Technical IndicatorsIntermediate

ADX (Average Directional Index)

How ADX, +DI and −DI are calculated and read: ADX measures trend strength (not direction), common thresholds like 25, and how traders use it as a filter.

Library categories

What it means

ADX measures how strong a trend is, on a 0–100 scale, regardless of direction. It is built from +DI (upward movement) and −DI (downward movement), both normalised by true range, then smoothed.

Readings above about 25 are often treated as trending; below about 20 as ranging.

Why traders use it

Many strategies work in trends and fail in ranges (or the reverse). ADX is a filter that tells you which environment you are in.

Chart examples

ADX low in a range, rising in a trend

RangeTrendADX (4)25+DI / −DI
ADX, +DI (solid) and −DI (dashed) are calculated from the drawn candles: ADX stays low while price ranges and rises above 25 when the trend starts.Schematic diagrams drawn to explain the idea; they are not market data.

How to identify it objectively

  • 1Use a fixed period (14 standard; this drawing uses 4).
  • 2ADX rising above 25: trend strengthening.
  • 3+DI above −DI: up direction; −DI above +DI: down direction.
  • 4ADX falling: trend weakening, even if price still moves.

Bullish use

  • 1ADX above 25 and rising.
  • 2+DI above −DI.
  • 3Take trend-following long setups only.

Bearish use

  • 1ADX above 25 and rising.
  • 2−DI above +DI.
  • 3Take trend-following short setups only.

What confirms it

  • ADX and price structure agree.

What invalidates it

  • ADX below 20: trend rules switched off.

How a hypothetical setup is built

Entry

Use your trend entry rule only when ADX > 25.

Stop

From the entry rule.

Target

From the entry rule; consider trailing while ADX rises.

A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.

Historical testing

Not tested on The Tradeskill. Test it as a filter: same entry rule with and without ADX > 25.

Limitations: when it fails

  • ADX lags; trends are often half over when it confirms.
  • High ADX can mark exhaustion as well as strength.
  • It does not give direction by itself.

Knowledge check

Pick an answer to see the explanation. Nothing is saved.

ADX measures…

1. ADX measures…

A common trending threshold is…

2. A common trending threshold is…

ADX is best used as…

3. ADX is best used as…

Practise it risk-free

Open the free chart, use replay to go back in time and look for this concept candle by candle with $20,000 in virtual money.