Directional Movement Index: Calculating PDI, MDI, and ADX
Summary
This document outlines the Directional Movement Index (DMI) calculation from high, low, and close prices using a configurable lag. It first derives a smoothed true-range measure from the current bar's range and gaps relative to the previous close. Upward and downward movement are then measured from changes in successive highs and lows, retaining the dominant positive move for each side before averaging and normalizing by true range.
The resulting positive and negative directional indicators express upward and downward movement, while ADX is calculated from their normalized difference and smoothed to represent directional separation. The page gives pseudocode but no interpretation thresholds, trading rules, test results, or discussion of limitations. Although a threshold parameter is named in the indicator signature, its use is not specified in the provided material.
Key ideas
- DMI uses high, low, and close data with a smoothing lag.
- True range incorporates the bar's range and gaps from the previous close.
- Positive and negative directional movement retain the dominant upward or downward move.
- PDI and MDI normalize directional movement by smoothed true range.
- ADX smooths the absolute separation between PDI and MDI.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.