Background
J. Welles Wilder is the most prolific technical indicator inventor in history. His 1978 book 'New Concepts in Technical Trading Systems' introduced the RSI (Relative Strength Index), ATR (Average True Range), Parabolic SAR, ADX (Average Directional Index), and the Directional Movement system — five indicators that appear on virtually every charting platform in existence. He changed technical analysis more than any other individual.
Core Methodology
Wilder's indicators each solve a specific problem: RSI measures momentum (overbought/oversold conditions), ATR measures volatility (for position sizing and stop placement), Parabolic SAR provides trailing stops, and ADX measures trend strength (not direction). Together, they form a complete analytical toolkit.
Key Trading Rules
- RSI (14-period): Above 70 = overbought, below 30 = oversold. Most powerful when diverging from price.
- ATR (14-period): Use as your volatility measure for position sizing — risk 1% with stop at 2× ATR
- Parabolic SAR: dots above price = downtrend, dots below = uptrend. When dots flip, so does your position.
- ADX: above 25 = trending market (use trend-following strategies), below 20 = ranging (use mean-reversion)
- Directional Movement: +DI above -DI = bullish, -DI above +DI = bearish. Combined with ADX for timing.
- Wilder's own advice: don't use any single indicator alone — combine for confirmation.
Key Concepts
Books & Resources
New Concepts in Technical Trading Systems by J. Welles Wilder (1978). One of the most important books in technical analysis history.