Wilder's DMI (ADX)

DEFINITION of 'Wilder's DMI (ADX)'

Three lines compose the Directional Movement Indicators (DMI): ADX, DI+ and DI-. 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)'

The indicator was developed by J. Welles Wilder, and shows the strength of a trend- either up or down. According to Wilder, a trend is present when the ADX is above 25.

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.

Many traders use 20 to indicate a trend, instead of 25.