Understanding the ADX Indicator:

• The **Average Directional Index (ADX)** measures the **strength** of a trend, not its direction. It ranges from 0 to 100.
• **ADX Values Interpretation:**
  • **Below 20-25:** Indicates a weak or non-trending (ranging) market. Avoid trend-following strategies.
  • **Above 25:** Suggests a strong trend is present. The higher the ADX, the stronger the trend.
  • **Above 50:** Implies a very strong trend.
• **ADX Direction Interpretation:**
  • **Rising ADX:** The current trend (whether up or down) is gaining strength.
  • **Falling ADX:** The current trend is losing momentum and weakening. This could signal consolidation or a potential reversal.
• **+DI (Positive Directional Indicator) & -DI (Negative Directional Indicator):**
  • These lines indicate the **direction** of the trend.
  • **+DI above -DI:** Suggests a bullish trend.
  • **-DI above +DI:** Suggests a bearish trend.
  • **Crossovers:** Can signal changes in trend direction. However, only act on crossovers when the ADX line is above 20-25, confirming a sufficiently strong trend.
• **How to Use in Trading:**
  • **Trend Confirmation:** Use ADX to confirm breakouts or chart patterns. If price breaks a resistance, and ADX rises above 25, it confirms the strength of the new uptrend.
  • **Filtering Trades:** Avoid trend-following trades if ADX is low. Look for reversal or ranging strategies instead.
  • **Exiting Trades:** If ADX starts declining from high levels, it might be time to take profits or tighten stops, as the trend is losing steam.
  • **Combine with Price Action:** ADX is best used with price action analysis, support/resistance levels, and other indicators.