Wilder’s DMI: Directional Signals and Average Smoothing Options

Summary

The document explains the directional components of Wilder’s Directional Movement Index: +DI and -DI. Each measures movement extending beyond the previous bar’s range, with the positive or negative portion normalized by true range and smoothed over time. The document describes a common 14-period setting. Comparing the two lines gives a directional reading: +DI above -DI suggests upward movement is stronger, while +DI below -DI suggests downward movement is stronger. Their crossings may signal a potential change in direction or trend.

ADX is distinguished from these components: it indicates trend strength, while +DI and -DI indicate direction. The text also notes that Wilder’s smoothing is equivalent in values to a smoothed moving average and that an alternate version can use simple, exponential, smoothed, or linear-weighted averages. It offers an indicator explanation, not tested trading rules or evidence that line crossings predict profitable trades. Signals may lag and should be interpreted as directional information rather than a standalone forecast.

Key ideas

• The +DI and -DI components describe positive and negative directional movement, while ADX measures trend strength.
• Directional movement is identified from the part of a bar’s range extending beyond the prior bar’s range.
• The directional values are normalized by true range and smoothed over a selected period.
• A crossing between +DI and -DI can flag a possible directional change, but the document supplies no performance validation.
• The described indicator variant permits several averaging methods, including Wilder-style smoothing.

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