DMI stands for Directional Movement Index. It was developed by J. Wellis Wilder Jr. with a view to detecting major trends. Using this indicator, it is possible to ride a significant portion of a trend.
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This system has a trend-following character, making it a lagging indicator similar to the crossovers of the Moving Averages.
The Directional Movement Index (DMI) displays positive market movements (+DIx) and negative market movements (-DIx) in two separate lines. These lines are often green (positive momentum) and red (negative momentum).
The DMI is a trend-following indicator. It is used to indicate the beginning or end of a trend. When the positive trend crosses the negative trend, and the positive line (+DIx) rises above the negative line (-DIx), then this is seen as a buy signal. If the positive line tracks below the negative line, then this is seen as a sell signal.
The DMI is a genuine trend-following indicator, and can only be used in a trend market. Many successive false moves may occur in a protracted trading market period.
The DMI lends itself to optimization in trend markets. However, systems that utilize the DMI usually lose money in long-term trading markets.
The DMI is often used in conjunction with the related ADX trend indicator.
DMI period (14)
BUY AND SELL SIGNALS
The crossings between +DIx and -DIx provide buy (rising +DIx) or sell signals (falling +DIx).
This example shows a 15-minute chart with a DMI of 14 periods.
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