Average Directional Index -- ADX

• The ADX indicator is primarily used to measure the strength of a Forex price trend. Currency pairs tend to trend just 30 percent of the time. The rest of the time they are range-bound. This is important because ranging currency prices are very unpredictable, while trends offer traders a higher probability for successful trades. Likewise, the stronger the trend, the more predictable future price action is.
  
  The ADX plots trend strength on a scale of 0 to 100. When the ADX is below 20, it typically illustrates a weak trend or a trading range. ADX readings above 35 indicate that a strong trend exists.
  
  

Average Directional Movement Index Rating - ADXR

• The ADXR indicator is used in the same way as the ADX, but it is less sensitive, so it produces more conservative trend readings. ADXR averages ADX readings producing a smoother, arguably more accurate reading. Because ADX is sensitive, it can snake up and down as it processes new Forex price data. ADXR smooths this out, giving traders a better idea what the average ADX position is on its scale of 0 to 100.
  
  

Directional Movement Index -- DMI

• ADX is not typically used as a stand-alone indicator. It is used more often as part of the DMI indicator. DMI is composed of three different lines, plotted on a scale of 0 to 100. In addition to the ADX line, the DMI plots the Positive Directional Indicator (+DI) and Negative Directional Indicator (-DI) lines.
  
  

Reading DMI

• While ADX can tell you how strong the trend is, it doesn't tell you if the trend is up or down. DMI solves this problem by introducing the two directional indicator lines. Reading the DMI can be a bit confusing at first, but after a short while, it becomes second nature. When DI+ is above DI-, the currency price you are trading might be in an uptrend. In order to know, you also have to check the ADX line. If ADX is above 20 and DI+ is above DI-, you can know that the price is trending and that it is trending up.