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Average Directional Index

By LuxAlgoApr 13, 2020

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The Average Directional Index splits trend analysis into two questions: is this market trending at all, and in which direction? The build plots the full Wilder system: +DI and -DI express upward and downward movement relative to true range, while the ADX line smooths their difference into a pure strength gauge. A dashed Key Level marks the trend-strength threshold. Defaults follow Wilder's originals, 14-period smoothing at both stages, the unmodified standard calculation.

How to Trade the Average Directional Index?

  • ADX above the Key Level (default 25): one side is dominating persistently. Trend-following entries and breakout continuation carry more weight.
  • ADX below the Key Level: no durable dominance; range tactics apply and DI crossovers deserve heavy discounting.
  • +DI above -DI: up-moves dominate. Direction is up while it holds; a DI cross while ADX rises is the classic entry configuration.
  • ADX rolling over from a high reading: dominance fading. Contraction, not reversal; price often drifts rather than turns when ADX dies.

ADX climbs in persistent declines just as in persistent advances; the DI lines, not ADX, carry direction. Three alert conditions are included: Bullish DI Cross, Bearish DI Cross, and ADX Above Key Level.

Average Directional Index Settings

  • DI Length (default 14): Wilder RMA smoothing applied to directional movement and true range for +DI and -DI. Shorter flips the DI lines faster and multiplies crossovers; longer cuts whipsaw but delays direction changes.
  • ADX Smoothing (default 14): the second smoothing pass, from DX to the ADX line. Lower registers regime changes sooner at the cost of chop.
  • Key Level (default 25): the dashed reference ADX is read against. Toward 30 restricts "trending" to stronger markets; toward 20 flags regimes earlier with more false positives.

Frequently Asked Questions

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