Directional Movement (DMI) Explained : Price Analyses

Directional Movement (DMI) Explained

The Directional Movement (DMI) consists of three indicators: Average Directional Index (ADX), Plus Directional Indicator (+DI) and the Minux Directional Indicator (-DI). The primary use of the DMI is for you to see if a trend is in force to either the upside or the downside, as well as trend direction.

directional movement index dmi

How to use the Directional Movement (DMI)

The DMI shows a value between 0 and 100 for measuring trend strength. The +DI and -DI are used for calculating the trend direction. When the ADX is above 25, this would be considered a strong trend, although this is largely up to your interpretation. When the ADX values are below 20, this would indicate that a weak trend is in place.

Signals generated by the Directional Movement (DMI)

Like other indicators, the directional movement also generates signals that you can use to help you set buy and sell orders.

The most common signals generated by the DMI are crosses, which come in both bullish and bearish varieties. For a bullish cross, the DMI should be over 25 and therefore in a strong trend. The +DI must also be above the -DI. This signal would be strengthened if the ADX increases in value.

For a bearish DI cross, the inverse of the above is true. The DMI should be under 25 and in a weak trend, and the -DI must be below the +DI as the primary signal point. This signal would again be strengthened if the ADX continued to rise.

To summarize the DMI, it is a useful indicator for measuring trend strength as well as direction. The downside of the indicator is that using it requires patience as well as practice in applying it to different indexes and securities. Despite not being user-friendly, it is still a helpful tool in conjunction with other technical indicators.

Matthew North

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