What is the Average Directional Index (ADX)?
The Average Directional Index (ADX) is a technical analysis indicator used to measure the strength of a trend, regardless of its direction. Developed by Welles Wilder Jr., it's commonly used to avoid trading in choppy, sideways markets. ADX doesn't indicate *which* direction the price will move, only the strength of the existing trend. A rising ADX suggests a strengthening trend, while a falling ADX suggests a weakening trend. It's often used in conjunction with Directional Indicators (+DI and -DI) to determine trend direction.
How it Works
ADX is calculated based on the range expansion index (DX), which measures the degree to which price movement is directional. DX is then smoothed using a moving average. The ADX line fluctuates between 0 and 100. Readings above 25 generally indicate a strong trend, while readings below 20 suggest a weak or absent trend. The indicator considers both positive and negative directional movement.
Trading Signals
Buy Signal: When ADX rises above 25 and +DI crosses above -DI, it suggests a strengthening uptrend. Sell Signal: When ADX rises above 25 and -DI crosses above +DI, it suggests a strengthening downtrend. A falling ADX below 20 can signal a potential trend reversal or consolidation. Traders often look for ADX to confirm signals from other indicators.
Basic Settings
The default settings for ADX on TradingView are a period of 14. This means the indicator calculates the average directional movement over the last 14 periods (e.g., days, hours). Adjusting the period can make the indicator more or less sensitive to price changes. Shorter periods react faster but may generate more false signals, while longer periods are smoother but slower to react. Experimentation is key.