It is developed by Welles Wilder. To avoid unprofitable frustration of trend following in a sideways market, he devised DMI as a filter that permits entry into trades only when markets exhibit significant trending characteristics. H is the highest price of the current period. Hp is the highest price of the previous period.
L is the lowest price of the current period.
Lp is the lowest price of the previous period. The lesser of the above two absolute values is reset to equal zero. L-Cp where Cp is the closing price of the previous period. All of the above data is smoothed by exponential moving averages . The trading rule that Wilder suggests is only enters a trade when ADX is rising, indicating significant Directional Movement.