Average Directional Index (ADX)
A 0–100 scale that measures how strong a trend is, not which direction — so you know when to ride momentum and when to stay flat.
Definition
The Average Directional Index (ADX) is a non-directional trend-strength indicator developed by J. Welles Wilder and published in his 1978 book. It plots a single line ranging from 0 to 100 that rises as a trend gains power and falls as it weakens, regardless of whether the trend is up or down. ADX is always used alongside two companion lines — the Positive Directional Indicator (+DI) and Negative Directional Indicator (−DI) — which together reveal both strength and direction. It pairs well with ATR for volatility-adjusted entries and with Supertrend for confirming breakout signals.
Why it matters
One of the biggest mistakes retail traders make on NSE is applying momentum strategies in sideways markets, or mean-reversion strategies in strongly trending ones. ADX solves this by acting as a filter. When ADX is rising above 25, trend-following approaches — buying breakouts, trailing stops with the Supertrend — tend to work well. When ADX is below 20 and flat, range-bound strategies such as selling option premiums via straddles or strangles become more appropriate. BankNIFTY, which can oscillate wildly around monetary policy decisions, is a prime candidate for ADX-based regime filtering.
Formula
ADX is derived from the smoothed ratio of the Directional Movement indicators. First, the Positive Directional Movement (+DM) and Negative Directional Movement (−DM) are computed each period. These are then smoothed using Wilder's method over N periods (default 14) to produce +DI and −DI. The Directional Index (DX) for each period is: DX = (|+DI − −DI| / (+DI + −DI)) × 100. ADX is then the Wilder-smoothed average of DX over N periods. A crossover of +DI above −DI is considered a bullish signal; −DI crossing above +DI is bearish.
Example
Suppose a hypothetical mid-cap stock on BSE shows ADX rising from 18 to 32 over five sessions while +DI is above −DI. This suggests a strengthening uptrend. A trader using a trend-following approach might enter a long position, placing a stop below the recent swing low. Conversely, if ADX reads 14 with +DI and −DI crisscrossing frequently, the same trader would stand aside entirely, recognising that momentum-based entries are likely to produce whipsaws in such a choppy environment.
See trend strength on live data
TradePulse's live option chain surfaces OI and premium trends so you can align directional views with real market data.