ADX Directional Movement Index - Application and explanation of the ADX/DMI

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ADX Directional Movement Index - Application and explanation of the ADX/DMI

Overview

* The higher the DMI (on a scale of 0-100) the better the trend potential of a move.
* The DMI system is made up of three lines; ADX and +DI & -DI.
* DMI can be used either as a system on its own or as a filter for a trend-following indicator (i.e., Parabolic SAR).

The Directional Movement Index, DMI, is an effective and frequently used trend indicator. This system was designed by Welles Wilder Jr. and is made up of three lines:

1. The +DI indicates the up average.
2. The -DI indicates the down average.
3. The ADX, average directional movement index, shows whether a trend is in effect by smoothing the difference between the +DI and -DI. [More...]