In this series, I will start discussing all the Zerodha Kite indicators one by one. The first indicator on Zerodha Kite is ADX/DMS, so I will start on the ADX/DMS Indicator on Zerodha Kite. What is the full form of ADX/DMS? The full form of ADX is Average Directional Index and the full form of DMS is Directional Movement System.
How to Add the ADX/DMS Indicator On Zerodha Kite?
- Open any chart on Kite platform.
- Click on Studies.
- Choose ADX/DMS from the dropdown.
- Now you can see the ADX/DMS indicator attached in the chart.
- The default settings are ADX Period of 14 and Smoothing Period of 14. See the image below.
How To Trade With The ADX/DMS Indicator On Zerodha Kite?
- The ADX/DMS indicator consists of 3 components.
- The +DI or PDI line – shown on green colour.
- The -DI or MDI line – shown on red colour.
- The ADX line – shown on grey colour.
- The PDI and MDI lines gives buy and sell signals and the ADX line shows the trend strength.
How To Interpret Buy / Sell Signals From The ADX/DMS Indicator On Zerodha Kite?
- PDI line crossing above MDI line is a buy signal.
- PDI line crossing below MDI line is a sell signal.
- The ADX line rising is a trending market.
- When the ADX line is abive 25 and rising it is a properly trending market. The higher the ADX value the greater the trend strength.
- On the other hand ADX line falling and below 25 denotes range.
So a trader can change his / her trading style using the ADX/DMS indicator on Zerodha Kite. When the PDI is above MDI with a rising and high ADX reading he should consider only buy orders (either buy on breakouts or buy the pullbacks). And when the PDI is below the MDI with a rising and high ADX reading he should only consider short selling orders (either short sell on breakdowns or short sell on pullback rallies).
In a lower ADX reading below 25 or best below 20/15, a trader should employ range trading techniques. He can buy on dips as well as short sell on rallies. Both the methods can be used on intraday (5/15 minutes chart) or swing trading (hourly / daily / weekly charts).
The PDI and MDI lines are used for generating buy/sell signals whereas the ADX line is used only to judge trend strength. Remember, a high ADX does not denote a direction, it only denotes the current trend (can be either UP or DOWN) is strong.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.