Hello, Dear Readers. By now, it's common knowledge that Forex, which operates 5 days a week and 24 hours a day, is the world's largest financial market. Extraordinarily large, even astronomically large sums of money are traded here. When I say "astronomical," I'm not exaggerating. What I consider an unreachable sum becomes astronomical. Do you think a market with a daily trading volume of $5.5 trillion is not astronomical? If not, let's see if you can accumulate that much money in your bank account.
It's such a extra large global market that traders from all over the world, from the Americas to remote islands in the oceans, participate. While participants' locations in the financial markets may vary, their goals are the same: to make a profit. To achieve this, we need to understand the rules of the market. The first tool often used is technical analysis, and one of the most widely known tools in technical analysis is technical indicators. We will cover the following topics as this article explores the Average Directional Movement Index/Wilder's DMI (ADX) indicator:
- What is the ADX indicator?
- How does the ADX indicator work?
- How to interpret the ADX indicator?
- What is a good ADX indicator?
- How to use ADX indicator?
What Is the ADX Indicator?
The ADX (Average Directional Movement Index) is a technical indicator that measures the strength of a trend, without caring if it's up or down. Values above 25 signal a strong trend, while readings below 20 usually mean the market is ranging or choppy.
The Average Directional Movement Index (ADX), is one of the technical analysis indicators developed by J. Welles Wilder. ADX stands for Average Directional Movement Index. ADX is used to measure the strength and direction of a trend in financial markets and it takes a value between 0 and 100. It is particularly useful for determining whether a trend is gaining or losing strength. If the ADX value is below 20, it indicates a weak trend. If the ADX value is above 40, it suggests a strong trend. This indicator provides exceptional advantages to those who want to gain insights into the strength of a trend in various financial instruments, including stocks, currency pairs, commodities, and more.
How Does the ADX Indicator Work?
ADX operates by using three separate trend lines to measure
the direction and strength of price movements on a currency pair or any other
asset. These are as follows:
- +DI or +DMI (Positive Directional Movement Indicator). The green line on the chart, also known as the positive trend line. This line measures the strength of upward price movements. +DI is calculated by averaging upward price movements over a specific period.
- -DI or -DMI (Negative Directional Movement Indicator). The pink line on the chart, also referred to as the negative trend line. This line measures the strength of downward price movements. -DI is calculated by averaging downward price movements over a specific period.
- ADX Line (Average Directional Index). The purple line on the chart. ADX is calculated by taking the absolute value of the difference between +DI and -DI lines. This line represents the strength of the trend. ADX values typically range between 0 and 100. Higher ADX values indicate a stronger trend.
+DI measures the tendency of prices to move upward, while
-DI measures the tendency of prices to move downward. ADX is used to gauge the
strength of the +DI and -DI lines. The ADX line takes the average of +DI and
-DI lines. The higher the ADX line, the stronger the trend.
The truth is, most traders never really dig into the ADX indicator formula – and honestly, they don't have to if they just want to use it. But once you look under the hood, things start to make a lot more sense. The ADX indicator formula basically takes the smoothed difference between +DI and -DI, then normalizes it over the average true range. Sounds a bit scary at first, right? But Wilder's genius was turning all that math into something that actually tells you whether the market is trending or just messing around. Here's the part a lot of people miss: the ADX indicator formula itself doesn't care about direction at all. It only measures strength. That's why you'll sometimes see the ADX rising sharply even when the price is dropping like a rock – the trend is strong, just downward. When you are playing with different periods (14 is the default, but many swing traders prefer 10 or even 7), you are essentially tweaking how sensitive the ADX indicator formula becomes to recent price action. Shorter period = faster reaction, but also more noise. Classic trade-off.
One quick tip: if you ever backtest a strategy that uses ADX, don't just copy-paste the standard ADX indicator formula from a textbook. Most platforms (TradingView, MT4, Thinkorswim, etc.) already apply Wilder's smoothing correctly, but some cheap indicators out there still use regular EMA instead of the proper Wilder's moving average. That tiny difference can completely screw your results. So yeah, the ADX indicator formula looks intimidating with all those plus/minus DMs and ATR divisions, but once you use it for a few weeks, you start "feeling" trend strength almost intuitively. It is one of those tools that feels like magic… until you learn the math, and then it feels even cooler.
How to Interpret the ADX Indicator?
Unlike other technical indicators, the ADX indicator doesn't
primarily generate buy or sell signals. Instead, it assesses the presence of a
trend and how strong it is, usually ranging between 0 and 100. Low ADX values
(usually below 20) indicate a sideways market or a weak trend. In such cases,
it suggests that a trend isn't progressing strongly, the market is indecisive,
or there may not be a clear trend in the market. High ADX values (typically
around 40-50 and above) indicate the presence of a strong trend. This means
that a trend is making a strong move or a new trend has started.
If +DI is higher than -DI, it indicates that the upward
movement is strong, while conversely, if -DI is higher than +DI, it suggests
that the downward movement is strong. In addition to this, as the ADX value
rises, it signifies an increase in the strength of the trend. As trend
followers, we can see that the trend is gaining strength, and it makes more
sense to follow that trend. When the ADX value decreases, it indicates a
decrease in the strength of the trend. In such cases, the market may be moving
sideways or the trend may be weakening. While ADX is mostly used to measure the
strength of a trend, it should not be used as a standalone tool for trend
following. Using this indicator in combination with other technical indicators
can lead to more exact results.
What Is a Good ADX Indicator?
There is no single "perfect" ADX that works for everyone, but a good ADX indicator is the one that matches your trading style, timeframe, and the market you are in. Let's cut the mystery and talk about what actually makes ADX useful in real life. Most beginners just load the default 14-period ADX and call it a day. That's fine to start, but the truth is your ADX indicator settings are everything. The standard 14-period ADX indicator settings work great on daily charts for swing trading stocks or forex majors, because the market has enough time to breathe and real trends can develop. But if you are scalping the 5-minute chart on something wild like Nasdaq futures? Those same ADX indicator settings will lag like crazy and you'll miss half the moves.
Here's what I (and a lot of experienced traders) consider "good" ADX indicator settings in different situations:
- Daily / 4-hour swing trading → 14-period (the classic, still the king for most people)
- Intraday on 1-hour or 15-minute → 10-period or even 7-period ADX indicator settings – catches trends faster
- Super-fast scalping (1-5 min) → 7-period or sometimes 5-period, but expect a lot more whipsaw
- Long-term position trading or crypto weekly charts → 20-25-period ADX indicator settings to filter out the noise
A good ADX indicator also needs clean +DI/−DI lines that aren't jittery. If your platform's ADX indicator settings use regular EMA smoothing instead of Wilder's original smoothing, the whole thing feels slightly "off" – the crossings are delayed and the ADX peak comes too late. Always double-check that little detail. My personal rule of thumb for calling an ADX setup "good":
- ADX > 25 → strong trend (I start trusting the direction given by +DI/−DI)
- ADX > 40 → really strong trend (I'll add to winners, trail stops aggressively)
- ADX < 20 → ranging market (I either sit on my hands or switch to mean-reversion plays)
Bottom line: the best ADX indicator isn't about finding some secret setting that wins every time. It is about picking ADX indicator settings that fit your timeframe and personality, then sticking with them long enough to actually understand what the line is telling you. Once that clicks, you'll wonder how you ever traded without it.
How to Use ADX Indicator?
The ADX doesn't predict where price – it only tells you "Hey, there is a real trend happening right now" or "Dude, the market is drunk and going nowhere." Once you accept that simple fact, every ADX indicator strategy suddenly becomes ten times easier. Here is the no-BS way I actually use it every day (and how most profitable traders I know run their ADX indicator strategy):
Trend filter first
My #1 rule in every single ADX indicator strategy: I never take a trend-following trade if ADX is below 20–22. Period. Doesn't matter how pretty the breakout looks. Low ADX = high chance of fakeout. I just wait.
The critical 25 level
When ADX crosses above 25 and keeps rising, that's usually when I get interested. This is the heart of almost every solid ADX indicator strategy. Above 25 + either +DI above -DI (uptrend) or -DI above +DI (downtrend) = green light for trend trades.
The "add-to-winner" trick
My favorite part: when ADX climbs above 35–40 while I am already in a winning trade, that's my signal to pyramid or move my stop to break-even. A good ADX indicator strategy loves strong trends, and 40+ is screaming "this thing has legs."
Exit when ADX starts dying
The moment ADX bends down from a high level (especially if it drops under 30 while I am in profit), I start tightening my trail or just take profits. Markets rarely reverse instantly, but momentum is clearly fading. Every clean ADX indicator strategy I've ever backtested makes most of its money by riding the meat of the move and getting out when ADX rolls over.
Combine it with something simple (don't go indicator crazy)
Popular combos that actually work:
- ADX + 20 or 50 EMA (price above EMA + ADX > 25 = long)
- ADX + Parabolic SAR (SAR flips only count when ADX confirms strength)
- ADX + break of previous swing high/low
Keep the rest of the chart naked. The whole point of an ADX indicator strategy is to stay out of chop – don't add ten other oscillators and ruin it.
Quick real-life example I used this morning on EUR/USD (4H chart):
- Price broke above the Asian range
- ADX was already at 28 and rising, +DI clearly above -DI
- Entered long, rode it 120 pips, ADX hit 44 → added half size
- ADX peaked and dropped under 30 → closed everything for +180 pips total
That's literally just the ADX indicator strategy above, nothing fancy.
One last thing: never use ADX alone for entries on low-timeframe scalping. It lags too much down there. Save the full ADX indicator strategy for 1H and above, or use a very short period (7–10) if you are stubborn and want to scalp. That's it. Stop overthinking. Let ADX tell you when the market is actually worth trading, then use your favorite price-action or MA setup inside that filter. Works like a charm.
Other technical indicators that can be used in conjunction with the ADX indicator. We can develop stronger and more robust trading strategies by combining the ADX indicator with other technical analysis indicators and methods. Here are some technical indicators that can be used in conjunction with ADX:
1. Moving Averages
Combining ADX with moving averages
strengthens your trend-following strategies. Especially during periods when ADX
is rising, you can use moving average crossovers to generate buy and sell
signals. For example, if +DI is higher than -DI, ADX is 20 or higher, and the
price crosses above the moving averages, it could be a signal to go long.
Conversely, if -DI is higher than +DI, ADX is 20 or higher, and the price
crosses below the moving averages, it could be a signal to go short. Look at the
example on the EUR/CHF chart:
 |
| Trading via ADX indicator on the EUR/CHF chart |
Volume Indicators
Volume indicators display volume
information that can influence price movements. By using volume indicators
alongside the ADX indicator, you can make more accurate predictions about
trends.
We can use ADX alongside MACD, RSI, Stochastic Oscillator,
and other technical indicators. This means that different indicators can offer
different perspectives and can generate stronger signals when combined. For
example, if ADX is high, RSI is in overbought territory, and the price breaks
through a resistance level, it can be a sell signal. We can use MACD to
determine the strength and direction of the trend, and Stochastic Oscillator
and RSI to identify trend extremes.
What Is the Best Time Frame for ADX?
No single time frame wins every scenario, but some clearly make ADX far more reliable and useful. The 4-hour and daily charts stand out as the clearest environments for ADX. The standard 14-period setting performs at its best here – trends develop properly, random noise stays minimal, and a push above 25 almost always signals real conviction behind the move. For pure trend-following reliability, the daily chart remains tough to beat.
The 1-hour chart still delivers strong results, especially on liquid forex pairs, major indices, and large-cap stocks. Readings become a touch noisier than on higher time frames, yet shortening the period to 10–12 usually restores clean signals. Many active swing setups combine 1-hour entries with 4-hour or daily ADX confirmation. Below 15 minutes things turn messy. The classic 14-period ADX lags badly on 5-minute or 1-minute charts – the signal often arrives after the meaningful part of the move has passed. Scalpers who insist on using ADX typically drop the period to 5–8, but the line then spends most of the day jumping between 15 and 35, making it hard to separate genuine trends from chop.
Weekly charts work beautifully for position trading and long-term crypto or commodity plays. Even the 14-period can feel slightly reactive at that scale, so 20–25 periods often produce smoother, more trustworthy readings. Quick ranking from most dependable to least (when ADX is the primary filter):
- Daily – highest signal quality
- 4-hour – ideal balance of speed and reliability
- 1-hour – fast but still solid
- 15-minute and lower – useful only with very short periods and as a secondary tool
General guideline: the lower the time frame, the shorter the ADX period required. Regardless of the main trading chart, checking the daily ADX before any sizable position almost always pays off.
！Keep in mind. When trading in financial markets, we should not rely on a single indicator alone and must always add other technical tools to confirm. We should always carefully evaluate market conditions and risks, and we should not forget that indicators can be misleading and may not always produce accurate signals. Successful trading!