Indicator reference › ADX
ADX measures the strength of a trend, regardless of direction, on a 0–100 scale. It's accompanied by +DI (positive directional indicator) and -DI (negative directional indicator) which show the direction. ADX does NOT tell you which way the trend goes — it tells you HOW STRONG the trend is. This is critical for avoiding false signals from other indicators in ranging markets.
ADX below 20 indicates a weak trend or ranging market — oscillators like RSI/Stochastic work better here. ADX above 25 indicates a developing trend — trend-following indicators become more reliable. ADX above 40 signals a very strong trend. The DI crossover (+DI crosses above -DI) is a directional signal. ADX falling from a high level means the trend is weakening, even if price keeps moving.
ADX is a regime filter — it tells you WHICH strategy to use. Below 20, use RSI/Stochastic for range trading. Above 25, use trend-following (MACD, EMA crossovers). It doesn't directly tell you when to buy/sell — it filters other indicators. Works on all timeframes and asset classes.
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Three classic breakout rules tested across 179 US stocks, with Buy & Hold comparisons, fees, drawdowns, ADX and different market conditions.
A reading of ADX can be written as an exact rule and checked against historical data — as a full strategy with entries, exits and costs, or as a single condition and what followed it:
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Plot it yourself. Add this indicator to a chart, change every parameter and watch the line move, then backtest how the rule would have behaved on historical data — free on the S&P 500 ETF, no card.
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