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ADX, developed by J. Welles Wilder, is a trend strength indicator measuring trend intensity rather than direction. ADX is typically used with +DI (Positive Directional Indicator) and -DI (Negative Directional Indicator), where +DI and -DI indicate trend direction while ADX indicates trend strength.
+DM = Current High - Previous High (if positive) -DM = Previous Low - Current Low (if positive) +DI14 = (+DM14 / ATR14) × 100 -DI14 = (-DM14 / ATR14) × 100 DX = |(+DI14 - -DI14)| / (+DI14 + -DI14) × 100 ADX = 14-period moving average of DX Standard period: 14
Standard ADX (14 periods): Most commonly used
Short-term ADX (7-10 periods): More sensitive, suitable for short-term trading
Long-term ADX (20-30 periods): Smoother, suitable for long-term trend analysis
ADX Crossover System: Combines +DI and -DI crossover signals
ADX < 20: Weak or no trend, market in consolidation
ADX 20-25: Trend beginning to form
ADX 25-50: Strong trend, suitable for trend-following strategies
ADX > 50: Very strong trend, but may be near exhaustion
Rising ADX: Increasing trend strength, whether up or down
Falling ADX: Weakening trend strength, possible consolidation
+DI crosses above -DI with rising ADX: Strong buy signal
-DI crosses above +DI with rising ADX: Strong sell signal
ADX is primarily used to identify whether market is trending, helping traders select appropriate strategies. When ADX > 25, use trend-following strategies; when ADX < 20, use range-trading strategies. ADX cannot be used alone; must combine with +DI/-DI or other indicators to determine trade direction. Rising ADX indicates current trend (whether up or down) is strengthening, signal to hold positions.
Objectively measures trend strength, helps select trading strategies, reduces false signals in ranging markets, applicable to all markets and timeframes, works well with directional indicators
Doesn't provide directional signals, lagging indicator, ADX may be low at trend beginning, high ADX may signal imminent trend reversal, requires combination with other indicators
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