The ( ) along with the Negative Directional Indicator ( ) and the Positive Directional Indicator ( ) are momentum strength indicators that evolved for use in stock trading. trader J. Welles Wilder pioneered their use. Technical traders who use charting techniques want to know when first spotting a shifting trend how strong that trend is and how likely it is to sustain itself over time. The helps investors determine trend strength as they plan their investment strategies.
Confirmation on a chart and other momentum indicators help investors spot trend reversals. But some trends are more potent than others and investors want to better understand the strength of a trend. The identifies a strong positive trend when the is over 25 and a weak trend when the is below 20. Investors can determine by analyzing the difference between two consecutive low prices and their correlated highs. The movement is +DM when the current high price, less the previous high price, is greater than the previous low price less the current low. The opposite applies in determining the negative or –DI.
When analyzing charts, stock price is the single most important variable to follow. and other indicators are supplementary to price movements in providing additional directional information and support. For example, some of the best trends come about from price range consolidation. It is those tugs of war between buying and selling volumes that lead to breakouts and other trading opportunities.
The Inventor of the
J. Welles Wilder, Jr. is a former American engineer and real estate developer who went on to revolutionize trading analysis by applying mathematical systems to the world of investing. In addition to developing the , Wilder is also responsible for several other commonly used tools including the (ATR), the ( ) and the .
This script has alerts and includes the filter for markets with no trend defined.
Green Alert --> Long
Red Alert --> Short
Yellow Area --> Weak trend. below threshold
Green candles --> Market
Red Candles --> Market
Orange candles --> No defined trend