The Average Directional Index (ADX) measures the strength of a trend — not its direction. It tells you whether a market is trending or ranging, which helps you decide which type of strategy to apply. ADX is always plotted alongside +DI and −DI lines that show trend direction.
ADX Components
+DI = Positive Directional Indicator (upward movement strength)
−DI = Negative Directional Indicator (downward movement strength)
ADX = Smoothed average of the difference between +DI and −DI
Range: 0 to 100 (higher = stronger trend)
Reading ADX Values
| ADX Value | Trend Strength | Strategy to Use |
|---|---|---|
| 0 – 20 | No trend / weak | Mean reversion (RSI, Stochastic) |
| 20 – 25 | Trend forming | Start monitoring for trend entry |
| 25 – 40 | Strong trend | Trend-following (EMA, Supertrend) |
| 40 – 60 | Very strong trend | Stay in trend, trail stops |
| Above 60 | Extremely strong | Trend likely to exhaust soon |
ADX with +DI and −DI
Bullish Signal: +DI crosses above −DI AND ADX is above 25
Confirmation that an uptrend is strong enough to trade
Bearish Signal: −DI crosses above +DI AND ADX is above 25
Confirmation that a downtrend is strong enough to trade
Avoid: Any DI crossover when ADX is below 20 — the market is ranging and signals are unreliable
Confirmation that an uptrend is strong enough to trade
Bearish Signal: −DI crosses above +DI AND ADX is above 25
Confirmation that a downtrend is strong enough to trade
Avoid: Any DI crossover when ADX is below 20 — the market is ranging and signals are unreliable
The ADX Filter — Most Valuable Use
The best use of ADX is as a filter for other strategies. Before taking any trend-following signal (EMA crossover, Supertrend flip), check if ADX is above 25:
Combined Strategy:
Signal: EMA 9 crosses above EMA 21 (bullish)
Filter: ADX > 25 (trend is strong enough)
Entry: Take the trade only when BOTH conditions are met
Result: Eliminates most false signals in sideways markets
Signal: EMA 9 crosses above EMA 21 (bullish)
Filter: ADX > 25 (trend is strong enough)
Entry: Take the trade only when BOTH conditions are met
Result: Eliminates most false signals in sideways markets
On NSE, ADX is particularly useful for filtering NIFTY 50 stocks. The Indian market has frequent sideways phases where trend-following strategies generate heavy losses. ADX below 20 = skip the trade.
ADX in Sideways Markets
When ADX is below 20 and falling, the market is consolidating. Switch from trend strategies to mean reversion strategies:
- RSI reversals at extremes (below 30, above 70)
- Bollinger Band bounces
- Stochastic crossovers in overbought/oversold zones
ADX Limitations
- ADX is a lagging indicator — it confirms trends after they start
- Does not indicate trend direction — always use with +DI and −DI
- Can give high readings during volatile but directionless markets