What is the directional movement index?
Directional movement index (DMI) is a technical indicator created by J. Welles Wider in 1978. Wilder is also an architect of another commonly used indicator called the index of relative force . DMI is very useful for measuring the price direction and also for the strength of movement. It is generally suitable for trading with trends and markets. Many traders use the directional movement index within their entry and exit strategy and decides whether to go long or short.
DMI is a tool commonly used by traders to distinguish between weak and strong trends. It is very popular with individuals who use business strategies based on systems. It can be used to trade a wide range of assets, including shares, commodities and currencies. In fact, the directional movement index is a gliding diameter of the price range and is usually calculated for 14 days. The DMI calculation is based on the price range The asset after a certain period. Then the latest price is considered to be the previous price range.
The result is plotted into the graph and is displayed either as a line of movement called a positive directional indicator (+DI) or a locomotive line down known as the negative direction indicator (-Di). Points are plotted between 0 and 100. The force of the price of prices up or down is also calculated using +di and -di. This result is called the average directional movement index (ADX).
ADX less than 20 is a sign of a consolidation or non-market market. It is usually accompanied by a low loud level. When the ADX indicator is above 20, it can indicate the start of the trend. Reading 40 or more and decreases, as evidenced by possible conversion. Lines +di, -di and ADX are usually drawn on a separate graph at the bottom of the column chart. The rules of the Crossover for the use of DMI are quite simple.
Merchants can open a long position at any time +di crosses over -di. It is recommended to reverse the position that includes LIKVIdeal of a long position and opening a short position, whenever -di crosses over DMI. Another predecessor followed by many merchants is the rule of extreme point. It is recommended that after any transition, an extreme price of business period should be used as a reverse trader signal.
The trader who takes a long time is recommended to use the lowest price made during the crossover period as a reverse signal. On the contrary, the twist point for a short position is usually the highest price achieved during the business period. Usually high and low reverse points are used to enter and output to the market. This principle should be followed, although +di and -di remain exceeded in several time frames. Many personal tactics use to help protect from any whip saw that occurs on the market.
Depending on their business system, some traders can integrate ADX as part of their conversion strategy. First, ADX must rise above the +di and - di lines. At the moment whenThe ADX moves below, the market usually experiences conversion from the existing trend. In this case, ADX indicates that the market is activated to reverse its current direction. A strong exception to this particular use of ADX is on the raging bull market that is experiencing a blowing phase.
ADX often moves below to turn and move to a higher area within a few days. Wilder recommends that traders using trends monitoring systems stop using the directional movement index when ADX drops under both DI lines. This is a sign that the market usually shows a side trading formula without an apparent trend.