Average directional movement index

What the numbers mean

Fourteen is the lookback for both the directional movement calculation and the Wilder smoothing applied to it. A shorter setting reacts sooner but produces more false strength readings; 14 on a daily chart is the near-universal default.

• 14 — Wilder's default for both the directional movement and its smoothing
• 7 — reacts sooner, at the cost of more false strength readings
• 20 to 30 — steadier, used to define the background regime
• 25 — the conventional threshold above which a market counts as trending
• 20 — the level below which most traders treat the market as range-bound
• 40+ — a very strong trend, and often a mature one

How it is used

Used as a filter rather than a signal. Above about 25 the market is trending strongly enough for trend-following tools to work; below 20 it is drifting, which is when oscillators and range tactics do better. A rising ADX means the trend is gaining strength whichever way it points.

• ADX rising → the trend is gaining strength, whichever way it points
• ADX falling from above 40 → the trend is tiring, not necessarily reversing
• ADX below 20 → favour oscillators and range tactics over trend tools
• ADX above 25 → moving-average crossovers and breakout systems are on firmer ground

How it relates to everything else

ADX is the gatekeeper for almost every other tool on this page. Trend-following indicators — crossovers, SAR, Supertrend, Donchian breakouts — work when ADX is high and bleed when it is low; oscillators such as RSI, stochastics and Williams %R work when ADX is low and give false reversal signals when it is high. Reading ADX first and choosing the toolkit second is the single most common way it is used.

• ADX > 25 → use trend tools; ADX < 20 → use oscillators
• ADX + DI crossovers → direction from the DI lines, permission from ADX
• ADX rising while price falls → a strong downtrend, since ADX ignores direction
• Pairs naturally with ATR: ADX says how directional, ATR says how large the swings are

What to watch for

ADX says nothing about direction — a reading of 40 is equally at home in a crash and a melt-up. It also rises late, so a high ADX can mark a trend that is already close to exhausted.