Average Directional Index (ADX)
Quick Definition
A technical indicator that measures the strength of a trend regardless of its direction, with values above 25 typically indicating a strong trend and below 20 indicating a weak or absent trend.
Key Takeaways
- ADX measures trend strength (not direction) on a 0–100 scale; above 25 = strong trend.
- The +DI and -DI components indicate whether the trend is bullish or bearish.
- Low ADX readings (below 20) signal ranging markets where trend-following strategies underperform.
What Is Average Directional Index (ADX)?
The Average Directional Index (ADX) is a trend strength indicator developed by J. Welles Wilder Jr. in 1978. Unlike most indicators, the ADX does not indicate trend direction — only trend strength. It ranges from 0 to 100, with readings below 20 suggesting a weak or non-trending market, 20–25 indicating an emerging trend, 25–50 indicating a strong trend, 50–75 indicating a very strong trend, and above 75 (rare) indicating an extremely powerful trend. The ADX is derived from two directional indicators: the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI). When +DI is above -DI, the trend is bullish; when -DI is above +DI, the trend is bearish. The ADX itself is a smoothed average of the difference between +DI and -DI relative to their sum. Traders use the ADX in several ways: to determine whether a market is trending or ranging (which affects strategy choice), to time entries when the ADX is rising from low levels (indicating a new trend is forming), and to avoid entering trend-following trades when the ADX is declining (suggesting the trend is weakening). The standard period setting is 14, though this can be adjusted based on the trader's timeframe.
Average Directional Index (ADX) Example
- 1The ADX climbed above 40 while +DI remained above -DI, confirming a strong bullish trend that swing traders used to hold their long positions with confidence.
- 2With the ADX below 15, the trader switched from trend-following to range-trading strategies, buying at support and selling at resistance.
Related Terms
Average Directional Movement (ADM)
A system of indicators measuring trend direction and strength using three components: the +DI (positive directional indicator), -DI (negative directional indicator), and ADX.
Trend Line
A diagonal line drawn across price highs or lows to identify the prevailing trend direction and potential support/resistance.
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
Moving Average Convergence Divergence (MACD)
A trend-following momentum indicator showing the relationship between two moving averages of a security's price.
Average True Range (ATR)
A volatility indicator that measures the average range of price movement over a specified period, accounting for gaps, to help traders set stop-losses and gauge market volatility.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
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