Calculating DMI Lines and Interpreting Directional Trend Signals

Summary

This article explains the Directional Movement Index (DMI), describing it as a way to compare directional buying and selling pressure and assess trend strength. It outlines how to derive the positive and negative directional indicators from high, low, and close data, then calculate ADX from their difference relative to their sum. ADXR is formed by averaging ADX with an earlier value. The author compares calculated values with charted indicator readings and reports that they are broadly similar, with small rounding differences.

The proposed interpretations use DI+ and DI− to compare bullish and bearish pressure, while ADX and ADXR are treated as trend measures. The article gives example rules for possible short-term bottoms and tops, plus a rising-trend setup based on line crossings after a strong upward bar. These are heuristic signals rather than validated trading results: the document provides no systematic backtest, and the signals depend on chosen periods and thresholds. Its description of trend direction through ADX and ADXR should also be treated cautiously, since the article does not establish that these lines alone identify direction.

Key ideas

• DMI combines positive and negative directional indicators with ADX and ADXR trend measures.
• ADX is calculated from the relative difference between DI+ and DI−, then smoothed.
• The article interprets a widening gap between DI+ and DI− as stronger directional pressure.
• It proposes extreme readings and line crossings as possible reversal or trend-entry signals.
• The examples are heuristics, and the document provides no systematic performance test.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.