## Average Directional Index

The average directional movement index (ADX) was developed in 1978 by **J. Welles Wilder** is a lagging indicator. It is an indicator of trend strength, it does not indicate the direction of strength. The ADX typically ranges between 0 to 100: the higher the oscillator, the stronger the trend is.

- Weak trend: ADX readings below 20

- Strong trend: ADX reading above 40

- Extremely strong trend: ADX reading above 50.

## Key payoffs

- Average directional index (ADX) is a short-term technical indicator that can assist you in determining the relative strength of your respective investment.

- Further ADX analysis and advice the recent short-term volatility trend may have considerable strength.

- Indicators like ADX should be used in aggregation with other indicators and fundamentals.

## Formula

The ADX is primarily used as an indicator of momentum, or trend strength, but the total ADX system is also used as a directional indicator.

To calculate the ADX we have to determine the + and – directional movement (DM)

- The +DM and -DM are found by calculating the

- Up-move (+DM) = current high – previous high

- Down-move (-DM) = current low – previous low.

If the up-move is greater than the down-move and greater than zero, the +DM equals the up-move. Otherwise, it equals zero.

If the down-move is greater than the up-move and greater than zero, the -DM equals the down-move; otherwise, it equals zero.

**The positive directional indicator **

+DI = (100 X EMA of + DM) / average true range over a given number of time periods (ATR)

**The negative direction indicator**

-DI = (100 X EMA of – DM) / (ATR)

The ADX = 100 X EMA of the absolute value of (+DI minus -DI) / (+DI plus -DI)