Wilder's DMI (ADX)

AAA

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.

RELATED TERMS
  1. Business Cycle Indicators - BCI

    Composite of leading, lagging and coincident indexes created ...
  2. Market Indicators

    A series of technical indicators used by traders to predict the ...
  3. Composite Index of Leading Indicators

    An index published monthly by the Conference Board used to predict ...
  4. Composite Index Of Lagging Indicators

    An index published monthly by the Conference Board that is used ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses ...
  6. Composite Index of Coincident Indicators

    An index published by the Conference Board that is a broad-based ...
Related Articles
  1. Trading Strategies

    Using Compound Indicators To Predict Market Fluctuations

    Learn how to combine average true range, simple moving average and Bollinger band indicators to gauge market volatility.
  2. Active Trading

    Using Trading Indicators Effectively

    Select multiple indicators, avoid information overload and optimize indicators to effectively use technical analysis tools.
  3. Forex Education

    Forex Market Sentiment Indicators

    Sentiment Indicators are another tool that can alert traders to extreme conditions.
  4. Options & Futures

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
  5. Fundamental Analysis

    Deadly Flaws In Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect measures.
  6. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  7. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  8. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  9. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  10. Technical Indicators

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
RELATED FAQS
  1. How is the Average Directional Index (ADX) calculated and what is the formula?

    The average directional index, or ADX, is the primary indicator of a technical trading system comprised of five technical ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!