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attention DMI (Directional Movement Indicator)

Sun Mar 29, 2015 11:55 am
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Directional Movement helps determine if a security is "trending." Developed by Welles Wilder and explained in his book.New Concepts in Technical Trading Systems, it can be used either as a system on its own or as a filter on a trend-following system.

Two lines are generated in a DMI study, +DI and -DI. The first line measures positive (upward) movement and the second number measures negative (downward) movement. A buy signal is given when the +DI line crosses over the - DI line while a sell signal is generated when the +DI line crosses below the - DI line.

In addition to these crossover rules, Wilder believes one should also follow the extreme point rule. When a crossover occurs, use the extreme price as the reverse point. For a short position, use the high made during the trading interval of the crossover. Reverse a long position using the low made during the trading interval of the crossover.

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