7. Directional Movement Index (DMI) and the ADX

The Genius of J. Welles Wilder, Jr.

In 1978, J. Welles Wilder wrote a book called New Concepts in Technical Trading Systems,1 which is, in my mind, one of the best books ever written about systems and indicators for the stock market (and any other market). The book introduces indicators never considered before, yet they are used today by many traders who have never known their origin. Indicators like the Relative Strength Index (RSI), the Parabolic System, and the Volatility Index (average true range or ATR) are true strokes of genius. The best of all, however, is the Directional Movement Index, known as the DMI, and its derivative, the Average Directional Movement Index (ADX). These two indicators ...

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