Average Directional Index (ADX)

J. Welles Wilder developed the Average Directional Index (ADX) to evaluate the strength of a current trend, be it up or down. It's important to determine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.
The ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.
ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and moves above 20, it is a sign that the trading range is ending and a trend is developing.

When ADX begins to weaken from above 40 and moves below 40, it is a sign that the current trend is losing strength and a trading range could develop.

Positive/Negative Directional Indicators

The ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).
When the ADX Indicator is selected, SharpCharts plots the Positive Directional Indicator (+DI), Negative Directional Indicator (-DI) and Average Directional Index (ADX). With the Default color scheme on SharpCharts, ADX is the thick black line with less fluctuation, +DI is green and -DI is red. +DI measures the force of the up moves and -DI measures the force of the down moves over a set period. The default setting is 14 periods, but users are encouraged to modify these settings according to their personal preferences.
In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI. Be careful, though; when a security is in a trading range, this system may produce many whipsaws. As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.
The ADX combines +DI with -DI, and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might look for stocks with ADX that advances above 20. Conversely, an ADX decline from above 40 might signal that the current trend is weakening and a trading range is developing.
another article about ADX:

Note: This indicator measures strong or weak trends. This can be either a strong uptrend or a strong downtrend. It does not tell you if the trend is up or down, it just tells you how strong the current trend is!
Let’s look at a chart:

In the chart above, the ADX indicator is the thick black line. The green and the red lines are the +DI and –DI (ignore these). The highlighted areas show how this indicator identifies trading ranges. ADX is showing a low reading and the stock is chopping around sideways.
Now look at what happens when the indicator gets into higher territory. A strong trend develops! These are the type of stocks that you want to trade.
On the right side of the indicator panel you will see a scale from 0 to 100 (only 10 through 50 are marked). Here are my guidelines for using the scale:

ADX Indicator Scale

If ADX is between 0 and 25 then the stock is in a trading range. It is likely just chopping around sideways. Avoid these weak, pathetic stocks!
Once ADX gets above 25 then you will begin to see the beginning of a trend. Big moves (up or down) tend to happen when ADX is right around this number.
When the ADX indicator gets above 30 then you are staring at a stock that is in a strong trend! These are the stocks that you want to be trading!
You won’t see very many stocks with the ADX above 50. Once it gets that high, you start to see trends coming to an end and trading ranges developing again.

Tips

The only thing I use the ADX for is an additional filter in my scans, so that I can find stocks that are in strong trends. I do not even have the ADX indicator on the charts that I look at when I am looking for setups. Since the ADX is already factored into the scans, I don't need it added to the chart itself.
I don't pay any attention to the rising and falling of the ADX indicator. Stocks can go up for long periods of time even though the ADX may be falling (indicating that the trend is getting weak). The ideal scenario is that the ADX is rising, but I don't find it necessary to take a trade.
I don't use any technical indicators on my charts. I found out that technical indicators just clouded my judgement. One technical indicator may indicate a buy and one may indicate a sell. Needless to say, this can be very confusing and it just takes you attention away from the only thing that matters - PRICE.