ADX (Average Directional Index) is a trend strength indicator developed by J. Welles Wilder Jr. in 1978. It measures how strong a trend is on a scale of 0–100 but does not indicate whether the trend is rising or falling.
How ADX Works
ADX calculates a moving average of price range expansion over 14 days (the default period). The scale is interpreted as:
- 0–25: Weak or absent trend
- 25–50: Strong trend
- 50–75: Very strong trend
- 75–100: Extremely strong trend
ADX is part of the Directional Movement System, which includes the Positive Directional Indicator (+DI) and Negative Directional Indicator (–DI). Traders watch for crossovers between +DI and –DI to identify potential reversals, then use ADX to confirm the trend is strong enough to trade.
Trading Implications
ADX helps you filter choppy, sideways markets and focus on periods with established momentum. However, ADX lags because it is based on historical data—signals often arrive after a trend has already begun, which can result in missed early entries or late confirmations. For best results, combine ADX with other indicators to confirm both trend direction and entry timing.
