The Average Directional Index (ADX), developed by J. Welles Wilder, is a technical indicator that measures the strength of a prevailing trend — regardless of its direction — on a scale from 0 to 100. It is derived from two directional movement indicators: +DI (Positive Directional Indicator, measuring upward price movement) and -DI (Negative Directional Indicator, measuring downward price movement). The ADX itself is the smoothed average of the Directional Movement Index (DX) — reflecting how strongly the market is trending rather than the direction. An ADX reading below 20 indicates a weak or non-existent trend (range-bound market), readings between 20 and 40 indicate a developing trend, readings above 40 signal a strong trend, and readings above 50 indicate an extremely strong trend. ADX crossovers between +DI and -DI generate directional signals — +DI crossing above -DI is bullish, and -DI crossing above +DI is bearish. In Indian equity and F&O markets, ADX is widely used to determine whether a trending strategy (such as breakout trading or trend following) or a range-bound strategy (such as mean reversion) is more appropriate for the current market conditions in Nifty 50, Bank Nifty, and individual large-cap stocks.
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