Directional Movement Index: Components and Calculation
Summary
Despite a page title referring to Ease of Movement, the supplied indicator section describes the Directional Movement Index, or DMI. It identifies high, low, and close prices as inputs, along with a lag parameter, and presents pseudocode for its main components.
The calculation forms a smoothed true-range measure, compares changes in successive highs and lows to derive positive and negative directional movement, and scales those movements into positive and negative directional indicators. It then smooths their normalized difference into ADX. The excerpt supplies formulas but no interpretation section, parameter guidance, chart examples, market tests, or evidence about trading performance. Readers should treat it as a compact computational outline rather than a validated trading rule.
Key ideas
- The indicator section defines DMI using high, low, and close price data with a lag parameter.
- True range is smoothed to provide a volatility-adjusted denominator.
- Positive and negative directional movements are calculated from changes in highs and lows.
- The positive and negative directional indicators scale those movements by smoothed true range.
- ADX smooths the relative difference between the two directional indicators.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.