The average directional index as a regime gate for the relative strength index and the stochastic oscillator

Choose the indicator class from the phase

Market action is split into a trending phase with a persistent directional bias and a consolidation phase that stays between bounds without that bias. The indicator class is chosen from that split.

The average directional index classifies the phases

The average directional index is used to classify those phases because it measures the degree of directional movement rather than whether the move is up or down. It is a smoothed reading of how strongly price is extending outside prior ranges. It does not name the direction of the move.

Directional movement becomes a comparable ratio

Directional movement is the portion of the current bar that falls outside the previous bar's high-low range. An extension above the prior high is positive. An extension below the prior low is negative. An inside bar contributes none. An outside bar uses the larger of the two extensions.

Directional indicators convert those extensions into ratios by dividing them by true range and summarizing them over a 14-period window so that readings are comparable across price levels. True range is the full period excursion used as the denominator. Each directional indicator is positive or negative directional movement scaled by true range and summarized over that fixed lookback, so extensions are expressed as ratios rather than raw price distances.

How the average directional index is read

An average directional index below 20 is read as a weak trend or consolidation. A rise from 15 toward 25 is read as a strengthening trend. A reading above 30 is read as a strong trend. A reading of 45 or higher is read as an extreme trend that may soon pause if the line flattens or peaks. A later decline back below 30 is read as post-trend consolidation.

A rise from a very low level through 15 and then through 30 is treated as confirmation of an emerging trend. The same reading is also used to suppress trend-following overlays during sideways markets.

Directional-indicator timing only inside a trend

A plus directional indicator crossing above the minus directional indicator is used as a long timing cue. Those crosses are acted on only while the average directional index already indicates a trend, because a higher reading is associated with fewer crossover whipsaws. That practice is the regime filter: directional-indicator timing signals are accepted only while the average directional index already indicates a trend.

Oscillators on the range-bound tape

When the average directional index is low or falling into consolidation, trend-following systems are set aside and oscillators are used instead. The relative strength index is reserved for those consolidations rather than for strong directional regimes. The stochastic oscillator is applied in the same consolidations, using a short lookback pairing when the tape lacks a directional bias. The historical workflow uses a 7-period relative strength index and a 7,10 stochastic oscillator on the range-bound tape.