NDI represents the downward behavior of a financial market. A part of the Average Directional Index (ADX), it is nearly always plotted alongside the Positive Directional Indicator. Designed by Welles Wilder for commodities, it aims to determine a trend’s direction and strength. If the DI line slopes upwards, it is a signal that the price downtrend is getting stronger.
In This Article
What is the Negative Directional Indicator?
How To Analyze Chart Using a Negative Directional Indicator
Category
Trend
Type
Leading
The Negative Directional Indicator is a part of the directional movement indicators. It measures the presence of a downtrend and is generally plotted alongside the positive directional indicator to show a price trend movement. Both these lines are indicators of the ADX, a smoothed average of both directional indicators, plotted along with the directional indicators. Traders use all the elements in the ADX system to make better trading decisions.
The NDI is plotted along with the Positive Directional Indicator (PDI). When the prior is above the latter, it indicates a downtrend. It can also show that downward movement is outpacing upward motion.
Conversely, if the PDI line is above the NDI line, it indicates an uptrend. It can also show that upward price movement is outpacing downward trend movement. The standard setting for the directional indicators is 14 days.
Traders use a crossover between these lines as signals. If the NDI line crosses above the PDI line, it signals a down move price. Thus, it is a short trade or sells cue. Conversely, if the PDI line crosses above the NDI line, it is a buy signal.
The ADX line, a smoothed average between the NDI and PDI lines, helps traders understand how strong the current trend is. An ADX reading of above 20 is indicative of a strong trend.