Trend · Indicator
ADX measures trend strength on a 0-100 scale without regard to direction, with the +DI and -DI lines showing which side is dominant.
Overview
The Average Directional Index is Welles Wilder's trend-strength indicator, scaled 0 to 100. An ADX above 25 signals a strong trend regardless of direction, while low readings describe a market without one. The accompanying +DI and -DI lines show whether buyers or sellers are dominant, so the three lines together answer both 'is there a trend' and 'which way'.
The separation of strength from direction is what makes ADX distinctive. Almost every other indicator conflates the two, so a strong signal in a directionless market looks the same as a strong signal in a trending one. ADX rising means the market is trending more decisively, whether that trend is up or down, which is why it is most often used as a filter for other indicators rather than as a signal source itself.
In practice ADX is used to decide which toolkit applies. When it is low, oscillator-based mean-reversion approaches tend to work better and trend-following crossovers whipsaw; when it is high, the reverse is true. Using ADX this way avoids the common error of applying overbought and oversold logic to a market that is trending strongly.
How it is calculated
Directional movement is measured first. If the current high exceeds the previous high by more than the previous low exceeds the current low, that excess is positive directional movement; the mirror condition gives negative directional movement. Only one of the two can be non-zero on any bar, and inside bars produce neither.
Both series are smoothed with Wilder's method and divided by the Average True Range to express them as percentages, giving +DI and -DI. The directional index DX measures the absolute difference between the two as a proportion of their sum, so it is high when one side dominates completely and near zero when they are balanced. ADX is a smoothed average of DX.
Because the calculation smooths twice, ADX needs roughly two full lengths before it produces a settled value, and it responds slowly to changes in the underlying directional movement.
+DM = high - previous high, if that exceeds previous low - low and is positive, else 0 -DM = previous low - low, if that exceeds high - previous high and is positive, else 0 +DI = 100 * WilderSmooth(+DM) / ATR(N) -DI = 100 * WilderSmooth(-DM) / ATR(N) DX = 100 * abs((+DI) - (-DI)) / ((+DI) + (-DI)) ADX = Wilder-smoothed average of DX over N periods
Inputs
How to read it
Read ADX as a level and as a slope. The conventional bands treat readings below 20 as no meaningful trend, 25 and above as a trend worth following, and readings above 40 as a strong trend that is often already well advanced. The slope matters more than the absolute number: a rising ADX means the trend is strengthening whatever its current level, and a falling ADX means it is losing definition even if the level is still high.
The DI lines supply direction. +DI above -DI means upward directional movement has dominated over the window, and the gap between them corresponds to how one-sided that dominance has been. ADX is derived from that gap, which is why ADX can rise in a strong downtrend just as readily as in an uptrend.
The most common practical use is as a gate. Traders check ADX before deciding whether to act on a trend-following signal, and a crossover that fires while ADX is below 20 is often ignored on the basis that the market has no trend for the signal to follow.
Signals to look for
A rise through the 25 level is the standard marker that a trend has developed. It says nothing about direction, so it is read together with which DI line is on top.
+DI crossing above -DI indicates upward directional movement has become dominant, and the reverse for a downside cross. These crossovers are much more reliable when ADX is already elevated and rising.
ADX turning down from a high level indicates the trend is losing definition. This often marks the start of a consolidation rather than a reversal, since a sideways range also reduces directional dominance.
A sustained reading below 20 identifies a market with no trend, which traders use as a filter to suspend trend-following signals or to favour range strategies.
Limitations
Frequently asked questions
ADX measures trend strength on a 0-100 scale without regard to direction, with the +DI and -DI lines showing which side is dominant.
Read ADX as a level and as a slope. The conventional bands treat readings below 20 as no meaningful trend, 25 and above as a trend worth following, and readings above 40 as a strong trend that is often already well advanced. The slope matters more than the absolute number: a rising ADX means the trend is strengthening whatever its current level, and a falling ADX means it is losing definition even if the level is still high.
ADX above 25: A rise through the 25 level is the standard marker that a trend has developed. It says nothing about direction, so it is read together with which DI line is on top.
ADX is heavily smoothed and therefore very slow. It typically confirms a trend well after it has started and can remain elevated for a long time after a trend has finished.
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