How to Read ADX and DMI: Reading Trend Strength and Direction Separately

What ADX and DMI measure

ADX (Average Directional Index) and DMI (Directional Movement Index) are a set of indicators introduced by Wilder, who also created RSI and ATR, in the same book. A chart usually shows three lines. +DI is the force that extended the range upward, −DI is the force that extended it downward, and ADX is the average of how far apart those two forces are. The key point is that strength and direction are measured separately. ADX, a value between 0 and 100, shows only how clear the trend is and says nothing about whether it points up or down. Direction is read from whether +DI or −DI is on top. So a high and rising ADX means price is moving clearly in one direction, whichever it is, and you need the two DI lines to know which. That distinction is the reason to use this indicator. Many indicators, such as moving averages and MACD, show direction, but few separately gauge whether this is a stretch where trend-following tends to work or a range where direction keeps flipping.

Definition and calculation: Wilder's directional movement

The calculation starts by comparing, bar by bar, how far the range extended upward and how far it extended downward. Today's high minus yesterday's high is the up move, and yesterday's low minus today's low is the down move; only the larger of the two, and only if it is above zero, counts as that bar's directional movement. Dividing the resulting +DM and −DM by the true range (TR, which includes the previous close) over the same period turns them into ratios, +DI and −DI. Dividing by true range lets instruments with different price levels and volatility be read on the same scale. Averages are taken Wilder's way: an exponential-type average that gives a new value a weight of 1/period, which TradingView calls RMA. On any one bar only one of +DM and −DM can be above zero, and it never exceeds that bar's true range, so +DI and −DI together never exceed 100. The calculation order is below.

• Up move = high − previous high; down move = previous low − low
• +DM: the up move if it is larger than the down move and above zero, otherwise 0 (−DM the reverse)
• +DI = 100 × (Wilder average of +DM) ÷ (Wilder average of TR); −DI the same way
• DX = 100 × |+DI − −DI| ÷ (+DI + −DI)
• ADX = Wilder average of DX

Defaults and where the calculation starts

Wilder's period was 14, and TradingView's built-in indicator also defaults to a DI length of 14 and ADX smoothing of 14. This site's coin and stock buy/sell signal tools also calculate ADX(14, 14). It helps to know the two numbers can be set separately. The first 14 is the averaging period used to build +DI and −DI, and the second is the period over which DX is averaged again to produce ADX. Because it passes through two averages, ADX moves well behind price. Wilder-style averages are also affected by where the first values started accumulating. With few bars loaded, the first few dozen ADX values can differ slightly from another program, and loading enough bars shrinks the difference. If values differ slightly between programs, first match the two periods, the averaging method and the number of bars loaded. A shorter period reacts faster but becomes jumpier; a longer one is smoother but later. There is no correct answer, and like other indicators, the setting only makes sense together with the bar length.

How to read it: look at the three lines separately

Read in this order: the level of ADX, the slope of ADX, and the position of the two DI lines. A low ADX means the upward and downward forces are similar and direction is unclear, which is often read as a sideways market. Many people use 20 or 25 as a boundary, but that is a convention, not a guarantee of anything once crossed. A rising ADX means one side is gaining dominance, and a falling ADX means that dominance is shrinking. For direction, +DI above −DI reads as the upward force being larger, and below as the downward force being larger. Many people watch where the two lines cross, but crosses while ADX is low are often just small wobbles inside a range. That is why this site's coin buy/sell signal tool judges direction by the larger of +DI and −DI only when ADX is above 20 and rising from the previous bar, and otherwise leaves it neutral. Rather than merging the three lines into a single signal, checking strength and direction separately and then looking at them together is closer to how the indicator was meant to be used.

When ADX turns down and when it stays low

When ADX turns down from a high level, it is tempting to read it as "the trend is over," but what the indicator says goes only as far as "one side's dominance is shrinking." The trend may reverse, it may continue in the same direction at a slower pace, or price may drift into a range. ADX falls in all three cases. Conversely, ADX starting to rise after staying low for a long time is often seen when price breaks out of a range in one direction, but because ADX passes through two averages, it starts rising only after that move is well underway. Another property to know is that ADX also rises in downtrends. When price falls steadily, −DI dominates and the gap between the lines widens, so ADX climbs. Reading ADX alone as "high is good" can therefore get the direction exactly backward. Use the level and slope of ADX as background on whether the environment suits trend-following, and always confirm direction with the two DI lines or with price itself.

Common misconceptions

Because its name includes "directional," ADX is easily mistaken for an indicator that tells you direction. These are misconceptions that come up often.

• Reading a rising ADX as rising price (ADX also rises in downtrends)
• Concluding that a turn down in ADX means a reversal
• Reading a +DI/−DI cross while ADX is low as the start of a new trend
• Believing a trend is guaranteed once a boundary such as 20 or 25 is crossed
• Comparing ADX values directly between two programs using different periods

How it looks different in crypto and stocks

The true range and directional movement that feed ADX are affected by gaps. In stocks, news that builds up while the regular session is closed shows up as an opening gap the next day, and a large gap enlarges that day's true range and directional movement together, so +DI or −DI jumps at once and ADX is pulled up. A change caused by one gap, such as the day after an earnings report, stays inside the average for days afterward, so ADX may stay high because of a single gap rather than a steady trend. Crypto trades around the clock, so the next bar usually opens near the previous close; this gap effect is small and directional movement tends to build up a little each bar. On short bars, however, there is a lot of noise, and +DI and −DI cross often. Large Korean stocks such as Samsung Electronics and SK hynix have a daily price limit, which can clip the range recorded on extreme days, and for US indexes and large tech stocks, moves in extended-hours trading appear in regular-session bars only as gaps. So the same ADX level may not mean the same state across different groups of instruments, and comparing against the same instrument's past ADX range works better.

Reading it on a live chart

The last bar on a live chart has not closed yet, so each time its high or low changes, that bar's directional movement and true range are recalculated, and +DI, −DI and ADX move with them. Because directional movement counts only the larger of the upward and downward extension, a forming bar that first extends upward and later extends further downward can flip completely: its +DM becomes 0 and a −DM appears. As a result, +DI and −DI can cross on the forming bar and then return to where they were before the close. Every cross left on a past chart is the result of closed bars, so a cross seen on a live screen may differ from what remains in the record. ADX itself passes through two averages and does not move much on one forming bar, but whether its slope points up or down can change with that single last bar. That is why signals are usually judged on closed bars, with the forming bar used only for reference, along with the time left until the close.

A practical checklist

When looking at ADX and DMI, checking in the order below reduces the mistake of mixing strength with direction. The checks are based on closed bars.

• Check the period settings (DI length and ADX smoothing) and the bar length
• Use the level of ADX to gauge whether this is a clear trend or closer to a range
• Use the slope of ADX to see whether one side's force is growing or shrinking
• Confirm direction separately from whether +DI or −DI is on top
• Check the chart for a gap or a single large bar that pushed the values up
• See whether ADX and DI on a higher bar length point the same way

Limits and disclaimer

ADX and DMI are built by averaging past highs, lows and closes twice, so they move behind price and do not tell you future direction or how long a trend will last. Looking back, a stretch with high ADX was a clear trend by definition; whether the trend would continue at that moment is a separate question. This article did not measure how rules based on boundary levels or crosses performed in the past, and results can vary widely by instrument, bar length and period. To examine such rules, include fees and slippage and recheck on other periods, as in the backtesting article. The indicator also does not use volume, so it cannot tell whether the same ADX reflects a busy day or a quiet one. This article only explains the indicator's definition and how to read it, and does not recommend any trade. Actual decisions and their results are your own.