Average Directional Index Rating (ADXR)

Description:

The Average Directional Index Rating (ADXR) is a component of the Directional Movement System that smoothens the Average Directional Index (ADX) to measure the strength of a trend over time. The ADXR is calculated by taking the average of the current ADX value and an ADX value from a selected number of periods ago. This smoothing process helps to identify whether a trend is gaining or losing strength by comparing the current trend strength with its strength in the past, thus providing a more comprehensive view of the trend's stability.

Input Parameters:

• ADX Length: Number of periods used in the calculation.
• ADXR Length: Number of periods used in the calculation.
• MA Type: Select the moving average type such as EMA, SMA, or HullMA.

Use Cases:

1. Trend Strength Evaluation: Similar to the ADX, the ADXR values above 25 indicate a strong trend, and values below 20 suggest a weak trend. The ADXR, however, provides a smoother analysis that can help in assessing the trend's consistency over time.
2. Confirmation of Trend Stability: The ADXR can be used to confirm the stability of a trend. A rising ADXR suggests that the trend is stable and strengthening, while a declining ADXR may indicate that the trend is weakening and possibly nearing its end.
3. Comparison of Past and Present Trend Strength: By comparing the current trend strength with its historical strength, traders can make more informed decisions about entering or exiting trades. An increasing gap between the ADX and ADXR may suggest increasing trend strength.

Do you want to learn more? Check out our Learning Center Article.

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