What ADX measures
ADX measures the strength of a trend without indicating its direction. It is derived from the positive directional indicator (+DI) and negative directional indicator (-DI).
Interpretation
- ADX below 20: market is ranging, trend strategies underperform
- ADX 20-40: moderate trend
- ADX above 40: strong trend; be cautious of mean-reversion strategies
- ADX above 60: very strong trend, uncommon
Use in EA filters
Many EAs use ADX as a regime filter: grid and mean-reversion EAs require ADX below a threshold; trend-following EAs require ADX above a threshold. This simple filter significantly reduces losses during adverse regime conditions.