Average Directional Index (ADX)

The Average Directional Index (ADX) measures how strong a trend is, on a 0 to 100 scale, without saying whether it is up or down.

How Average Directional Index is calculated

From each bar, find the upward and downward directional movement and divide each by the average true range to get +DI and -DI. DX = 100 x |+DI - -DI| / (+DI + -DI). ADX is a smoothed average of DX, usually over 14 bars. Wilder introduced it in 1978.

How it is read

A reading under about 20 is often called a weak or absent trend, and above about 25 a trending market. Rising ADX means the trend is strengthening, whichever way it points.

Common mistakes

• Reading a high ADX as bullish. A steep fall also produces a high ADX.
• Treating 25 as a switch. It is a convention, not a measured boundary.
• Expecting it to lead. ADX is heavily smoothed and turns after the trend has already changed.

What Tickfloor tested

Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

• ADX and Parabolic SAR (claim test)

• Short definition in the glossary

Related concepts

• Parabolic SAR
• Average True Range (ATR)
• Moving average crossover
• Momentum
• All concepts

General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.

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