Direct answer
A worked example of ADX and moving average is a transparent, step-by-step calculation using assumed price data (no live prices), followed by a careful interpretation of what the two indicators can and cannot tell you. ADX focuses on trend strength, while a moving average focuses on smoothing price to describe trend direction or bias. Their combination can be used as a consistency check, not as a standalone trading signal.
Mechanics: definitions and what each part does
Moving average (MA). A moving average is a smoothed series derived from past prices. A common choice is an SMA (simple moving average), computed as the average of the most recent N closing prices. Two simple ways to interpret an MA are:
- Position: whether price is above or below the MA.
- Slope/bias: whether the MA is rising or falling.
ADX (Average Directional Index). ADX is built from directional movement components and then smoothed. It results in a number from about 0 upward, commonly interpreted as trend strength rather than direction:
- The underlying directional movement also produces +DI and -DI (directional bias), but the “ADX number” itself is typically used to gauge strength.
- The “D” in ADX stands for directional movement, while ADX is the smoothed index of that movement.
Key separation. In a worked example, keep two tasks separate:
- Calculating the MA from assumed prices.
- Calculating ADX from assumed high/low/close series.
Worked numerical scenario (with explicit assumptions)
Below is one simplified scenario that uses assumed OHLC values. It is meant to show mechanics, not predictive accuracy.
Assumptions
- We work on a short sequence of candles to keep arithmetic readable.
- Moving average: use SMA(3) on assumed closing prices.
- ADX: use a simplified window explanation, not a full Wilder-formal derivation from many bars. The key is to show how an ADX value is conceptually produced from directional movement and then smoothed.
- We treat results as illustrative outputs derived from the assumed inputs.
Assumed data (OHLC)
For five periods (t1 to t5), assume:
- t1: High 1.2000, Low 1.1950, Close 1.1980
- t2: High 1.2020, Low 1.1960, Close 1.2010
- t3: High 1.2050, Low 1.1980, Close 1.2030
- t4: High 1.2060, Low 1.1990, Close 1.2040
- t5: High 1.2070, Low 1.2000, Close 1.2060
Step 1: compute SMA(3)
SMA(3) at each step uses the last three closes.
- SMA at t3 = (close t1 + close t2 + close t3) / 3 = (1.1980 + 1.2010 + 1.2030) / 3 = 1.2020
- SMA at t4 = (1.2010 + 1.2030 + 1.2040) / 3 = 1.2027
- SMA at t5 = (1.2030 + 1.2040 + 1.2060) / 3 = 1.2043
Moving-average alignment in this scenario: price is consistently above the SMA(3) as we move from t4 to t5, and the SMA rises (1.2027 to 1.2043). That is a descriptive “bias toward an uptrend,” based on smoothing.
Step 2: compute ADX value conceptually from directional movement
To form ADX, you first assess directional movement between bars using high/low changes, producing +DM and -DM candidates. Then you smooth them and compute directional indicators (commonly +DI and -DI). Finally, ADX is the smoothed average of the directional movement strength.
With the assumed steadily rising highs and rising lows, the scenario implies more upward directional movement than downward directional movement. Under that condition, ADX tends to rise because trend “strength” increases when directional movement persists.
Illustrative ADX outcome under the scenario’s assumptions: suppose the smoothed result after the chosen ADX procedure is ADX ≈ 20 at t5 (illustrative, derived from the assumed consistent directional movement). In many common interpretations, a value around 20 is often treated as indicating a weak-to-moderate trend strength regime, meaning the market may not be strongly trending compared with higher ADX readings.
Step 3: combine the interpretations (as a consistency check)
From the worked assumptions:
- MA: rising and price above MA → upward bias in smoothed price.
- ADX: around 20 (illustrative) → trend strength not extreme.
What this combination can mean (without claiming a certainty): it suggests a scenario where directional movement is somewhat consistent but not necessarily strong enough to imply a high-quality trend. The indicators describe different properties (directional bias vs.