ADX

ADX, the average directional index, is an indicator that measures how strong a trend is, without saying anything about whether that trend is up or down. It is plotted as a single line, usually on a scale of 0 to 100, derived from how much of a stock's daily price range is moving in one consistent direction over a set period, typically 14 days.

A low ADX reading, generally below 20, signals a weak or nonexistent trend, meaning the stock is moving sideways or choppily without much directional conviction. A rising ADX above roughly 25 signals a strengthening trend, whether that trend is bullish or bearish has to be read separately from the price chart itself or from the related directional movement lines the indicator is built from. A very high ADX, often above 40 or 50, signals a strong, well established trend, though some traders also treat extremely high readings as a sign a trend may be stretched and due for a pause.

ADX is mainly used to decide which kind of trading approach fits current conditions. Strategies that follow a trend, like buying breakouts or following moving average crossovers, tend to work better when ADX is high and rising, while strategies that trade a range, like buying near support and selling near resistance, tend to work better when ADX is low, since that signals price is stuck in a sideways channel rather than trending in either direction.