ADX (Average Directional Index)
ADX is a indicator that shows how strong a trend is on a scale of 0 to 100, without showing whether the trend is up or down.
ADX stands for Average Directional Index. It was created by J. Welles Wilder and is usually calculated over 14 candles. It appears as a single line under the price chart and moves between 0 and 100.
The key point is that ADX measures trend strength, not direction. A high ADX means price is moving strongly in one direction. That direction can be up or down. A low ADX means the market is moving sideways or the trend is weak.
Common ways to read it
These levels are conventions, not strict rules:
- Below about 20: weak trend or a ranging market
- Above about 25: a trend is considered present
- Rising ADX: the trend is getting stronger
- Falling ADX: the trend is losing strength. This does not by itself mean price will reverse.
ADX is built from two other lines, +DI and −DI. They compare upward and downward price movement. Many charts show all three lines together, and this is often called the DMI.
Simple example
Suppose EURUSD has been falling and ADX rises from 15 to 30. Price has moved from a weak, unclear market into a stronger downtrend. The ADX reading of 30 only tells you the trend is strong. The falling price, or the +DI and −DI lines, shows that the direction is down.
Common beginner mistake
Many beginners think a high ADX means "buy" or a low ADX means "sell". ADX gives neither signal. It is also a lagging indicator, because it is based on past prices. It works best as a filter alongside price action and other tools.