Trading Glossary

Average Directional Movement Index (ADX)

A technical indicator developed by Welles Wilder that measures trend strength, but not direction; the higher the ADX reading, the stronger the trend.

The formula, which can be found in Wilder's 1978 book New Concepts in Technical Trading Systems, is quite lengthy but essentially compares the average amount of upward price movement (measured from high to high) and the downward price movement (measured from low to low) over a given time period.

The example below shows a 20-period ADX and highlights the indicator's behavior in trending and non-trending market phases.