ADX trend filter with pullbacks
TrendIntermediate
The average directional index measures how strong a trend is, not which way it points. Direction comes from the plus and minus directional lines that sit with it. A common approach is to trade only when ADX says a trend is strong, then buy a pullback in that direction instead of chasing the breakout.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Wilder's usual length is 14. Many write-ups treat ADX above 20 or 25 as a trend and below 20 as a range. A long setup is plus DI above minus DI, ADX rising through that threshold, and a pullback toward a short moving average or the prior swing. Exit if the DI lines cross back or ADX rolls over and price breaks the pullback low.
- Where AI fits
- AI can classify bars into trend and range using ADX, then only enable a separate entry rule in the trend state. That is a cleaner job for a model than asking it to invent the entry. The threshold itself should be tested across markets, because 25 is a convention, not a law.
- Markets
- FX and futures, where trends and ranges alternate, and liquid stocks.
- Timeframes
- 1-hour to daily. ADX on a 1-minute chart is mostly noise.
- Risks
- ADX rises after the trend is already underway, so the filter is late. A high reading can also mark an exhausted move. DI crosses in a range still happen, and they are poor entries if the ADX filter is ignored.