Average Directional Index (ADX): How to Read It
The Average Directional Index measures how strong a trend is, regardless of its direction. Paired with the +DI and -DI lines, it also helps identify which side is in control.
The formula
Common settings: 14 periods; trend threshold around 20 to 25
How to read it
- ADX below 20 suggests a weak or absent trend.
- ADX above 25 suggests a trending market.
- Rising ADX means the trend is strengthening.
- Falling ADX means the trend is weakening, even if price still moves.
- +DI above -DI suggests bullish pressure; the reverse suggests bearish pressure.
Typical signals
- ADX rising above 25 with +DI above -DI as a strong uptrend filter.
- ADX rising above 25 with -DI above +DI as a strong downtrend filter.
- +DI crossing -DI as a potential direction change.
- ADX turning down from a high level as trend exhaustion.
Pitfalls to avoid
- ADX itself does not show direction.
- It lags because it is double smoothed.
- High ADX can stay high even as a trend nears its end.
Strategies that use it
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Does a high ADX mean price is rising?
No. ADX measures trend strength, which can be up or down.
What ADX level means a trend?
Many traders use 20 or 25 as the threshold for a meaningful trend.
How do I use ADX as a filter?
Use trend strategies only when ADX is high, and range strategies when it is low.
Works well with
Simple Moving Average
The Simple Moving Average adds up the last N closing prices and divides by N to create a smooth line. It filters out daily noise so the underlying direction of the trend is easier to see.
🦸Supertrend
Supertrend is a trend-following line plotted above or below price using ATR-based bands. It flips sides when price closes through it, making trend direction easy to see at a glance.
🔵Parabolic SAR
Parabolic SAR places dots above or below price that trail the trend and speed up as it continues. When price crosses the dots, they flip sides, signaling a possible trend reversal.