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Directional Movement Index (DMI)

This indicator was created by Welles Wilder. It shows if a currency pair is trending or not. And incorporates the Average Directional Index (ADX) as a signal line.

It consists of three lines:

  • +DI, in Blue. This is the up trend movement line. Which indicates movement of rising price trends. That means if this line moves up, the upward trend of price is getting stronger.
  • -DI, in Orange. This is the down trend movement line. Which indicates movement of falling price trends. That means if this line moves up, the downward trend of price is getting stronger.
  • ADX, in Pink. This is the Average Directional Index line that acts as a signal line.

These lines operate in a range of 0 to 100.

Example

Interpretation

A Buy Signal is given when the +DI crosses above the -DI and the -DI falls below the +DI. This is a bullish move.

A Sell Signal is given when the -DI crosses above the +DI and the +DI falls below the -DI. This is a bearish move.

The ADX line (Pink in the example) shows the strenght of the signal you are getting.

Calculation

U = Hn - Hn-1
D = Ln-1 - Ln
TR = (Hn - Ln) | (Hn - Cn-1) | (Cn-1 - Ln)
EMAUP = EMAUn-1 + ((2 / (n + 1)) * (Un - EMAUn-1))
EMADOWN = EMADn-1 + ((2 / (n + 1)) * (Dn - EMADn-1))
EMATR = EMATRn-1 + ((2 / (n + 1)) * (TRn - EMATRn-1))
+DI = EMAUP / EMATR
-DI = EMADOWN / EMATR
DX = ABS(+DI - -DI) / (+DI + -DI)
ADX = EMADXn-1 + ((2 / (n + 1)) * (DXn - EMADXn-1))

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