Directional Movement Index with ADX
DMI / ADX · module 05 of 33 · trend
Whether a market is trending (ADX) and in which direction (+DI versus −DI).
- +DI
- −DI
- ADX
- ▲/▼ where the rule triggers
ADX above 25 says a trend is strong enough to trade; the DI lines tell you which direction is in control.
How to apply it
- 1. Add it. Start with 14 on 15m, threshold 20 (Intraday).
- 2. Read the market first. ADX above 20–25 and rising confirms a trend worth following; the higher DI line identifies the side to take.
- 3. Adjust for ranges. ADX below 20 says directional strategies are unlikely to work — this is the filter's main value.
- 4. Manage the trade. Place the stop at 1.5 × ATR and the target at 3.5 × ATR, and only act when the chart above shows the trigger.
How it is calculated
+DM = up-move when it exceeds the down-move; −DM likewise. +DI = 100 × smoothed(+DM)/ATR; −DI similarly. DX = 100 × |+DI − −DI| ÷ (+DI + −DI); ADX = smoothed DX.
Inputs
- · Period (14 standard)
Reading it correctly
In a trend
ADX above 20–25 and rising confirms a trend worth following; the higher DI line identifies the side to take.
In a range
ADX below 20 says directional strategies are unlikely to work — this is the filter's main value.
Settings by style
| Style | Suggested values |
|---|---|
| Intraday | 14 on 15m, threshold 20 |
| Swing | 14 on 4h/1D, threshold 25 |
These are conventional starting points, not optimised values. Test any change on your own pair and timeframe before relying on it.
Worked example
GBP/USD 4h: +DI = 28, −DI = 15, ADX = 27 and rising. DX = 100 × 13/43 = 30.2. Reading: a genuine downtrend is absent, the upside has control, and trend-following rules are appropriate. Range-reversion rules should be switched off.
When it failed
After a sharp two-day fall, ADX read 38 while price began basing. ADX stayed above 30 for another week as price ranged, because ADX measures the magnitude of recent directional movement and falls only slowly. Traders who read 'high ADX = trend' kept selling into a range.
Limitations
- ADX is directionless — it never tells you which way.
- Lags badly at trend ends; a high reading can persist well into a range.
- Thresholds are conventions, not laws, and differ by pair and timeframe.
Works well alongside
- · EMA
- · ATR
- · Bollinger BandWidth
Redundant with
- · Vortex Indicator
- · Aroon
- · Choppiness measures
Stacking these produces agreement by construction, which is not confirmation.
Practice exercise
Tag every day of the last three months on 4h EUR/USD as ADX above or below 20. Then measure the average 20-candle range in ATR units for each group.
Check your understanding
1. ADX rising from 15 to 30 tells you:
- · Price is going up
- ✓ Directional movement is strengthening, without saying which direction
- · Volatility is falling
- · A reversal is imminent
ADX is a strength measure only. Direction comes from comparing +DI and −DI.
2. ADX at 14 on your trading timeframe suggests:
- · Use breakout and trend-following rules
- ✓ Range and reversion rules are more appropriate than trend rules
- · Increase position size
- · The trend is very strong
A reading below roughly 20 indicates weak directional movement — trend rules tend to whipsaw there.