Glossary term
ADX (Average Directional Index)
Wilder's 1978 trend-strength gauge, derived from +DI and -DI (directional movement indicators), smoothed over 14 periods. ADX measures how strongly a trend is moving, not which direction — readings below roughly 20 signal no trend, above roughly 25 signal a trend is established. It is typically paired with +DI/-DI or another directional rule.
Definition & Construction
The Average Directional Index measures trend strength independent of direction. It is built from two component lines, +DI and -DI, which quantify upward and downward directional movement respectively over a lookback window, canonically 14 periods, using the same true-range framework Wilder introduced alongside ATR. ADX itself is a smoothed average of the absolute difference between +DI and -DI relative to their sum, scaled to 0–100. A high ADX means one of +DI or -DI dominates the other — a strong trend in whichever direction that is — while a low ADX means the two are close together and price is not making sustained directional progress either way.
Reading the Levels
Readings below roughly 20 are conventionally read as "no trend" — a range-bound or directionless market where trend-following rules are most exposed to whipsaw. Readings above roughly 25 are read as a trend being established, with a rising ADX indicating the trend is strengthening regardless of which of +DI or -DI is on top. ADX crossing back below 20 after a period above 25 is commonly read as a trend losing force, though the index itself lags, like every Wilder-family indicator built on smoothed averages.
Pairing Trend Strength with Trend Rules
ADX answers "is there a trend" while +DI/-DI or a separate tool answers "which direction" — the two questions are deliberately kept apart in Wilder's original design. A common filter uses ADX to gate a moving-average crossover or MACD signal: take the crossover only when ADX confirms a trending regime, skip it when ADX sits in the no-trend zone. This combination is a standard documented way to reduce whipsaw frequency in trend-following systems, since ADX alone generates no trade signal — it only qualifies signals generated elsewhere.