ADX (Average Directional Index)
Lesson 8 of 125 min5 exercises
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Measuring Trend Strength
ADX measures HOW STRONG a trend is, not what direction. It helps you know when to use trend-following strategies vs range-bound strategies.
Reading ADX
ADX Values:
- Below 20: No trend / ranging market
- 20-25: Trend emerging
- 25-40: Strong trend
- Above 40: Very strong trend
+DI and -DI:
- +DI > -DI: Uptrend
- -DI > +DI: Downtrend
- Below 20: No trend / ranging market
- 20-25: Trend emerging
- 25-40: Strong trend
- Above 40: Very strong trend
+DI and -DI:
- +DI > -DI: Uptrend
- -DI > +DI: Downtrend
Tip
When ADX is below 20, don't use trend-following strategies. Use mean reversion strategies instead (buy support, sell resistance).
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Key takeaways
- ADX measures trend strength, not direction
- Above 25 = tradeable trend
- Below 20 = ranging, use different strategies
- +DI/-DI shows direction
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