Definition
ADX
ADX (Average Directional Index) measures the strength of a trend, regardless of its direction.
ADX ranges from 0 to 100: readings below 20 suggest a weak or range-bound market, while readings above 25 indicate a strong trend worth following. It is usually plotted with the +DI and -DI lines, whose crossovers signal whether the trend is up or down.
NSE traders use ADX on Nifty and stocks to decide which tools to apply — trend-following strategies when ADX is high, and range or mean-reversion strategies when it is low. Crucially, ADX tells you the strength but not the direction, so it is paired with the DI lines or price structure to trade with the trend.
Related terms
- Stochastic OscillatorThe stochastic oscillator compares a closing price to its recent range to flag overbought and oversold conditions.
- SupertrendSupertrend is a trend-following indicator that plots a line below price in uptrends and above price in downtrends, using ATR.
- TrendlineA trendline is a straight line connecting a series of highs or lows to visualise the direction and slope of a trend.
- Moving AverageA moving average smooths price data over a set period to reveal the underlying trend.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.