Average Directional Index (ADX)

The ADX measures the strength of the trend irrespective of its direction. It doesn't matter if the trend is up or down. All that matters is whether the trend is strong or weak.

The ADX compares the directional movement of one day to the previous day to measure the strength of the stock's trend. Directional movement is considered positive if the current high minus prior high is greater than the prior low minus current low. It is considered negative if the current high minus prior high is less than the prior low minus current low.

The ADX uses the smoothened directional movement values over the last few days to measure the strength of the trend. Ideally, it is measured over the last fourteen days, though you can use a different period if you want. ADX is a banded indicator and moves between 0 and 100.

A high ADX value (above 25) indicates strength in the trend. The trend is considered strong and getting even stronger if the ADX value is above 25 and rising. An ADX value below 25 indicates weakness in the trend. Trend following traders could avoid stocks with an ADX value below 25.

Let me remind you again that an ADX value above 25 doesn't necessarily mean that the stock is in an uptrend. Stocks can have ADX value above 25 even when they are in a downtrend. It just means that the trend, whether up or down, is very strong.