# Average Directional Index (ADX): Definition and Formula

## What Is the Average Directional Index (ADX)?

The average directional index (ADX) is a [technical analysis indicator](https://www.investopedia.com/terms/t/technicalindicator.asp) used by some traders to determine the strength of a [trend](https://www.investopedia.com/terms/t/trend.asp).

The trend can be either up or down, and this is shown by two accompanying indicators, the [negative directional indicator](https://www.investopedia.com/terms/n/negativedirectionalindicator.asp) (-DI) and the [positive directional indicator](https://www.investopedia.com/terms/p/positivedirectionalindicator.asp) (+DI). Therefore, the ADX commonly includes three separate lines. These are used to help assess whether a trade should be taken long or short, or if a trade should be taken at all.

### Key Takeaways

*   Designed by Welles Wilder for commodity daily charts, the ADX is now used in several markets by technical traders to judge the strength of a trend.
*   The ADX makes use of a positive (+DI) and negative (-DI) directional indicator in addition to the trendline.
*   The trend has strength when ADX is above 25; the trend is weak or the price is trendless when ADX is below 20, according to Wilder.
*   Non-trending doesn't mean the price isn't moving. It may not be, but the price could also be making a trend change or is too volatile for a clear direction to be present.

## Average Directional Index (ADX) Formula

The [ADX requires a sequence of calculations](https://www.investopedia.com/ask/answers/112814/how-average-directional-index-adx-calculated-and-what-formula.asp) due to the multiple lines in the indicator.

$\begin{aligned} &\text{+DI} = \left ( \frac{ \text{Smoothed +DM} }{ \text{ATR } } \right ) \times 100 \\ &\text{-DI} = \left ( \frac{ \text{Smoothed -DM} }{ \text{ATR } } \right ) \times 100 \\ &\text{DX} = \left ( \frac{ \mid \text{+DI} - \text{-DI} \mid }{ \mid \text{+DI} + \text{-DI} \mid } \right ) \times 100 \\ &\text{ADX} = \frac{ ( \text{Prior ADX} \times 13 ) + \text{Current ADX} }{ 14 } \\ &\textbf{where:}\\ &\text{+DM (Directional Movement)} = \text{Current High} - \text{PH} \\ &\text{PH} = \text{Previous High} \\ &\text{-DM} = \text{Previous Low} - \text{Current Low} \\ &\text{Smoothed +/-DM} = \textstyle{ \sum_{t=1}^{14} \text{DM} - \left ( \frac{ \sum_{t=1}^{14} \text{DM} }{ 14 } \right ) + \text{CDM} } \\ &\text{CDM} = \text{Current DM} \\ &\text{ATR} = \text{Average True Range} \\ \end{aligned}$

### Calculating the ADX

1.  Calculate +DM, -DM, and the true range (TR) for each period. Fourteen periods are typically used.
2.  +DM = current high - previous high.
3.  \-DM = previous low - current low.
4.  Use +DM when current high - previous high > previous low - current low. Use -DM when previous low - current low > current high - previous high.
5.  TR is the greater of the current high - current low, the absolute value of current high - previous close, or the absolute value of current low - previous close.
6.  Smooth the 14-period averages of +DM, -DM, and TR using the calculated values for each of the 14 period. The [smoothed TR](https://www.investopedia.com/terms/a/atr.asp) (ATR) formula is below.
7.  Previous ATR = sum of 14 TR values, divided by 14.
8.  Current ATR = previous ATR multiplied by the number of periods minus 1 (14 - 1) + current TR, divided by 14.
9.  Next, divide the smoothed +DM value by the smoothed TR value to get +DI. Multiply by 100.
10.  Divide the smoothed -DM value by the smoothed TR value to get -DI. Multiply by 100.
11.  The [directional movement index (DMI)](https://www.investopedia.com/terms/d/dmi.asp) is +DI minus -DI, divided by the sum of +DI and -DI (all absolute values). Multiply by 100.
13.  To get the ADX, continue to calculate DX values for at least 14 periods. Then, smooth the results to get ADX.
14.  First ADX = sum 14 periods of DX / 14.
15.  After that, ADX = ((prior ADX \* 13) + current DX) / 14.

## What Does the ADX Tell You?

The ADX, negative directional indicator (-DI), and positive directional indicator (+DI) are momentum indicators. The ADX helps investors determine trend strength, while -DI and +DI help determine trend direction.

The ADX identifies a strong trend when the ADX is over 25 and a weak trend when the ADX is below 20. Crossovers of the -DI and +DI lines can be used to generate [trade signals](https://www.investopedia.com/terms/t/trade-signal.asp). For example, if the +DI line crosses above the -DI line and the ADX is above 20, or ideally above 25, then that is a potential signal to buy. On the other hand, if the -DI crosses above the +DI, and the ADX is above 20 or 25, then that is an opportunity to enter a potential [short](https://www.investopedia.com/terms/s/short.asp) trade.

Crosses can also be used to exit current trades. For example, if [long](https://www.investopedia.com/terms/l/long.asp), exit when the -DI crosses above the +DI. Meanwhile, when the ADX is below 20 the indicator is signaling that the price is trendless and that it might not be an ideal time to enter a trade.

![Image](https://www.investopedia.com/thmb/7xVUqooIzCf3GqNH91Em91U9G-k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Average-Directional-Index-ADX-May-2021-01-a4b90b10676a437287683e38e0d2c7bd.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

## The Average Directional Index vs. The Aroon Indicator

The ADX indicator is composed of a total of three lines, while the [Aroon indicator](https://www.investopedia.com/terms/a/aroon.asp) is composed of two.

The two indicators are similar in that they both have lines representing positive and negative movement, which helps to identify trend direction. The Aroon reading/level also helps determine trend strength, as the ADX does. The calculations are different though, so crossovers on each of the indicators will occur at different times.

## Limitations of Using the ADX

[Crossovers](https://www.investopedia.com/terms/c/crossover.asp) can occur frequently, sometimes too frequently, resulting in confusion and potentially lost money on trades that quickly go the other way. These are called [false signals](https://www.investopedia.com/terms/f/false-signal.asp) and are more common when ADX values are below 25. That said, sometimes the ADX reaches above 25, but is only there temporarily and then reverses along with the price.

Like any indicator, the ADX should be combined with price analysis and potentially other indicators to help filter signals and control risk.

## What Is a Good Average Directional Index?

An ADX above 25 is considered strong. When the ADX is below 20, the trend is weak or the price is trendless.

## Is ADX a Good Indicator?

Yes, but it provides better strategy signals when combined with price. Investors should first use ADX to determine whether prices are trending or non-trending and then choose the appropriate trading strategy for the condition.

## What Is the Best Indicator to Use With ADX?

The ADX works best when combined with other technical indicators, like the [relative strength index (RSI)](https://www.investopedia.com/terms/r/rsi.asp). While the ADX measures the intensity of the trend, the RSI can help with entries and exits by giving a time-based component to the trend.

## The Bottom Line

The average directional movement index (ADX) is used by technical traders to determine trend strength as well as trend direction. Using the ADX, traders can determine if a market is trading or ranging, and then apply the adequate technical trading strategy. This can be a profitable strategy that involves minimal risk, which makes it a popular strategy among traders. There are other technical analysis indicators similar to the ADX, like the [parabolic SAR](https://www.investopedia.com/terms/p/parabolicindicator.asp), [moving averages](https://www.investopedia.com/articles/technical/052201.asp), and [envelopes](https://www.investopedia.com/terms/e/envelope.asp).

> **Article Sources**
>
> 1.  E. Ponsi. "[Technical Analysis and Chart Interpretations: A Comprehensive Guide to Understanding Established Trading Tactics](https://www.wiley.com/en-us/Technical+Analysis+and+Chart+Interpretations%3A+A+Comprehensive+Guide+to+Understanding+Established+Trading+Tactics+for+Ultimate+Profit-p-9781119048220)," Pages 283-287. John Wiley & Sons, 2016.
>     
> 2.  Avatrade. "[ADX Indicator Trading Strategies](https://www.avatrade.com/education/technical-analysis-indicators-strategies/adx-indicator-trading-strategies)."