Average Directional Index (ADX): How to Measure Trend Strength

Most indicators tell you which way the market is moving. The Average Directional Index (ADX) answers a different and often more useful question: how strong is the trend? Developed by J. Welles Wilder in 1978, the ADX helps traders decide when to use trend-following strategies and when to stay out of choppy markets.

What the ADX measures

The ADX is part of Wilder's Directional Movement System, which has three lines:

• +DI (Positive Directional Indicator): strength of upward moves
• -DI (Negative Directional Indicator): strength of downward moves
• ADX: a smoothed average of the difference between +DI and -DI, showing trend strength regardless of direction

ADX ranges from 0 to 100. It does not tell you direction - a rising ADX can mean a strengthening uptrend or downtrend. Use +DI and -DI for direction.

How to read ADX values

These thresholds are guidelines, not laws. Many traders use ADX > 25 as the minimum to trade trend strategies.

ADX formula step by step (period N = 14)

1. Directional movement for each bar:
   • +DM = High_today − High_yesterday (if positive and greater than −DM, else 0)
   • −DM = Low_yesterday − Low_today (if positive and greater than +DM, else 0)
2. True Range (TR) = max(High − Low, |High − Close_prev|, |Low − Close_prev|)
3. Smooth +DM, −DM and TR over N periods using Wilder's smoothing (an exponential average with α = 1/N).
4. Directional indicators:
   • +DI = 100 × smoothed(+DM) / smoothed(TR)
   • −DI = 100 × smoothed(−DM) / smoothed(TR)
5. DX = 100 × |+DI − −DI| / (+DI + −DI)
6. ADX = Wilder-smoothed average of DX over N periods

ADX trading strategies

1. Trend filter. Only take moving-average or breakout signals when ADX is above 25. This simple rule removes many false signals in sideways markets.

2. DI crossover. When +DI crosses above −DI while ADX is rising above 20-25, it signals a potential long; the reverse signals a short.

3. Range strategy switch. When ADX falls below 20, switch from trend-following to mean-reversion tools such as RSI or the KDJ indicator.

4. Trend exhaustion. An ADX turning down from above 40-50 often means the trend is losing momentum - a cue to tighten stops rather than an automatic reversal signal.

Calculate ADX in Python

      import requests
import pandas as pd

TOKEN = "YOUR_API_TOKEN"
url = "https://api.itick.org/stock/kline"
params = {"region": "US", "code": "NVDA", "kType": 8, "limit": 400}
headers = {"accept": "application/json", "token": TOKEN}
df = pd.DataFrame(requests.get(url, params=params, headers=headers, timeout=10).json()["data"])
df = df.rename(columns={"h": "high", "l": "low", "c": "close"}).astype({"high": float, "low": float, "close": float})

def adx(df, n=14):
    up = df["high"].diff()
    down = -df["low"].diff()
    plus_dm = up.where((up > down) & (up > 0), 0.0)
    minus_dm = down.where((down > up) & (down > 0), 0.0)
    prev_close = df["close"].shift()
    tr = pd.concat([df["high"] - df["low"],
                    (df["high"] - prev_close).abs(),
                    (df["low"] - prev_close).abs()], axis=1).max(axis=1)
    wilder = lambda s: s.ewm(alpha=1 / n, adjust=False).mean()
    atr = wilder(tr)
    plus_di = 100 * wilder(plus_dm) / atr
    minus_di = 100 * wilder(minus_dm) / atr
    dx = 100 * (plus_di - minus_di).abs() / (plus_di + minus_di)
    return plus_di, minus_di, wilder(dx)

df["+di"], df["-di"], df["adx"] = adx(df)
df["trend"] = (df["adx"] > 25) & (df["+di"] > df["-di"])
print(df[["close", "+di", "-di", "adx", "trend"]].tail())

    

The OHLC data comes from the iTick historical data API; the same function works for forex pairs, gold, indices and crypto.

ADX limitations

• It is a lagging indicator built on several layers of smoothing.
• It says nothing about direction on its own.
• In very fast reversals ADX can stay high while price has already turned.

Treat ADX as a filter that improves other signals, not as a standalone system.

FAQ

What is a good ADX value? Above 25 generally indicates a tradable trend; below 20 suggests a range.

What period should I use? Wilder's original 14 periods is the standard. Shorter periods react faster but are noisier.

Is ADX a leading or lagging indicator? Lagging - it confirms trend strength after the trend has started.

Power your indicators with reliable data

Accurate highs, lows and closes are essential for true range and ADX. Get a free iTick API key for global stock, forex, futures and crypto OHLCV data.