DMI, commonly known as the directional movement index, is an essential trading tool that helps in assessing price strength and direction. DMI is particularly beneficial in trend trading strategies. More so because it differentiates between weak and strong trends, and thus allows the trader to participate in trades with real momentum. Primarily, DMI works well on various time frames while also making it possible for you to combine it with other underlying mechanisms like stocks, futures, currencies, commodities, and exchange-traded funds. Check out tradingview’s advanced charting tools
While DMI has somewhat sophisticated calculations, it can help you in identifying the best time to pick a short or long. Read on for more insights and learn how the DMI indicator works to better your profits.
Directional Movement Indicator (DMI) Click To TweetDMI Trend Lines
Essentially, DMI indicates the moving average of price changes over a 14-day period. Positive directional movement indicator simply measures how the price moves upward at any given time. On the other hand, a negative directional movement indicator helps to evaluate when the price shifts downward. These two lines indicate the equivalent power of the bulls against the bears. Access the economic calendar for your trading strategies to see upcoming news events on Tradingview.
DMI Directional Signals
DMI is mainly used to reflect price action. Positive DMI usually moves systematically with price changes, which means that +DMI increases when price increase, and falls respectively when price value falls. Conversely, negative DMI rise when price fall, and fall when price moves upward.
While this may sound complicated, reading directional signals is quite easy. If the +DMI is rising, prices move up accordingly. And when the -DMI is rising, prices move downward. However, you should also determine the strength of the price. Basically, higher DMI values indicate stronger price momentum. DMI values that exceed 25 indicate the price is strong. Equally, DMI values below 25 point out that price is weak.
Bottom Line
You should always use objective signals to make trading decisions and not emotion. DMI offers vital information to help you study price movements on periods of high and low volatility. Let DMI and the strength of the price show you whether to move short, go long, or avoid taking action.
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