In technical indicator research, what market parameter is measured by the Average Directional Index (ADX), and how does On Balance Volume (OBV) validate an established uptrend?

[ A ]ADX measures the statutory corporate income tax rate, while OBV measures the physical height of the stock exchange building.

[ B ]ADX measures the strength of a trend irrespective of direction (values >25 indicate a strong trend, <25 indicate a weak/non-trending market); OBV cumulates volume on up-days and subtracts volume on down-days, validating an uptrend when the OBV line steadily rises above its 20-period moving average.[ CORRECT ]

[ C ]ADX determines the exact closing price of gold in London, while OBV calculates the number of employees in a factory.

[ D ]Both ADX and OBV are single-day candlestick patterns that appear only during corporate mergers.

Takeaway

Option B is correct: ADX measures the strength of a trend irrespective of direction (values >25 indicate a strong trend, <25 indicate a weak/non-trending market); OBV cumulates volume on up-days and subtracts volume on down-days, validating an uptrend when the OBV line steadily rises above its 20-period moving average.

Derivation

Trend strength and volume indicators: (1) Average Directional Index (ADX): Plotted on a 0-100 scale, ADX measures purely the STRENGTH of a trend, not its direction. ADX >25 indicates a strong trending market, while ADX <25 signifies a non-trending range. Direction is identified by DMIs: buy when +DMI crosses above -DMI with rising ADX >25. (2) On Balance Volume (OBV): Adds volume on up-days and subtracts volume on down-days. In a healthy uptrend, OBV steadily rises above its 20-period average (OBV 20), confirming accumulation ('volume precedes price'). This tests ADX and OBV indicators. The common error is assuming ADX indicates bullish direction.

Why the others fail

A — ADX measures the statutory corporate income tax rate, while OBV measures the physical height of the stock exchange building.

ADX and OBV are technical momentum and volume indicators, completely unrelated to corporate tax rates or office building heights.

C — ADX determines the exact closing price of gold in London, while OBV calculates the number of employees in a factory.

ADX measures trend strength and OBV measures volume accumulation, not gold spot prices or corporate headcounts.

D — Both ADX and OBV are single-day candlestick patterns that appear only during corporate mergers.

ADX and OBV are continuous technical indicator line plots, not isolated single-day candlestick chart patterns.