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Indicator

Average Directional Index

Measure trend strength without direction — the ADX is a regime identification tool for deciding which strategy has edge.

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Key Takeaways

ADX reflects the strength of the difference between DI+ and DI-.
It measures how strong a trend is, not which direction it moves.
Rising ADX means strengthening trend.
Falling ADX means weakening trend.
Used to classify market regime: trending versus range-bound.

What It Measures

ADX reflects the strength of the difference between DI+ and DI-.
It measures how strong a trend is, not which direction it moves.
Rising ADX means strengthening trend.
Falling ADX means weakening trend.

Institutional Use

Used to classify market regime: trending versus range-bound.
High ADX supports trend continuation strategies.
Low ADX supports mean reversion.
Strategy selection depends entirely on regime identification.

Key Signals

ADX below 20 signals low conviction range.
ADX above 25 signals directional trend with strength.
Rising ADX with rising price equals strengthening uptrend.
Rising ADX with falling price equals strengthening downtrend.

Trading Playbook

Trend entry: ADX rising above 20 to 25, DI+ dominant, price breaking structure.
Range strategy: ADX below 20, DI lines converging, price oscillating.
Reduce trend exposure when ADX begins falling from high levels.

When Not to Trade

During ADX transitions near 20.
When DI+ and DI- are frequently crossing without clear dominance.