what does wilder s dmi adx tell you 
wilder s dmi developed by j welles wilder in 1978 shows the strength of a trend either up or down according to wilder a trend is present when the adx is above 25 dmi values range between zero and 100 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 traders may find readings other than 25 are better suited to indicate a strong trend in certain markets for example a trader might find that an adx reading of 20 provides an earlier indication that the price of a security is trending conservative traders may want to wait for readings of 30 or above before employing trend following strategies trading with wilder s dmithere are a number of ways the dmi can be used to trade in addition to the general guidelines discussed above traders could enter a long position when the di line crosses above the di line and set a stop loss order under the current day s low or below a recent swing low when the di line crosses above the di line traders could place a short position with a stop above the high of the current day or above a recent swing high traders could use a trailing stop if the trade moves in their favor to help lock in profits irrespective of whether the trader takes a long or short position the adx should be over 25 when the crossover occurs to confirm the trend s strength when the adx is below 20 traders could use trading strategies that exploit range bound or choppier conditions the di and di line move away from each other when price volatility increases and converge toward each other when volatility decreases short term traders could enter trades when the two lines move apart to take advantage of increasing volatility swing traders might accumulate into a position when the lines contact in anticipation of a breakout traders should use wilder s dmi in conjunction with other technical indicators and price action to increases the probability of making profitable trades example of how to use wilder s dmi adx indicatorthe following chart shows shopify inc shop with both trending periods and less trending periods di and di crossover multiple times potential trade signals but there is not always a strong trend present adx above 25 when those crossovers occur if the di is already above the di when the adx moves above 25 or 20 30 that could trigger a long trade these are marked with up arrows if the di is above the di when the adx moves above 25 that could trigger a short trade these are marked with down arrows contraction periods are also marked when the di and di lines become squished together these are contractions in volatility which are often followed by periods of larger trending movement where the lines separate again breakouts from these contractions blue boxes may present trading opportunities the indicator is susceptible to creating multiple false signals meaning the price doesn t end up moving in the same direction as the crossover dictates therefore the indicator is best used in conjunction with other forms of analysis or with additional filters applied to the signals generated wilder s dmi vs aroonthe two indicators both have crossover signals but they are calculated in different ways and are measuring different things dmi is measuring up and down movement by smoothing price fluctuations the aroon indicator is measuring the time or periods since a high or low within the look back period limitations of using wilder s dmi adx the indicator is looking at past data it may lack predictive value in forecasting future price moves the indicator lags and will therefore tend to indicate trend changes after the price has already reversed course this could lead to some trade signals occurring too late to be of use this can also occur with the adx reading a reading of 20 or 25 or 30 doesn t mean that trend will persist many trends will fizzle out after reaching such a reading the indicator can t predict a trend will continue only that the security trended recently if using the indicator for signals there will be whipsaws whipsaws occur when the indicators criss cross back and forth resulting in multiple trade signals that produce losing trades 