Short Answer
ADX (Average Directional Index) measures how strong a trend is—not which way it points. Values are often read as: below ~20–25 = weak or choppy market; rising above ~25 = stronger trending conditions (exact thresholds vary by market). Use +DI and −DI (directional indicators) or price action for bull vs bear bias.
Detailed Explanation
ADX is part of Wilder’s directional movement system. It smooths the difference between directional movement and total movement to produce a trend strength line.
Interpretation
- ADX rising → trend strength increasing (direction still comes from price or DI lines).
- ADX falling → trend weakening or transition to range.
- ADX is not a buy/sell line by itself—avoid trading “ADX crosses” without direction context.
- +DI > −DI supports bullish bias; −DI > +DI supports bearish bias when ADX confirms a tradeable trend.
Common Uses
- Filter: Only take trend trades when ADX shows sufficient strength (per your rules).
- Avoid chop: Stand aside or use range strategies when ADX is low.
- Confirm breakouts: Rising ADX after a breakout can support continuation narratives (non-binding).
Settings
| Setting | Typical default |
|---|---|
| Period | 14 |
Common Mistakes
- Using ADX for direction (that is what DI lines or price are for).
- Taking trend trades when ADX is too low (whipsaw risk).
- Expecting ADX to predict tops/bottoms (it measures strength, not turning points).
- Ignoring timeframe: ADX on 5m vs daily describes different regimes.
ADX in VaultCharts
VaultCharts includes ADX (with directional movement components where applicable) for trend-strength analysis. Pair with structure, moving averages, or momentum tools.