This article has been translated from English to Gen Z Slang.
The ADX aka the Average Directional Index is a lit tool used to check how strong a trend’s game is. 📈
Created by the legend J. Welles Wilder, the Average Directional Index (ADX) helps traders vibe check the trend strength and whether it’s getting more hype or totally chillin'.
Pro-tip: ADX rates the strength of a trend, but doesn’t spill the tea on the trend’s direction. 😎
You can use it to figure out if the market's just shooting the breeze or starting a new vibe.
This baddie ranges between 0 and 100 with high scores showing a strong trend and low ones meaning it’s pretty basic.
ADX is kinda like the sibling of the Directional Movement Index (DMI), and tbh the DMI rolls with the ADX line.
How to Use ADX
The ADX has its own vibe when scoping out trends.
It won’t let you know if prices are going up or down, but it’s got the deets on whether the prices are trending or just hanging out.
It’s a dope way to keep your trading game on point with either a range or trend strategy, making sure you’re in sync with the market. 💼
The ADX rocks from 0 to 100.
Wilder thought any score above 25 meant the market’s trending, while a score below 20 was like, nah, no trend here fam.
A score of 0 means prices might go up or down, but there’s no overall market wave.
A score of 100 means prices are either up or down hard, so expect an uber strong trend.
Peep these guidelines:
- If the ADX is between 0-20: The trend is ghosting or weak
- If the ADX is between 25-50: The trend’s pretty strong
- If the ADX is between 50-75: The trend is hella strong 💪
- If the ADX is between 75-100: The trend is, like, OP strong 🔥
Finding scores over 60 is like spotting a unicorn. 🦄
Scores under 20 might mean a switch-up is coming. 💫
When ADX dips down from a high score, the trend might dip out too. Time to think about closing those positions.
If the ADX is dropping, it means the trend's losing its edge. So maybe pause on those trend-following systems.
If ADX has chilled below 20 for ages but then shows up, it might be time to jump in and ride the trend. 🚀
If ADX is climbing, it means the trend’s getting stronger.
- The ADX value is tight with the trend slope.
- The ADX line’s slope mirrors the real price trend slope.
- When the trend slope is steady, the ADX value tends to level out.
Remember fam, the ADX just measures TREND STRENGTH, not the DIRECTION. So keep it in your back pocket. 😉
How to Calculate ADX
ADX comes from two indicators: DI+ and DI-:
- The positive directional indicator (+DI)
- The negative directional indicator (-DI)
These bad boys spawn from the Directional Movement Index (DMI).
ADX figures it out by finding the difference and sum of DI+ and DI-.
It’s simple math—subtract, add, divide, multiply by 100, and boom, you’ve got the Directional Index or DX.
Then, just average out DX over like a two-week span (or however long you vibe with).
The end result is ADX.