What is the average directional index (ADX)?

The Average Directional Index (ADX) is a valuable tool for identifying the strength of market trends and enhancing trading strategies. However, it’s essential to recognize the limitations of the ADX and use it alongside other technical indicators and fundamental analysis to make well-informed trading decisions.

How is adX calculated?

The ADX is calculated using expanding price range values, making it a valuable tool for identifying whether the market is trending or non-trending. The ADX is derived from two other indicators, the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI). To calculate the ADX, the following steps are taken:

How is adX plotted?

ADX is plotted as a single line with values ranging from a low of zero to a high of 100. ADX is non-directional; it registers trend strength whether price is trending up or down. The indicator is usually plotted in the same window as the two directional movement indicator (DMI) lines, from which ADX is derived (shown below).

How does ADX measure trend strength?

ADX is non-directional and quantifies trend strength by rising in both uptrends and downtrends. When the +DMI is above the -DMI, prices are moving up, and ADX measures the strength of the uptrend. When the -DMI is above the +DMI, prices are moving down, and ADX measures the strength of the downtrend.