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ADX Indicator Strategy

Average Directional Index (ADX) indicator strategy

Key takeaways to consider when using ADX in a trading strategy:

  • ADX values above 25 indicate a strong trend.
  • When ADX is rising, it means that the trend is getting stronger.
  • When ADX falls, it means that the trend is losing strength.
  • A reading below 20 generally indicates a weak trend or range-bound market.

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ADX will not solve all of your trading problems, but there is no better indicator with which to build a successful trading system.

It is a popular indicator among traders. 

It is often used in confluence with other indicators to provide trade signals. 

This guide will go over the ADX indicator and how it can be used as a trading strategy.

What is the ADX Indicator?

ADX or aka the best trend reversal indicator

The ADX indicator was developed by Welles Wilder.

It can be used to trade on currency pairs, commodities, and stocks. 

But it can also be used for trading crypto – for all the crypto bros & gals out there. 

It is a trend-following indicator designed to measure a trend’s strength rather than its direction. 

The ADX is calculated using a formula that combines three separate indicators: the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI)

 ADX = 100 * (ATR/((+DI+(-DI))/2))

The +DI and -DI are used to measure the trend’s strength in a particular direction. A high +DI value indicates a strong bullish uptrend, while a high -DI value indicates a bearish strong downtrend. 

Legends – 
  • ADX Line is the Black Line
  • DMI+ bullish momentum in Green Line
  • DMI-: bearish momentum in Red Line

ADX can answer many of your concerns about when and how to trade.

It provides a solid framework for understanding the larger context of trade.

ADX will help with the following trading decisions:

  • When is a new trend just starting to break out?
  • When is a trend strong enough to buy on pullbacks?
  • When is a trend getting weak and overbought?
  • When is a trend reversing?
  • When is a trend entering a consolidation?

How to Use the ADX Indicator?

We’ve covered the ADX indicator and how to use it extensively in our blog on identifying trend reversals

There are a few different ways traders can use the ADX indicator in their trading strategy.
One common approach is to use the ADX as a trend strength indicator:
  • When the ADX is above 25, it indicates a strong trend and is likely to continue.
  • Conversely, when the ADX is below 20, the trend is weak.
ADX Indicator Strategy

Another way to use the ADX is to look for trend reversal signals. If the ADX is below 20 and then begins to rise, it could indicate that the trend is about to change direction. 
Similarly, if the ADX is above 25 and then begins to fall, it could indicate that the trend is losing momentum and may be about to reverse.
Traders can also use the +DI and -DI to generate trade signals. A cross of the +DI and -DI can be used as a buy or sell signal, depending on the direction of the cross. 
For example, if the +DI crosses above the -DI, it could be a buy signal, while if the -DI crosses above the +DI, it could be a sell signal.

Use additional technical analysis tools.

The ADX indicator should not be used in isolation.
Using it with other technical indicators and analysis techniques, such as support and resistance levels, trend lines, and chart patterns, is best.
For example, traders can use trend lines to identify potential entry and exit points or chart patterns to identify potential trade setups.

Implement risk management strategies.

As with any trading strategy, it is important to implement risk management strategies to protect your capital. 
This can include setting stop-loss orders, using position sizing techniques, and diversifying your portfolio.

Combining the ADX with Other Indicators

The ADX is often used with other indicators to provide trade signals. 

One common approach is to use the ADX with the Moving Average Convergence Divergence (MACD) indicator. 

The MACD is a trend-following indicator used to identify trend changes and can be used to confirm trade signals generated by the ADX.

Another popular approach is to use the ADX with the Relative Strength Index (RSI). 

The RSI is a momentum indicator used to identify overbought and oversold conditions. 

When the RSI is above 70, it indicates that the security is overbought, and traders may want to consider taking profits or looking for short-selling opportunities. 

Conversely, when the RSI is below 30, it indicates that the security is oversold, and traders may want to consider buying or looking for long trade opportunities.


The ADX indicator is a powerful tool for traders looking to measure a trend’s strength and identify entry and exit points in the market.

It can be used on its own or in confluence with other indicators to provide trade signals.

By understanding how to use the ADX, traders can better identify trend strength and improve the accuracy of their trades.

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