# Average directional movement index

The average directional movement index (ADX) was developed in 1978 by J. Welles Wilder as an indicator of trend strength in a series of prices of a financial instrument.[1] ADX has become a widely used indicator for technical analysts, and is provided as a standard in collections of indicators offered by various trading platforms.

## Calculations

The ADX is a combination of two other indicators developed by Wilder, the positive directional indicator (abbreviated +DI) and negative directional indicator (-DI).[2] The ADX combines them and smooths the result with a smoothed moving average.

To calculate +DI and -DI, one needs price data consisting of high, low, and closing prices each period (typically each day). One first calculates the directional movement (+DM and -DM):

UpMove = today's high − yesterday's high
DownMove = yesterday's low − today's low
if UpMove > DownMove and UpMove > 0, then +DM = UpMove, else +DM = 0
if DownMove > UpMove and DownMove > 0, then -DM = DownMove, else -DM = 0

After selecting the number of periods (Wilder used 14 days originally), +DI and -DI are:

+DI = 100 times the smoothed moving average of (+DM) divided by average true range
-DI = 100 times the smoothed moving average of (-DM) divided by average true range

The smoothed moving average is calculated over the number of periods selected, and the average true range is a smoothed average of the true ranges. Then:

ADX = 100 times the smoothed moving average of the absolute value of (+DI − -DI) divided by (+DI + -DI)

Variations of this calculation typically involve using different types of moving averages, such as an exponential moving average, a weighted moving average or an adaptive moving average.[3]

## Timing

Various market timing methods have been devised using ADX. One of these methods is discussed by Alexander Elder in his book Trading for a Living. One of the best buy signals is when ADX turns up when below both Directional Lines and +DI is above -DI. You would sell when ADX turns back down.[7]

## References

1. ^ J. Welles Wilder, Jr. (June 1978). New Concepts in Technical Trading Systems. Greensboro, NC: Trend Research. ISBN 978-0894590276.
2. ^ Michael D. Sheimo (1998). Cashing in on the Dow: using Dow theory to trade and determine trends in today's markets. CRC Press. p. 87.
3. ^ Do Adaptive Moving Averages Lead To Better Results? By Michael Carr
4. ^ Newsome, Jerremy (2013-07-25). "One of my favorite technical indicators…". Trade Smart University. Archived from the original on 2013-07-27. Retrieved 2013-07-31.
5. ^ Chesler, Daniel (Winter 2000). "Volatility and Structure: Building Blocks of Classical Chart Pattern Analysis". Market Technicians Association. Archived from the original on 2014-06-20.
6. ^ "How to use ADX/DMS indicator - Technical indicator". SAR Publisher. 2019-02-23. Retrieved 2019-02-25.
7. ^ Alexander Elder (Winter 1993). Trading for a Living. John Wiley & Sons. p. 141. ISBN 0471592242. adx.