ADX / DMI
Trend
The ADX (Average Directional Index, Welles Wilder) measures how strong a trend is — not which direction it runs. The direction comes from the two accompanying lines +DI and -DI.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Determine per day the upward movement (+DM), the downward movement (-DM) and the True Range (TR).
- Smooth both over 14 periods and divide by the TR: that gives +DI and -DI (both between 0 and 100).
- The DX is the normalized difference between +DI and -DI; the ADX is the smoothed average of that DX.
+DI = 100 x EMA(+DM) / ATR
-DI = 100 x EMA(-DM) / ATR
DX = 100 x |+DI - (-DI)| / (+DI + (-DI))
ADX = smoothed average of DX (14)
Interpretation
- ADX below 20: no trend, the market drifts sideways. Trend-following signals are unreliable here.
- ADX between 20 and 25: a trend is starting to form.
- ADX above 25: pronounced trend. Above 40: very strong trend, but also gradually exhausting.
- +DI above -DI = buyers dominate; -DI above +DI = sellers dominate.
How the signal works in this scanner
Buy signal (green)+DI crosses the -DI from below to above, and the ADX is at least 20 at that moment (so there is a real trend to ride).
Sell signal (red)-DI crosses the +DI from below to above, likewise with an ADX of at least 20.
Watch-outs & pitfalls
- The ADX also falls when a trend simply pauses for a while — a falling ADX does not automatically mean a reversal.
- This is the stricter cousin of the plain DMI Cross: the same crossing pattern, but reported here only when the trend strength justifies it.