Level 2 · Lesson 8 / 11 · English
Average Directional Index (ADX)
4 min reading · Exercises take additional time
0 of 11 lessons completed for this visit
The Average Directional Index measures the strength of directional movement, not whether price is rising or falling. It is commonly displayed with +DI and −DI, which describe directional balance. The related chart uses computed hypothetical data to distinguish strength from direction without implying that any threshold guarantees a tradable trend.
What you will learn
- Explain the roles of directional movement, DI, DX and ADX.
- Distinguish trend strength from trend direction.
- Recognise smoothing delays and threshold sensitivity.
Illustrative educational chart · Not live market data
Directional movement and normalization
Start by comparing consecutive highs and lows. UpMove = current high − previous high. DownMove = previous low − current low. Set +DM to UpMove only if it is positive and greater than DownMove; otherwise use zero. Set −DM to DownMove only if it is positive and greater than UpMove; otherwise use zero. Under this common convention, ties produce zero for both.
Smooth +DM, −DM and true range consistently, commonly over 14 periods with Wilder smoothing. Then +DI = 100 × smoothed +DM ÷ smoothed true range, with an equivalent formula for −DI. Consistent smoothed sums or averages give the same ratios. Define safe handling when the true-range denominator is zero.
DX becomes ADX
DX = 100 × |+DI − −DI| ÷ (+DI + −DI). ADX smooths DX, conventionally over 14 periods using Wilder’s method. A common initialization averages the first 14 available DX values before recursive updates. Because the inputs themselves need initialization, ADX requires more history than a single 14-bar calculation.
The absolute difference removes direction. Strong dominance of either +DI or −DI can produce high DX and eventually high ADX. A falling market can therefore have rising ADX. Conversely, falling ADX suggests weakening measured directional strength, not necessarily a price reversal or an immediate end to a trend.
Thresholds and market regimes
Reference levels near 20 or 25 are common conventions for discussing weaker or stronger trend conditions. They are not universal boundaries. A reading just above a threshold may arrive after much of a move because multiple smoothing stages introduce lag. Shorter settings respond faster but may produce less stable regime classifications.
ADX can be used as a testable regime filter, but define its role in advance. For example, restricting a trend-following rule to ADX above a threshold changes which trades are considered; it does not prove they have positive expectancy. Examine missed opportunities, late entries, costs and threshold sensitivity. DI crossings, like other indicator crossings, can reverse frequently in choppy conditions.
Key terms
- Directional movement
- A comparison of successive highs and lows used to construct +DM and −DM.
- DI
- Directional movement normalized by smoothed true range.
- ADX
- A smoothed measure of directional strength derived from DX.
Hypothetical worked example · Not live market prices
Hypothetical directional strength
- Assume +DI = 30 and −DI = 10.
- DX = 100 × |30 − 10| ÷ (30 + 10) = 50.
- Reversing them to +DI = 10 and −DI = 30 still gives DX = 50.
- If prior ADX is 20, a period-14 Wilder update using DX 50 is (20 × 13 + 50) ÷ 14 ≈ 22.14.
| +DI | −DI | DX |
|---|---|---|
| 30 | 10 | 50 |
| 10 | 30 | 50 |
Simplified educational calculations. Costs, slippage and provider-specific adjustments apply where relevant; these are not actual returns.
Common mistakes to avoid
- Calling a high ADX bullish without checking direction separately.
- Treating 25 as a universal profitability boundary.
- Ignoring initialization and the lag from multiple smoothing stages.
Lesson summary
ADX measures smoothed directional strength. Its conventional 14-period settings and familiar thresholds are starting points for study, not fixed predictions or trade guarantees.
Practical exercise
Calculate DX for +DI 20 and −DI 20. It is zero. Explain why equal directional measures do not establish that the next bar will have no price movement.
Knowledge check
Check your understanding
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Related lessons
Financial education, not personal investment advice. Leveraged Forex and CFDs can lead to substantial losses. Demo practice and correct quiz answers do not guarantee trading success.