An ADX strength gate for MACD and the stochastic oscillator

Two steps, one reading order

First classify whether directional force is dominant. Then open only the matching signal family. The Average Directional Index is the gate: a zero-to-100 reading of trend strength derived from positive and negative directional movement. Below 25 the trend is treated as weak. Above 25 it is treated as strong.

MACD is the trend-oriented family. It is a fast-line versus slow-line crossover used when trend strength is high, and it is often unreadable when the two lines lie on top of one another. The stochastic oscillator is the weak-trend family. Its fast and slow lines produce distinct swings and crossovers when trend strength is weak.

What weak force looks like on ADX

On the monthly S&P chart, ADX sat in a very weak zone during the rise that followed the major low. The tape was treated as a weak trend because readings below 25 mark a weak trend and readings above 25 mark a strong trend.

At that low, monthly ADX had been treated as a very strong downtrend. Afterward price rose while ADX steadily declined. That declining slope after a high-ADX episode is an ADX retracement. It is treated as a pullback inside the prior stronger trend rather than proof of a new dominant trend.

Positive directional movement is the companion line that rises when range expands to the upside. Negative directional movement is the companion line that rises when range expands to the downside. DMI equilibrium is the condition in which those two lines sit below 25, drift sideways, and fail to establish a dominant bull or bear force. When they also touch so that neither line dominates, the market is treated as directionally weak even if price is still rising.

Monthly range after the low was smaller than the average range of the bars that preceded the low. That comparison was used as further evidence that directional force had faded.

Open the matching signal family

When ADX is above 25, trend indicators such as MACD are preferred. When ADX is below 25, oscillators such as the stochastic oscillator are preferred, because stochastics can stay overbought or oversold for long stretches in strong trends.

In the historical workflow, when monthly ADX was still very strong, the MACD fast line crossed up through the slow line on a test of the price lows. Later, with monthly ADX still weak, the MACD fast and slow lines had been stacked and moving sideways, leaving little separation for a crossover reading.

Over that same weak-trend window the stochastic fast line and slow line kept clear separation and distinct crossovers. Successive fast-line peaks were progressively lower as price highs were progressively higher. That sequence is bearish momentum divergence.

Editorial note: the archive sequence is a worked example of the two-step order. It is not a verdict on the later rise and it is not a trading instruction.