Stock Market

ADX (Average Directional Index)

What is ADX?


The ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.

I haven’t been able to find what goes into this indicator.

Usually it’s shown like this — see the bottom box. 2 lines that move in opposite directions, and another one indicating the trend.

Click charts to enlarge


I’ve been using ADX with bars instead and, when combined with other indicators, I think it’s very useful. Here’s an intraday SPY chart. Look at how quickly the bars turned green. Much faster than MACD or moneyflow change.

Of course, it can be misleading, just like any other indicator, but notice how much bigger the green bars are than the red ones, so it’s a clear and significant change — not like earlier in the day. And again, key here is “when combined with other indicators”.