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> Gabriel Gray asked:
> >Anyone know the exact formula for calculating Wilder's ADX or a web
> >site that contains it. I found one on Linn software's site but the
> >math is incorrect. Everyone seems to talk qualitatively about it
> >without reference to the exact measurements.
>
> That's because it isn't an exact measurement. It's doubly-smoothed,
> for one thing, and as such is just an approximate indicator with a
> lot of lag.
>
> There are many ways to calculate it. Welles Wilder's own way
> used an exponential average as an approximation for an arithmetic
> average because an exponential average is easier to implement in
> a computationally-efficient way. At the time he developed it,
> computer time was expensive.
>
> If you're not viewing this with a fixed width font, then do so.
>
> Generally speaking:
>
> |(average of up movements) - (average of down movements)|
> DX = ---------------------------------------------------------
> (average of up movements) + (average of down movements)
>
>
> ADX = DX smoothed.
>
> Wilder is so enamored by his "discovery" of the concept of True
> Range that he feels compelled to include a silly step where he
> divides each term by average true range (ATR), but this is totally
> unnecessary because all the ATR terms cancel each other out in the
> end.
>
> Wilder also contrived a tricky way to define an "up movement" and
> "down movement" but in my experiments with my own variants of ADX, I
> have found that it doesn't matter what you use. You can even define
> up movement as 0 or 1 and down movement as 0 or -1 depending on
> whether the market closed higher or lower than the previous close.
>
> But since you asked, here are Wilder's steps. Just be aware that
> they are not Gospel. You may come up with a better way to calculate
> ADX than Wilder.
>
>
> Step 1: Calculation of Direction Movements
>
> PDM = H - Hp (Plus Direction Movement)
> MDM = L - Lp (Minus Direction Movement)
>
> where:
> H, Hp = current high, previous high
> L, Lp = current low, previous low
>
> if |PDM| < |MDM| then PDM = 0
> if |PDM| > |MDM| then MDM = 0
> if |PDM| = |MDM| then
> if PDM>0 then MDM=0 else if MDM<0 then PDM=0
> if PDM < 0 and MDM > 0 then PDM = 0 and MDM = 0
>
> As I said, it doesn't matter how you calculate PDM and MDM.
> PDM = max(0, C - Cp) and MDM = |min(0, C - Cp)|
> will work just as well.
>
>
> Step 2: Calculation of True Range
> THIS STEP IS UNNECESSARY FOR THE FINAL RESULT AND MAY BE SKIPPED.
>
> True Range(TR) is the largest value of the following:
>
> TR = max(H-L, Cp-L, H-Cp)
>
> where Cp = the close for the previous period (i.e. yesterday)
>
>
> Step 3: The Positive & Minus Directional Indicators (PDI & MDI)
> THIS STEP IS UNNECESSARY FOR THE FINAL RESULT AND MAY BE SKIPPED.
>
> The smoothed Positive and Minus Directional Movement values are
> divided by the smoothed True Range to get the Positive and Minus
> Directional Indicators.
>
> EMA(|PDM|, n) EMA(|MDM|, n)
> PDI = ------------- and MDI = -------------
> EMA(TR, n) EMA(TR, n)
>
> where:
> EMA is an exponential moving average of the specified data item
> for the designated number of periods
> n is the total number of periods in the exponential moving
> average
>
>
> Step 4: Calculation of the Directional Movement Index (DX):
>
> |PDI - MDI|
> DX = ----------- * 100
> PDI + MDI
>
> Notice here if you expand out the PDI and MDI terms, all TR terms
> cancel out. So you can safely eliminate TR from the calculation.
>
>
> Step 5: Calculation of the Average Directional Movement Index (ADX):
>
> ADX = EMA(DX, n)
>
> That's it.
>
> --
> ,|___ Alex Matulich -- alex@xxxxxxxxxxxxxx
> // +__> Director of Research and Development
> // \
> // __) Unicorn Research Corporation -- http://unicorn.us.com
>
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