Understanding Indicators

ADX (Average Directional Index)

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

When ADX is below 20, don't use trend-following strategies. Use mean reversion strategies instead (buy support, sell resistance).

Key Takeaways

  • ADX measures trend strength, not direction
  • Above 25 = tradeable trend
  • Below 20 = ranging, use different strategies
  • +DI/-DI shows direction