Average directional index (ADX)

The average directional index (ADX) is a technical analysis indicator used by some traders to determine the strength of a trend. The trend can be either up or down, and this is shown by two accompanying indicators, the negative directional indicator (-DI) and the positive directional indicator (+DI). Therefore, the ADX commonly includes three separate lines. These are used to help assess whether a trade should be taken long or short, or if a trade should be taken at all.

The ADX makes use of a positive (+DI) and negative (-DI) directional indicator in addition to the trendline.
The Average Directional Index (ADX) is in turn derived from the smoothed averages of the difference between +DI and -DI; it measures the strength of the trend (regardless of direction) over time

The Average Directional Index (ADX) Formula :

The ADX requires a sequence of calculations due to the multiple lines in the indicator.

+DI=(Smoothed +DMATR )×100

-DI=(Smoothed -DMATR )×100

DX=(∣+DI−-DI∣∣+DI+-DI∣)×100

ADX=(Prior ADX×13)+Current ADX14

where:

+DM (Directional Movement)=Current High−PH

PH=Previous High

-DM=Previous Low−Current Low

Smoothed +/-DM=∑�=114DM−(∑�=114DM14)+CDM

CDM=Current DM

ATR=Average True Range

Calculating the Average Directional Movement Index (ADX)

Calculate +DM, -DM, and the true range (TR) for each period. Fourteen periods are typically used.
+DM = current high - previous high.
-DM = previous low - current low.
Use +DM when current high - previous high > previous low - current low. Use -DM when previous low - current low > current high - previous high.
TR is the greater of the current high - current low, current high - previous close, or current low - previous close.
Smooth the 14-period averages of +DM, -DM, and TR—the TR formula is below. Insert the -DM and +DM values to calculate the smoothed averages of those.
First 14TR = sum of first 14 TR readings.
Next 14TR value = first 14TR - (prior 14TR/14) + current TR.
Next, divide the smoothed +DM value by the smoothed TR value to get +DI. Multiply by 100.
Divide the smoothed -DM value by the smoothed TR value to get -DI. Multiply by 100.
The directional movement index (DMI) is +DI minus -DI, divided by the sum of +DI and -DI (all absolute values). Multiply by 100.
To get the ADX, continue to calculate DX values for at least 14 periods. Then, smooth the results to get ADX.
First ADX = sum 14 periods of DX / 14.
After that, ADX = ((prior ADX * 13) + current DX) / 14.