Welles Wilder and described in his book "New Concepts In Technical Trading Systems", written in 1978. The ADXR is constructed adding the current ADX value and an ADX value n-Periods ago and then dividing that sum by two. This additional smoothing step causes the ADXR to be slightly less responsive to changes in the trend than the ADX. According to Wilder, this smoothing step was used to help compensate for the variance of excessive tops and bottoms.

Interpretation

The ADXR is used in much the same way as the ADX; the higher the ADXR value the stronger the trend. Values above 40 indicate very strong trending while values below 20 indicate non-trending or ranging market conditions.

Wilder suggests using the ADXR (or ADX) as part of a system that includes the +DI and -DI indicators. (See the Directional Movement System indicator for additional details)

Implementation

Users can define the DMI Periods and the ADX Smoothing Periods to allow for full customization of the ADXR indicator. Often times these values will be the set the same, but users are encouraged to experiment with a variety of their own combinations of values. A horizontal reference line is displayed at the +20 level.

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