What is the average directional index?
The average directional index is a tool used by traders to determine the strength of investment trends. It appears on a graph with two other lines: a negative direction indicator and a positive direction indicator. Together, these lines are known as directional movement indicators (DMI). The relationship between these two indicators can help the trader to determine the average directional index. Over time, the index develops a formula that can help the investor choose the best possible time to end the investment. The index measures the overall power of the trend regardless of its market position. This gives the trader the opportunity to sell the asset before it falls and becomes responsible. The indicators are brought as two -wing with different colors running horizontally across the top. The relationship between these lines is used to calculate the index, which usually appears to be the only black line at the bottom of the graph.
One of the benefits of the average directional index is that in the transitionThe time can reveal more about the nature of the trend and its relationship with the market. If the power of the trend rises and decreases with the market, it is possible that its fluctuations are not specifically associated with the trend. When the trend seems to move in samples separate from the market, it is more likely that movement is a reaction to this trend.
The average directional index can also create a formula that can allow the investor to determine the peak time for sale. For example, a trend may have a relatively regular occurrence of decreases and peaks. After observing this pattern, the investormers can predict when the trend is culminating and planning to sell at this point. Although there is still some risk, the investor is more likely to choose the best time to take a step.
American machine engineer J. Welles Wilder, Jr., created an average directional index in 1978. It was one of several technical indicators he created during his long career in technical analysis. Many innovations of Wilder have become elements in software for technical analýzu, which was developed in later years.