Average Directional Index (ADX) Type: Momentum, Trend (using +DI & -DI), Volatility

The ADX was developed by John Welles Wilder, Jr.. It is a lagging indicator; that is, a trend must have established itself before the ADX will generate a signal that a trend is under way.

ADX will range between 0 and 100 which makes it an oscillator. It is a smoothed average of the Directional Movement Index (DMI / DX).

Generally, ADX readings below 20 indicate trend weakness, and readings above 40 indicate trend strength. A strong trend is indicated by readings above 50. ADX values of 75-100 signal an extremely strong trend.

If ADX increases, it means that volatility is increasing and indicating the beginning of a new trend. If ADX decreases, it means that volatility is decreasing, and the current trend is slowing down and may even reverse. When +DI is above -DI, then there is more upward pressure than downward pressure in the market.