The Average Directional Movement Index measures how strongly price is trending, whichever way. It follows J. Welles Wilder's definition. Each bar's up movement is the part of its high above the previous high and its down movement the part of its low below the previous low; only the larger of the two counts, and only when it is positive.
The true range and both movements are smoothed with Wilder's average over the Period (a running average with weight 1 / period, seeded with the simple average of the first values). Dividing the smoothed movements by the smoothed true range gives +DI and -DI, in percent. DX is the gap between them as a share of their sum, and ADX is Wilder's average of DX over the same period.
How to read Average Directional Movement Index (ADX)
ADX says how strong the trend is, not which way it runs: readings above about 25 are usually read as a trending market and readings below 20 as a range. A rising ADX means the trend is gaining strength; a falling one that it is fading, even while price still moves the same way.
The direction comes from the DI lines: +DI above -DI favours buyers and -DI above +DI favours sellers, and a crossing of the two is the classic signal, most useful when ADX is high. ADX needs twice the period of history before it settles, so its first stretch of values moves more than later ones.
Settings
- Period
- Bars in each of Wilder's averages, for the DI lines and for ADX itself. Shorter periods react faster and are noisier.
Frequently asked questions
Why can ADX rise while price falls?
ADX measures the strength of movement in either direction. A strong decline makes -DI pull away from +DI, which raises DX and so ADX.
What level marks a trend?
Many traders treat 25 as the line above which a trend is established and 20 as the line below which the market is ranging, but the levels are conventions rather than part of the calculation.
When does the first value appear?
+DI and -DI appear once the first period of bars is smoothed, and ADX one period later, since it averages DX.
