<p>The Average Directional Index (ADX) is a technical analysis indicator that quantifies the strength of a market trend, independent of its direction. Developed by J. Welles Wilder, it helps traders determine whether a price move is supported by strong momentum or is merely a weak, choppy fluctuation.</p>

<h2>How It Works</h2>
<p>ADX is derived from the Directional Movement Index (DMI), which consists of two lines: the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI). The calculation compares the magnitude of price changes over a set period, usually 14 periods, to produce a value ranging from 0 to 100.</p>
<p>Readings below 20 suggest a weak or non‑existent trend, while values above 25 indicate a strengthening trend. When ADX rises above 40, the trend is considered very strong. The indicator does not specify whether the trend is upward or downward; traders look at the relative positions of +DI and -DI to infer direction.</p>

<h2>Why It Matters</h2>
<p>Knowing trend strength helps traders avoid false signals and choose appropriate strategies. For example, during a strong uptrend (ADX > 30 with +DI > ‑DI), a trader might favor buying on pullbacks rather than shorting. Conversely, a low ADX suggests a ranging market, where mean‑reversion tactics such as buying near support and selling near resistance may be more effective.</p>
<p>ADX is often paired with other oscillators like the Relative Strength Index (<a href="/NewSite/encyclopedia/rsi/" class="ency-link">RSI</a>) or Moving Average Convergence Divergence (<a href="/NewSite/encyclopedia/macd/" class="ency-link">MACD</a>) to confirm entry and exit points. By filtering out low‑strength moves, ADX improves the reliability of technical trading systems.</p>
<ul>
<li><strong>Related terms:</strong> RSI, MACD, DMI, Wilder's indicators</li>
</ul>