Using DMI Directional Indicators to Read Trend Direction

Summary

The document explains the directional components of Wilder’s Directional Movement Index: the positive indicator (+DI) and negative indicator (-DI). It distinguishes these from the Average Directional Index, which describes the strength of movement without indicating whether it is upward or downward. The directional indicators compare portions of the current bar’s range that extend beyond the prior bar’s range, normalize those movements by true range, and average them over time, commonly using a 14-period lookback.

A cross between +DI and -DI can signal that upward or downward pressure has taken the lead, and may help identify a possible trend change. The document also says a DSL version may be used in trend or countertrend approaches and may contribute to momentum assessment. It provides a conceptual description rather than a tested strategy: there are no entry or exit rules, market examples, performance results, or risk controls. Indicator crosses should therefore be treated as inputs for analysis, not as evidence of a profitable standalone system.

Key ideas

• The +DI and -DI components indicate the direction of price movement, while ADX indicates movement strength.
• Directional movement is derived from changes in the current bar’s range relative to the previous bar.
• The directional values are normalized by true range and averaged, commonly over 14 periods.
• A crossover between +DI and -DI may signal a shift in directional pressure.
• The document gives no test results or complete trading rules for using the indicator.

Tags

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