Average Directional Index
a.k.a. ADX
An indicator from 0 to 100 that measures how strong a trend is, without caring which direction it runs.
The Average Directional Index (ADX), another J. Welles Wilder invention, answers one question: is there a real trend here, or just noise? It is built from the Directional Movement Index, but it ignores direction and only reports strength.
A common reading: below about 20, the market is drifting sideways; above about 25, a trend has muscle. A rising ADX means the trend, up or down, is getting stronger. That helps you choose your tool: trend-following methods when ADX is high, range methods when it is low.
Reading ADX
- EUR/USD has been grinding higher for two weeks.
- ADX climbs from 15 to 32.
- The trend is gaining strength. ADX itself does not say 'up'; the price does.
Bottom line: ADX tells you how hard the wind blows, not which way.
Reading a high ADX as a buy signal. A screaming downtrend has a high ADX too.
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