What is Negative Directional Indicator ?

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The Negative Directional Indicator (-DI) measures the presence of a downtrend and is part of the Average Directional Index (ADX). If -DI is sloping upward, it's a sign that the price downtrend is getting stronger.This indicator is nearly always plotted along with the Positive Directional Indicator (+DI).

Definition

The Negative Directional Indicator (-DI) is used to measure the presence and strength of a downtrend in the market. It is part of the Average Directional Index (ADX) and is typically used alongside the Positive Directional Indicator (+DI). When the -DI slopes upwards, it indicates that the downtrend in prices is strengthening.

Origin

The Negative Directional Indicator was introduced by J. Welles Wilder in 1978, in his book 'New Concepts in Technical Trading Systems'. Wilder's work laid the foundation for many technical analysis tools, including the ADX and directional indicators.

Categories and Features

The Negative Directional Indicator is primarily used in technical analysis to help investors identify the direction and strength of market trends. Its features include: 1. Used in conjunction with +DI to determine the direction of market trends; 2. When -DI is above +DI, it indicates a downtrend in the market; 3. Applicable to various markets and time frames.

Case Studies

Case Study 1: In early 2020, a tech company's stock price began to decline. Technical analysts noticed that the -DI started to rise and surpassed the +DI, indicating the stock had entered a downtrend. Investors could use this signal to engage in short selling. Case Study 2: In 2018, an energy company's stock price was highly volatile, with frequent crossings of -DI and +DI, indicating a lack of clear trend in the market. Investors might choose to stay on the sidelines to avoid uncertainty.

Common Issues

Investors often misinterpret the signals from -DI, assuming that its rise alone indicates a sell signal. In reality, changes in -DI need to be analyzed in conjunction with +DI and ADX. Additionally, directional indicators can produce misleading signals in sideways markets, so caution is advised when using them.

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