Average Directional Movement Index Rating (ADXR)
The Average Directional Movement Index Rating is one of the financial market indicators, which is a smoothed version of the Average Directional Index indicator. This program is used to evaluate and smooth the ADX metrics. It was developed by Mr. Wilder, the ADX author, as an add-on to the main program.
Nowadays, many traders use the ADX program. It also has an ADXR version, which differs from the original one with the improved features.
How is the ADXR calculated?
To calculate the index rating, a trader needs to apply the method of smoothing of already smoothed ADX. The ADXR is the sum of 2 ADX indicators: the most recent number and the ADX 14 periods earlier. The amount obtained by the calculations must be divided by 2. Here is the formula for the index score calculating: ADXR =(ADX to date + ADX indicator 14 days earlier)/2.
Mr. Wilder (the program creator) believes that we can conclude that there is a dominant trend directed either upward or downward if there is a high and growing level of the ADX and its average ADXR. On the contrary, if the level of ADX and its average ADXR is low, this is an indication of a trend absence or a lateral market. In general, if the ADXR index is below 20, it indicates a futile financial market situation, while the ADXR, which exceeds the level of 25, may indicate a strong trend.
Compared to the ADX program, the smoother ADXR isn't so dependent on quick turns and reversals of the financial market trend, which gives traders an opportunity to reduce the risk of trading in Forex to a minimum. It allows them to adjust the trading methods taking into account the ADXR indicators in the long term.
How is it used?
If the numerical ADXR value has risen above the level of 25, traders will benefit from following the trend direction. If the ADXR indicator has fallen below the level of 20, it's better not monitor the trend. If the index is low, it will be most reasonable to work with the oscillator systems that show good results in a calm market with no trend. During the trend existence, the prices, as a rule, don't jump.
When the blue DI+ line is located above the red DI- a line of ADXR, it indicates the strengthening of the bull market positions. On the contrary, if you see that ADXR moves upwards, and the negative DI- line goes up relative to the DI+ line, we can conclude that the bear market positions are strong. In case the ADXR and the ADX lines intersect, this data is also used to estimate changes in Forex. The ADXR indicator is an element of almost all the graphic programs used by traders working in the financial market. To build the ADXR correctly, you must set the following parameter types:
- The ADXR Interval - it's usually used to average this average directivity index with the data of the same index n periods earlier. Using this data, you can calculate the degree of directional motion.
- The DX Period - it's used in the index calculation.
- The Smoothing Period - the time of the index smoothing, this indicator is used to smooth out the Wilder to the DX (directional movement). By the end of the calculations, you'll see the total value of the directional movement degree on the screen.
- The Line Color - you will see a color line on the screen. Using some programs, the periods of ADXR, smoothing, and indexes can be adjusted even without closing a particular window using the keyboard. To do it, select the indicator and use the "down" and "up" arrows to change the number of the index period to 1. If you want to adjust the smoothing period, press the CTRL key. To set the ADXR period, press the down and up arrows holding the SHIFT key.
Advantages and disadvantages
The benefits include the fact that the ADXR program is compatible with most Forex trading strategies. It's easy to use and easy to learn for anyone who has worked with the ADX version.
The drawbacks of the indicator, as well as the disadvantages of any other indicators, is that it can lag, i.e., show the presence of a trend a little later than the direction of the market price movement has already changed. But, despite this drawback, the program is top-rated among those who trade in the stock exchange.
Due to its soft nature, the ADXR is less sensitive than its predecessor, the ADX. The ADXR is also used to calculate the CSI index. Since the ADXR program is developed as a supplement, it isn't used separately from the ADX.
This program is easy to use for buying/selling shares if the market is in the medium-term trend.
If you want to make your trading more efficient as well as to learn the determination of the presence and strength of the trend, try the ADXR program in action. You can download it here. Start working today and get a great profit!