Definition
The Negative Directional Indicator (-DI) is a component of the Average Directional Index (ADX) developed by J. Welles Wilder, used to quantify the strength of a downward price movement in a market. When the -DI is increasing, it indicates that the downward trend is gaining momentum.
Comparison: -DI vs +DI
| Feature | Negative Directional Indicator (-DI) | Positive Directional Indicator (+DI) |
|---|---|---|
| Indicates | Downward trend strength | Upward trend strength |
| Rising signal | Stronger downtrend | Stronger uptrend |
| Crossover significance | Potential start of a downtrend | Potential start of an uptrend |
| Relation to ADX | Used to gauge trend direction | Used to gauge trend direction |
Formula
The formula for the Negative Directional Indicator (-DI) is as follows:
\[ -\text{DI} = \left( \frac{\text{(-DM)} }{\text{True Range}} \right) \times 100 \]
Where:
- \(-\text{DM}\) = Negative Directional Movement
- True Range = Maximum of:
- Current High - Current Low
- Current High - Previous Close
- Previous Close - Current Low
Examples
- If the price of a stock starts sliding and the -DI arcs upward while staying above the +DI, traders might interpret this as a confirmation of a strengthening downtrend.
- Conversely, if the -DI diagnoses its downward trajectory while plunging below the +DI, it might be a sign that the bulls are regaining control, and the downtrend’s weakening.
Related Terms
- Positive Directional Indicator (+DI): The companion to -DI, measuring upward price trends.
- Average Directional Index (ADX): An overall measure of trend strength, irrespective of trend direction, combining both the -DI and +DI.
- Directional Movement Index (DMI): An index that uses both +DI and -DI to help understand the prices’ directional movements.
Illustrative Diagram
graph TD;
A[Market Trend] -->|Push Up| B(+DI)
A -->|Push Down| C(-DI)
B --> D[Strength of Uptrend]
C --> E[Strength of Downtrend]
E --> F[Higher Market Volatility]
D --> F
Humorous Insights
Did you know that the first time Welles Wilder designed the ADX, people thought it was a fancy name for a medical condition? Imagine consulting your doctor: “Doc, I think I might have a case of the ADXs!”
“Investing is the only sport where we root for teams we don’t have to ever see play except in our heads!” 🏈💭
Fun Facts and Historical Insights
- Welles Wilder introduced the ADX indicator in his 1978 book “New Concepts in Technical Trading Systems,” which is often considered a cherished bible for traders.
- Originally created for commodities trading, the -DI and +DI have successfully infiltrated forex, stocks, and crypto markets like an overzealous party crasher! 🎉
Frequently Asked Questions
What does it mean if the -DI is above the +DI?
This situation typically suggests that the price downtrend is getting stronger, signaling potential selling opportunities.
Can -DI be used in isolation?
While it can work solo, it’s best when used in conjunction with +DI and ADX for the most informative trend analysis.
When should I look for crossovers between -DI and +DI?
Crossover signals often indicate potential shifts in market trend direction, notifying traders of possible buying or selling moments.
Test Your Knowledge: Negative Directional Indicator Quiz!
Thank you for diving into the whimsical world of the Negative Directional Indicator! Remember, while analyzing markets, don’t forget to smile and keep pins handy for all the sharp turns! Happy trading! 📈✨
