Glossary
ADX (Average Directional Index)
Wilder's trend-strength indicator from 0 to 100, usually over 14 periods. It measures how strong a trend is, not which way it points.
The ADX (Average Directional Index), introduced by J. Welles Wilder in 1978, is built from the directional indicators +DI and −DI. Each compares the smoothed upward or downward movement with the smoothed true range over 14 periods. DX = 100 × |+DI − −DI| ÷ (+DI + −DI), and ADX is DX smoothed over 14 periods.
Example
On the daily gold chart, +DI is 30 and −DI is 10. DX = 100 × (30 − 10) ÷ (30 + 10) = 50. If DX stays near 50 for several weeks, ADX rises toward 50. The result would be the same with the values reversed, in a downtrend.
Why it matters
ADX is used to filter trend-following rules; a common convention reads values above 20–25 as a trending market. It lags, because it is an average built on averages. In our lab, adding an ADX filter to indicator rules on gold did not make any of them profitable after costs.