By Volmike


DMI Expansion (ADX): The Unstoppable Force

In the VOLMIKE.COM system, we not only identify shifts in momentum but also rigorously assess the strength and conviction behind those shifts. This is where DMI Expansion, particularly the ADX (Average Directional Index) component, plays a vital role. By applying DMI to Volatility Mike, we measure the accelerating force of momentum itself, identifying truly unstoppable moves.

Beyond Direction: What is DMI & ADX?

The Directional Movement Index (DMI), developed by J. Welles Wilder Jr., is a set of indicators used to determine the presence and strength of a trend. It consists of:

  • +DI (Positive Directional Indicator): Measures upward price movement strength.
  • -DI (Negative Directional Indicator): Measures downward price movement strength.
  • ADX (Average Directional Index): Measures the strength of the trend, regardless of direction. A rising ADX indicates a strengthening trend.

Crucially, in the VOLMIKE.COM system, we calculate DMI and ADX on the Mike indicator (F%_numeric) instead of raw price. This means our ADX measures the strength of the trend in momentum, providing unique insights into the underlying market conviction.

Calculating the Force: Mike F%_DMI and ADX Expansion

Our system calculates DMI components on Mike (F%_DMI, +DI_F%, -DI_F%) and then derives ADX_F%. To detect expansion, we compare the current ADX_F% to its value from a previous period (e.g., 9 periods ago).

  • ADX Anchor: This is the ADX_F% value from a lookback_adx (e.g., 9 periods) in the past, serving as a historical baseline.
  • ADX Ratio: The core of the signal is the ADX Ratio, calculated as: $$\text{ADX Ratio} = \frac{\text{Current ADX_F%}}{\text{ADX Anchor}}$$ This ratio tells us how many times the current strength of Mike's momentum trend is greater than its strength historically.

Visualizing the Surge: Steam (♨️) & Dynamite (🧨) Emojis

When ADX Expansion is detected, our charts display powerful emojis to visually signal the surge in momentum trend strength:

  • ♨️ Steam Emoji (Double ADX Expansion):

    • Appearance: The Steam emoji is plotted when the ADX Ratio is greater than or equal to 2.
    • Meaning: This indicates that the strength of Mike's momentum trend has at least doubled compared to its recent past. It signals significant building pressure and strengthening conviction.

  • 🧨 Dynamite Emoji (Triple ADX Expansion):

    • Appearance: The Dynamite emoji is plotted when the ADX Ratio is greater than or equal to 3.
    • Meaning: This represents an even more extreme surge, where the strength of Mike's momentum trend has at least tripled compared to its recent past. It signifies an explosive, undeniable increase in directional force.

Why This Matters: Nuanced Trend Strength & Reversal Cues

DMI Expansion, particularly ADX Expansion, offers critical nuances that complement other volatility measures:

  • Focus on Trend Strength, Not Just Volatility: Unlike Mike's ATR Expansion or Volatility Expansion (STD), which measure the range and dispersion of momentum, ADX Expansion focuses purely on the strength and persistence of Mike's trend.
  • Confirms Directional Conviction: A rising ADX_F% (and thus an ADX Expansion alert) confirms that the momentum (Mike) is not just moving, but is moving with powerful, sustained directional conviction.
  • Identifies "Unstoppable" Moves: The "Dynamite" (🧨) signal, in particular, points to rare moments where the strength of the momentum's trend is exploding, indicating a highly probable continuation.
  • Reversal Cues at 50/50 Rate: Crucially, while ADX Expansion generally signals increasing trend strength, our analysis has identified that the ADX Expansion alert (both ♨️ and 🧨), when occurring at a specific "50/50 rate," can paradoxically indicate potential reversals. This unique nuance suggests that at certain extreme points, the very intensity of the trend's strength becomes unsustainable, acting as a warning sign for exhaustion and a possible shift in direction.

Importance for Marengo Setups

DMI Expansion (ADX) is an invaluable layer of confirmation for our "Marengo" setups. When a "Marengo" signal occurs alongside a "Steam" (♨️) or especially a "Dynamite" (🧨) emoji, it provides exceptionally high conviction that the underlying move is not only high-velocity and expanding in range but also backed by an extreme, accelerating surge in the strength of its momentum's trend. Furthermore, its nuanced ability to signal reversals at the "50/50 rate" aids in sophisticated trade management and identifying potential turning points for counter-Marengo opportunities. This combination helps us identify the most powerful and sustained high-conviction opportunities, aligning with our "Volatility Perfection" philosophy.