Indicator | Technique
ADX (Average Directional Index)
"The ADX measures trend strength, without indicating direction, allowing traders to distinguish trending markets from ranging ones."
In-Depth Definition
The Average Directional Index (ADX), also created by J. Welles Wilder, is a trend strength indicator oscillating between 0 and 100. An ADX above 25 indicates a significant trend (bullish or bearish); below 20, the market is considered to be in a range or without a clear trend. The ADX is accompanied by two directional lines: +DI (buying pressure) and -DI (selling pressure). Their crossover generates directional signals. A rising ADX confirms trend acceleration, while a falling ADX may signal exhaustion. The ADX is particularly useful for selecting the appropriate strategy: trend following if ADX > 25, mean reversion if ADX < 20.
StarQuant Insight
StarQuant's AI integrates the ADX into its strategy filters to automatically adapt the approach (trend following vs. range trading) based on detected market conditions, significantly improving signal consistency.
Pro Tip
Use the ADX as a context filter, not an entry signal. Before applying a trend-following strategy, verify that ADX > 25. This avoids trading breakouts in markets without momentum.