The idea in plain words
The Directional Movement system was designed by J. Welles Wilder. It has a set of lines in one window under the price chart:
- +DI (plus directional indicator) measures how strongly price has been pushing to new highs.
- −DI (minus directional indicator) measures how strongly price has been pushing to new lows.
- ADX (average directional index) measures how strong the movement is, whichever way it goes.
The +DI and −DI lines together are called the DMI (directional movement index). The ADX line is built from them.
ADX tells you nothing about direction. A rising ADX can come with a falling market just as easily as a rising one. Direction comes from comparing +DI with −DI. Strength comes from ADX.
ADX is a lagging indicator. It is built from smoothed past data, so it confirms a move after the move has started. See leading vs lagging indicators for what that means in practice.
How ADX is calculated
For each candle:
- Upward move = current high minus previous high.
- Downward move = previous low minus current low.
- +DM equals the upward move if it is positive and larger than the downward move. Otherwise it is zero.
- −DM equals the downward move if it is positive and larger than the upward move. Otherwise it is zero.
- True Range (TR) is the largest of these: current high minus current low, the gap from the previous close to the current high, or the gap from the previous close to the current low. This is the same TR used in the ATR indicator.
Next, +DM, −DM and TR are smoothed over the chosen period with Wilder's smoothing. This is a slow form of exponential averaging.
- +DI = smoothed +DM ÷ smoothed TR, shown as a percentage.
- −DI = smoothed −DM ÷ smoothed TR, shown as a percentage.
- DX = the absolute gap between +DI and −DI ÷ their sum, shown as a percentage.
- ADX = DX smoothed over the same period.
The smoothing happens twice, first in the DI lines and then in ADX. That double smoothing is why ADX reacts slowly.
Default settings
The indicator has one main input, the period. MetaTrader fills in Wilder's original value by default, and most traders leave it there.
- A shorter period makes ADX and the DI lines react faster. They also cross more often and give more noise.
- A longer period gives smoother lines with more lag. ADX may only climb once a trend is already well developed.
Many traders mark a "trend threshold" on the ADX scale with a horizontal level. They read readings above it as a trending market and readings below it as a weak or ranging one. No universal level exists. Check how ADX behaved on past data for the instrument and timeframe you trade before you rely on any line.
How to add ADX in MT4 and MT5
- MetaTrader 4: Insert → Indicators → Trend → Average Directional Movement Index. Set the period and choose "Apply to" (the price used). Add horizontal lines in the Levels tab.
- MetaTrader 5: Insert → Indicators → Trend. You will see "Average Directional Movement Index" and "Average Directional Movement Index Wilder".
The versions are not identical. The standard MT4/MT5 ADX does not smooth exactly the way Wilder's original method does. The "Wilder" version in MT5 follows his calculation more closely. The same period can therefore give different readings on different platforms or charting sites. Pick one version and stay with it when you compare charts.
You can practise reading the indicator on a demo account before using it with real money.
A drawn example
The sketch below is illustrative and shows no real prices.
What to notice:
- During the range, +DI and −DI twist around each other and ADX stays low and flat.
- After the breakout, +DI moves above −DI first. ADX starts rising only some candles later.
- When the trend slows, ADX turns down while price is still near its highs. A falling ADX here means momentum is fading. It does not mean the market has reversed.
How traders use it
These are common uses, not signals:
- Filter the market type. A low, flat ADX suggests a range, where oscillators such as the RSI indicator are often applied. A rising ADX suggests a trend, where tools such as moving averages are often applied.
- Confirm direction. Some traders only look for trades in the trend direction when +DI or −DI is clearly on top and ADX is rising.
- Watch trend maturity. A very high ADX that starts to fall often comes before a pause or a pullback.
- Combine with structure. ADX works better alongside market structure, trendlines and multiple timeframe analysis than on its own.
Where ADX misleads
- Lag at turning points. Double smoothing means ADX can peak after much of the move is done.
- Strong moves in both directions. A sharp drop followed by a sharp rally can keep ADX high, even though there is no steady trend.
- DI crossovers in ranges. In sideways markets, +DI and −DI cross again and again. Each cross looks like a change of direction but often leads nowhere.
- News spikes. One large candle inflates TR and DM and can make ADX jump. Afterwards ADX takes a long time to settle.
- Gaps and thin sessions. Weekend gaps and low-liquidity hours distort True Range. This matters on indices and crypto CFDs.
- Timeframe conflict. ADX can show a strong trend on a lower timeframe while the higher timeframe is in a range.
- Platform differences. As noted above, the same settings may not match across platforms.
Risk note
No indicator removes risk. Trading leveraged forex and CFDs can lose money fast, sometimes more quickly than an indicator can react. Set position size and stop levels before you enter a trade. The risk management guide covers how.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Frequent questions
What does the ADX indicator show?
It shows the strength of price movement, without direction. Direction comes from comparing +DI with −DI.
What is the difference between ADX and DMI?
DMI is the pair of directional lines, +DI and −DI. ADX is a smoothed measure of the gap between them.
What are the usual ADX indicator settings?
Most traders keep the default period MetaTrader shows, which is Wilder's original value. Shorter periods react faster but give more noise. Longer periods are smoother but slower.
Does a falling ADX mean the trend has reversed?
No. It means the movement is losing strength. Price may move sideways, pull back or carry on more slowly.
How do I use ADX in forex?
Mostly as a filter. It helps you judge whether a pair is trending or ranging, and you combine it with price structure and other tools. It is not a signal on its own.
Why does my ADX look different from another chart?
Platforms use different smoothing methods. MT5 offers both a standard ADX and a Wilder version, and the two give different values.