ADX: The Trend Strength Indicator

Identify the strength of a trend with ADX →

Hey there!

If you’ve started trading or are learning to, you would know that ‘the trend is your friend’, i.e. you should trade in the market's direction.

But is the trend sustainable enough to give you a good profit? Let’s find out using ADX!

Determine the strength of a trend with ADX

The average directional index (ADX) is an oscillator that will help you determine the strength of a trend on a scale from 0 to 100, using price data from the past 14 periods.

ADX is typically accompanied by 2 momentum indicators, the negative directional indicator (-DI) and the positive directional indicator (+DI), from which the ADX is derived. While the ADX helps determine the strength of a trend, the DI lines help determine the direction.

Depending on the ADX value, you can conclude whether and how strong of a trend is getting formed:

How to trade using ADX?

Now that you know what the ADX says about a trend, let’s learn how to use it for taking long and short trades.

The following criteria should be met to enter a long or short trade:

A bearish or bullish candlestick pattern forming along with the ADX line turning bearish is a good exit for a long or short trade respectively.

The ADX line reversing after hitting a high or a resistance level does not signal a trend reversal. Rather, it is indicative of the trend losing its strength.

Note that ADX values below 25 are indicative of a sideways market and should be avoided.

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