Average Directional Movement Index

The Average Directional Movement Index (or ADX) is a fairly complex momentum indicator developed by J. Welles Wilder and explained in his book New Concepts in Technical Trading Systems published in 1978.

Most indicators have one main weakness: they are not suitable for markets with strong or weak trends.

The Average Directional Movement Index measures the ability of market forces to move the price outside the previous day's range.

ADX is one of the three components of the Directional Movement Index (DMI), whose role is to indicate whether the market is or is not in a trend.

Example

Interpretation

According to the author, the market follows a strong trend for only about one-third of the time.
The purpose of ADX is to try to detect a significant trend. When the market is not following a clear trend, ADX should help you stay out.

The ADX curve reveals trends: the higher the ADX, the stronger the trend, and vice versa. If the ADX curve is above 20, there is a trend; otherwise, the market is trendless.