Northspread
Formula sheet/NISM Series XV: Research Analyst/Technical Analysis
[ TECHNICAL ANALYSIS ]

Average Directional Index (ADX) & Directional Movement System

True Range(TR)=max[(Ht−Lt),∣Ht−Ct−1∣,∣Lt−Ct−1∣]\text{True Range} (TR) = max[ (H_{t} - L_{t}),\quad\Big|\quad H_{t} - C_{t-1}\quad\Big|\quad ,\quad\Big|\quad L_{t} - C_{t-1}\quad\Big|\quad ]
+DM=(Ht−Ht−1)if>0and>(Lt−1−Lt),else0∣−DM=(Lt−1−Lt)if>0and>(Ht−Ht−1),else0+DM = (H_{t} - H_{t-1}) if > 0 and > (L_{t-1} - L_{t}), else 0\quad\Big|\quad -DM = (L_{t-1} - L_{t}) if > 0 and > (H_{t} - H_{t-1}), else 0
+DI14=(Smoothed+DM14/TR14)×100∣−DI14=(Smoothed−DM14/TR14)×100+DI_{14} = (Smoothed +DM_{14} / TR_{14}) \times 100\quad\Big|\quad -DI_{14} = (Smoothed -DM_{14} / TR_{14}) \times 100
Directional Index(DX)=[∣+DI−−DI∣/(+DI+−DI)]×100  ⇒  ADX=14−period Smoothed Average of DX\text{Directional Index} (DX) = [\quad\Big|\quad +DI - -DI\quad\Big|\quad / (+DI + -DI) ] \times 100 \;\Rightarrow\; ADX = 14-\text{period Smoothed Average of DX}
Variables

ADX measures trend strength regardless of direction. ADX > 25 confirms a strong trend; ADX < 20 indicates non-trending chop. HtH_{t}, LtL_{t}, CtC_{t}: High, Low, and Close at period t.

Worked example
Relative Strength Index (RSI) Calculation

Over a 14-day lookback period, a stock's average daily gain on up-days is Rs 18.00 and its average daily loss on down-days is Rs 6.00. Calculate the Relative Strength (RS) and the 14-period RSI.