The ADX, or average directional index, is an indicator that measures the strength of the current price movement — traders find this useful because it measures the strength of a trend.
The focus of the ADX lies in the momentum of the trend, not the direction.
The ADX measurement is a number between 0 and 100, but because it never goes above a value of 72, you will generally only find scales reaching up to 72.
A value below 20 indicates that the market is, while a value above 20 usually indicates that the market might move in either an upward or downward direction. A value of 40 can be considered a strong .
The indicator is derived from two directional indicators known as DI+ and DI-, which are in turn derived from the DMI or directional movement index. This is where the term ADX DMI comes from.
Conversely, the DI+ and DI- may provide you with a little more information about the direction. If the red line is moving upwards, it indicates that the downward momentum is rising. If the green line is moving upwards, it tells you that the upward momentum is rising.
In the illustration above, the white line is the ADX, the red line is the DI- and the green line is the DI+.
The ADX is calculated by taking the difference between the DI+ and DI- and dividing it by the sum of DI+ and DI-. The result is multiplied by 100 and called the directional index or DX. Ais then taken from the DX, which results in the ADX.
Learn more about the ADX and other useful indicators: