Technical indicator guide
Understanding ADX and Directional Indicators
A guide to the relationship between ADX, +DI, and −DI: how the system separates trend strength from directional balance and how to read it cautiously.
What is ADX?
The Average Directional Index, or ADX, is the strength component of a directional movement system. It is designed to describe how pronounced directional movement has been over a chosen lookback. ADX does not identify whether that direction is positive or negative.
How is ADX obtained?
The process first measures positive and negative directional movement and the True Range for each period. After those series are smoothed, they produce +DI and −DI. A Directional Index is then derived from the distance between +DI and −DI relative to their combined value. ADX is a smoothed series of that Directional Index.
- True Range: use the largest of the current high minus low, the absolute high minus previous close, and the absolute low minus previous close.
- Directional movement: retain the dominant positive or negative movement under the system’s rules and set the other side to zero.
- Directional indicators: divide smoothed directional movement by smoothed True Range and scale the result.
- ADX: smooth the Directional Index calculated from the separation between +DI and −DI.
The exact output depends on the lookback and smoothing convention. Those settings should be stated rather than assumed.
What can ADX be used for?
- Strength tracking: observe whether directional movement is becoming more or less pronounced.
- Regime context: distinguish a strengthening directional environment from a quieter or less directional one.
- Confirmation: compare a direction signal with an independent measure of its strength.
A rising ADX indicates increasing directional strength within the calculation; it does not by itself indicate rising price. The +DI and −DI relationship supplies the directional side of the system.
What are +DI and −DI?
+DI represents smoothed positive directional movement relative to True Range. −DI represents smoothed negative directional movement on the same basis. Their relationship describes which side of the directional calculation is dominant at a given observation.
How are +DI and −DI obtained?
Positive directional movement compares the current high with the previous high. Negative directional movement compares the previous low with the current low. Under the standard directional rule, only the larger positive movement is retained for +DM, or the larger negative movement for −DM; non-positive values are set to zero. Each smoothed movement series is then divided by smoothed True Range and scaled to form +DI or −DI.
What can DI be used for?
DI can show directional balance, changes in dominance, and crosses between the positive and negative series. A +DI reading above −DI means positive directional movement is dominant in that calculation; the reverse means negative movement is dominant. The distance between them contributes to the strength calculation.
A DI cross is an observed change in the indicator relationship, not a guaranteed trading signal. The lines can cross repeatedly, and their readings depend on the chosen lookback and smoothing method.
Use +DI and −DI for directional balance and ADX for strength. None of the three lines independently guarantees continuation, reversal, or profitability.