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ADX (Average Directional Index)

Wilder's ADX measures how much direction the move has, on an unsigned 0–100 scale: above 25 the trend dominates the noise, below 20 there is no trend to follow. Direction comes from +DI and −DI.

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The ADX, published by J. Welles Wilder in New Concepts in Technical Trading Systems (1978), answers the question that comes before all others: is there a trend, or not? Almost every tool in the catalogue works well in one regime and badly in the other — averages and their crossovers live off trends, oscillators do their best work in ranges. The ADX is the instrument that decides which family makes sense to use.

In plain terms — The ADX does not tell you whether the river flows north or south: it tells you how strong the current is. With a strong current you row with it; without one, river techniques are useless.

How it is built

Wilder splits each bar into two pushes: positive directional movement (+DM, how far today's high exceeds yesterday's) and negative (−DM, how far today's low undercuts yesterday's). Normalised by the ATR, they become +DI and −DI: buyers' pressure and sellers' pressure. The ADX is the (14-period) average of the imbalance between the two — when one dominates, the ADX rises; when they balance out, it falls. The sign is lost by construction: the ADX also rises in a downtrend, because it measures dominance, not direction.

ADX Common reading
< 20 No dominant trend — range regime
20–25 Transition: a trend may be forming
> 25 Defined trend — trend-following tools work
> 40 Very strong (and often mature) trend

How to read the chart — Top: a market going from range to trend and back to range. Bottom: ADX (blue), +DI (green), −DI (red), dashed gold 25 threshold. Interactive — the highlighted points show the ADX crossing 25 as the trend starts, the peak flagging strength exhaustion, and the sub-20 zone.

INDICATOR · TREND ADX — how much direction the move has ADX = strength (unsigned) · +DI/−DI = the two directional pushes CYCLEPEDIA DIAGRAM — EMICICLO PRICE: RANGE → TREND → RANGE Price 103 108 113 ADX (14) · +DI · −DI 25 40 ADX +DI −DI > 25 ADX PEAK IN THE PERIOD 72 BARS WITH ADX > 25 39 of 39 The question before all others: is there a trend? ADX answers that one only
The ADX rises while the trend develops and rolls over when directional strength stops growing — even though price has not fallen yet.
Select the highlighted points to explore the detail

Reading it in practice

  1. Regime filter — the main use: ADX below 20 → shelve moving-average crossovers, directional MACD and aggressive breakouts, and work with range tools (Stochastic, bands). Above 25 → the opposite.
  2. Rising vs falling ADX — the slope matters more than the level: an ADX at 22 rising steeply describes a trend being born; an ADX at 35 rolling over describes a trend growing old. The ADX peak is not the price peak: it marks the peak of the move's quality.
  3. +DI/−DI crossovers — they show which push dominates; taken alone they produce many false signals, filtered with ADX > 25 they become readable.

Limits and traps

Warning — The ADX is doubly slow: it is built from Wilder averages applied to averages. It confirms trends late and declares them dead late. Use it as a context filter, never as entry timing.

  • A high ADX does not mean "buy": it only means the move in progress, in whatever direction, is orderly.
  • On very short timeframes the measurement gets dirty: a few minutes of directional imbalance is often just noise.

Sources

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