Measured between 0 and 100, the ADX is a measure of the strength of a prevailing trend. Values below 20 indicate a weak trend, over 40 indicates a strong trend.

ADX doesn’t give you information on the direction of any particular trend, only the strength of that trend.

A move above 20 is a signal of a new trend starting, while the ADX dropping below 40 suggests that the current trend may be ending.

The ADX is related to the direction momentum indicators (+DI, -DI [14-period]). These direction momentum indicators do give information as to trend direction and are usually plotted with the ADX.

Convention is +DI = green, and -DI = red, so when it’s green line above red = positive trend and vice versa.

Developed by Welles Wilder in “New concepts in technical trading systems”, he added “a rule of points of extremum” to reduce false signals. The “point of extremum” is the +DI and -DI cross. If +DI goes higher than -DI, this point is likely to be the period high. Alternatively, +DI lower than -DI equates to a suggestion of the period low.

See also ADX & Parabolic SAR