Average Directional Index – ADX Indicator

“The trend is your friend”

My response to that statement was, “What if the trend isn’t my friend?”

The ADX will help you answer that question, at least that’s the idea anyway.

This line helps us understand when the trend is strong or when it’s weak. That’s it, nothing more.

Here’s a look at it on a chart. Click to Enlarge.

ADX Indicator Example

I view any reading below 25 as a weak trend. Conversely, I view any reading above 25 to be a strong trend. Simple enough right?

As you can clearly see from the image taken today of SPY, the ADX hasn’t been very useful in gauging the trend quality. So, please exercise caution before putting to much emphasis on this indicator alone.

It’s also worth pointing out that many times the ADX will reverse around the 25 level, so before initiating a position be sure to let it clear that level.

Good? Bad? Indifferent?… Let us know in the comments!