Description

• This indicator was developed by J. Welles Wilder
• It involves three values independently plotted on the sub graph, the plus Directional Indicator (+DI), the minus Directional Indicator (-DI), the average Directional Movement (ADX)
• It helps a trader to understand various market conditions, whether bull is powerful, bear is powerful, overheated market etc

Interpretation

• Declining ADX below 20 shows that the stock is losing direction
• Rising ADX above 40 shows that the stock is topping up
• The difference between today’s high and yesterday’s high corresponds to +DI
• The difference between today’s low and yesterday’s low corresponds to -DI

Default Parameters Used/Inputs

• High Line
• Low Line
• Close Line
• Close Line
• Close Line
• DI Period
• ADX Period

Returns/Output

DMI of the stock

Formula

TR[X]=Max((H[X]-L[X]),abs(H[X]-C[X-1]),abs(L[X]-C[X-1]))
TR indicates True Range
ADX(X,X>ADXBars)=CSum(DX[X],X-ADXPeriod..X)/ADXPeriod
ADX indicates Average Directional Movement Index