What Is ADX?
The Average Directional Index (ADX) measures the strength of a trend regardless of its direction, oscillating between 0 and 100. Readings above 25 indicate a strong trend; below 20 indicates a weak or trendless market. ADX doesn't tell you whether the trend is up or down — only how strong it is.
How ADX Works
ADX is calculated from the Directional Movement indicators: +DI (positive directional indicator) measures upward movement, and -DI measures downward movement. The ADX line smooths the relationship between them. A rising ADX with +DI above -DI confirms a strengthening uptrend. A rising ADX with -DI above +DI confirms a strengthening downtrend. ADX below 20 with both DI lines intertwined signals choppy, trendless conditions.
Why It Matters for Traders
ADX is the most valuable indicator for regime detection. When ADX is below 20, switch to mean-reversion strategies. When ADX is above 25 and rising, switch to trend-following strategies. This single filter — matching your strategy to the market regime identified by ADX — can transform an unprofitable system into a profitable one.
