Average Directional Index
Average Directional Index quantifies trend strength regardless of direction, with +DI and -DI showing bullish/bearish pressure.
What It Measures
Trend strength (ADX 0-100) and direction dominance (+DI vs -DI).
The Math (Simplified)
Compute True Range, +DM (up move) and -DM (down move), Wilder-smooth each over N days, then +DI = 100× smoothed +DM/ATR, -DI similarly, DX = 100×|DI+ - DI-|/(DI+ + DI-), ADX = Wilder average of DX.
Default Inputs & Tuning
14 days is standard for all lines. ADX >25 indicates strong trend; +DI > -DI indicates bullish dominance.
When It Works (Market Edge)
Filtering trending vs ranging markets: buying breakouts only when ADX >20 avoids many sideways whipsaws.
When It Fails
As a standalone entry: ADX has no direction — high ADX in a downtrend is still a trend, just not the one you wanted.
Common Myths
Myth: High ADX means you should buy.
Truth: High ADX only means a strong trend exists. If -DI > +DI, the trend is down — buying would be against it.
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