Quantify trend strength to filter low-quality setups.
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Overview
The Average Directional Index (ADX) is a trend strength indicator, also developed by J. Welles Wilder Jr., that measures how strong a trend is — regardless of direction. It is always plotted alongside two directional movement lines: +DI (positive directional indicator) and −DI (negative directional indicator).
ADX values range from 0 to 100. A reading below 20 indicates a weak or absent trend (range-bound market). Values between 20–25 mark the beginning of a trend. Above 25 indicates a strong trend; above 40 signals a very strong trend; above 50 is rare and indicates an extremely powerful move.
The key insight is that trend-following strategies (moving average crossovers, breakouts) perform poorly in markets with low ADX. Adding an ADX > 25 filter dramatically reduces false signals. Conversely, mean-reversion strategies work best when ADX is below 20.
The +DI/−DI crossover provides directional signals: when +DI crosses above −DI, the market is strengthening upward; the reverse for downward moves. Combined with the ADX reading, this creates a three-part signal: ADX is rising (trend is strengthening), +DI > −DI (bullish), ADX > 25 (trend is valid).
Strategy Code
This is a TradingView Pine Script example for this indicator. Paste it into the TradingView Pine Editor, add it to your chart, and adjust inputs for your market and timeframe.
//@version=6
strategy("ADX — Average Directional Index", overlay=true)
adxLen = input.int(14, "ADX Length")
emaLen = input.int(100, "Trend EMA")
adx = ta.adx(adxLen)This is a thinkorswim ThinkScript example for this indicator. Open thinkorswim, create a custom study, paste the script, and apply it to your chart.
input adxLength = 14;
input emaLength = 100;
def adxVal = ADX(adxLength);
def emaVal = ExpAverage(close, emaLength);
def buySignal = close > emaVal and adxVal > 25;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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