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
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.
Related concepts
- Technical IndicatorsStochastic Oscillator
- Technical IndicatorsSupertrend
- Market StructureHH, HL, LH and LL
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.