Technical Trading Tips and Techniques by 
As shown on the accompanying chart, the Average Directional Index (ADX) is a very useful indicator for determining the strength of trending conditions. When the ADX line (the black line on the chart) is relatively high (over 40 or so) and/or moving up, the trend is considered to be strong. Conversely, if the ADX line is relatively low (below 20 or so) and/or moving down, the trend is considered to be weak, denoting ranging conditions. The ADX line itself does not indicate direction - only strength of the trend.
ADX is derived from two momentum indicators, +DI and -DI. Unlike the ADX line, these two lines denote direction. If the +DI line (in green) is moving up, the uptrend is gaining strength. If the -DI line (in red) is moving up, on the other hand, the downtrend is gaining strength.
The ADX is an important indicator that can help a foreign exchange trader determine whether to use trend-trading techniques or range-trading techniques.
- James
James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading