ADX

The Average Directional Index was developed by J. Welles Wilder and introduced in his 1978 book alongside the Directional Movement System. ADX occupies a unique functional category among technical indicators: it measures the strength of a trend rather than its direction. Whether price is rising or falling, ADX quantifies how powerfully that move is occurring. ADX is derived from the interaction between the +DI and -DI lines — the positive and negative directional indicators that measure upward and downward price movement separately. The ADX line itself is a smoothed moving average of the absolute difference between +DI and -DI, normalised to a 0-to-100 scale. When +DI and -DI are far apart, ADX rises. When they converge, ADX falls. ADX therefore measures directional conviction regardless of which direction is dominant. Standard ADX interpretation uses key threshold levels to classify trend conditions. A reading below 20 typically indicates a weak or absent trend — price is in a ranging or directionless phase. A reading between 20 and 25 suggests a trend is beginning to form. Readings above 25 indicate a meaningful trend is present, and readings above 40 indicate a strong, well-established trend. Readings above 50 are considered exceptional and occur during powerful sustained moves. The most important practical application of ADX is as a market regime filter. Because momentum oscillators perform best in ranging markets and trend-following indicators perform best in trending markets, ADX allows traders to determine which type of analytical framework is appropriate before applying any other signal. An ADX below 20 suggests oscillator-based reversal signals are more reliable. An ADX above 25 suggests trend-following signals deserve priority. ADX does not indicate whether price is in an uptrend or downtrend — only the +DI and -DI lines provide that directional context.