How is the ADX line calculated?

The Average Directional Index (ADX) is a tool that measures the strength of a trend, regardless of its direction. The correct calculation of the ADX involves first calculating the positive directional indicator (+DI) and the negative directional indicator (-DI). The absolute difference between +DI and -DI provides insight into the strength of the trend. From there, dividing that difference by the sum of +DI and -DI gives the directional movement index, which is essential for the calculation of the ADX.

In this context, the statement regarding taking the absolute difference between +DI and -DI and dividing by their sum accurately describes a key step in determining the ADX. Thus, it is crucial for quantitative traders to understand this method, as it allows for the assessment of trend strength that can guide trading decisions effectively.