ADX is not just an indicator: a profit tool for Forex traders

ChainSauceMaster · 2026-01-05T15:36:11+00:00

The ADX indicator is crucial for Forex traders, helping to assess market trend strength and filter false signals. Developed by J. Welles Wilder, ADX, along with +DI and -DI, aids in making precise trading decisions.

ChainSauceMaster

2026-01-05 15:36:11

Abstract generation in progress

Market risk in Forex trading is unavoidable. However, if you know how to correctly interpret market trends, you can significantly reduce the chances of losses. The ADX indicator is a tool used by many professional traders to make precise entry and exit decisions.

Why is ADX indispensable for traders?

When trading Forex, the biggest question is: “Is the market moving strongly enough to follow?” The answer is the ADX (Average Directional Index)

What does ADX predict?

Measures the strength of the current trend, whether bullish or bearish
Tells you when the market enters a sideways (sideways) phase, which is not suitable for trend-following trades
Helps filter out false signals that often occur in markets without a clear direction

The origin of ADX: Engineers who transformed trading

In 1978, American mechanical engineer J. Welles Wilder developed the ADX. Wilder didn’t just create a single indicator; he built a suite of tools including RSI, Average True Range, and Parabolic SAR—all of which are still used on trading platforms worldwide today.

Wilder understood that traders need a clear way to identify whether “the current trend is stable” or “about to break down.” ADX was created specifically for this purpose.

How does ADX work: Three key components

ADX does not work alone. It is accompanied by +DI (Plus Directional Index) and -DI (Minus Directional Index)

+DI measures the strength of upward movement, calculated from the current day’s high minus the previous day’s high.

-DI measures the strength of downward movement, calculated from the previous day’s low minus the current day’s low.

ADX is a weighted average of the difference between +DI and -DI. It does not increase when the trend is bullish or bearish but increases when the trend is strong.

Reading ADX values correctly: The numbers tell the whole story

ADX Value	Meaning
0-25	Weak trend - market is moving sideways
25-50	Strong trend - suitable for trend-following
50-75	Very strong trend - high profit potential
75-100	Extremely strong trend - beware of overextension

Important: When ADX stays below 25 for 30 days, the market often enters a consolidation (accumulation) phase, where prices fluctuate between support and resistance. This is when trend traders should wait.

Calculation formula: If you want to try calculating it yourself

View Original

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.