ADX DMI Indicator Analysis




DEFINITION of Wilder's DMI (ADX)

Wilder’s DMI (ADX) consists of three indicators that measure a trend’s strength and direction. Three lines compose the Direction Movement Index (DMI): ADX (black line), DI+ (green line) and DI- (red line). The Average Directional Index (ADX) line shows the strength of the trend. The higher the ADX value, the stronger the trend.



The Plus Direction Indicator (DI+) and Minus Direction Indicator (DI-) show the current price direction. When the DI+ is above DI-, current price momentum is up. When the DI- is above DI+, current price momentum is down.


BREAKING DOWN Wilder's DMI (ADX)

Wilder’s DMI, developed by J. Welles Wilder in 1978, shows the strength of a trend- either up or down. According to Wilder, a trend is present when the ADX is above 25. DMI values range between zero and 100.


If DI+ is above DI-, an ADX reading of 25 or higher indicates a strong uptrend. If DI- is above DI+, an ADX reading of 25 or higher indicates a strong downtrend. The ADX may stay above 25 even when the trend reverses. Since ADX is non-directional, this shows the reversal is as strong as the prior trend. Traders may find readings other than 25 are better suited to indicate a strong trend in certain markets. For example, a trader might find that an ADX reading of 20 provides an earlier indication that the price of a security is trending. Conservative traders may want to wait for readings of 30 or above before employing trend following strategies.

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