Directional Movement Index DMI

Directional Movement Index DMI

Very well known and part of almost all major commercial stations, the directional movement concept by Welles Wilder. This created based on the Directional Movement Index DMI several standard indicators to identify trends.

The various partially build on each other indicators of the Directional Movement concept are all based on the DMI, which is why this should be described in more detail at this point. DMI is the result of merging two sub-indicators, namely the positive movement (+ DI) and the negative movement (-DI). Based on the consideration that trend by rising phases awards highs or lows falling, is the summation of the differences of these values ​​resulting in the proportion of upward and downward movement results in the period. Specifically, is thus at a new high, the difference between yesterday's and today's high point as a basis of + DI and a new low of the difference between yesterday's and today's low point as the basis of FDI. With new high new low AND there is greater attention to trading days without reaching a new extreme points will have a value zero. Second component is now calculating the sum of the so-called True Ranges (daily spreads between high and low, taking into account, in the case of the price gaps up or Abwärtsgap). + DI is now preparing dishes by the positive price movement will be divided by the sum of the True Ranges, DI-analog. The original approach of Wilder sees due to the unsettled nature of the indicator still an arithmetic smoothing over the observation period and multiplying by 100 before.

DMI is calculated finally divided itself as an absolute value of the difference of + DI and-DI, by the sum of + DI and-DI. Finally, a done Multiply by 100


As far as the time period chosen for the calculation to use Wilder 14 days, but this related to the 28-day cycle of his preferred commodity futures. The choice of the individual calculation period is a matter of taste, in principle, lead to longer shots that the concept is more useful as a trend filter, but not for more specific trading signals.

What is concrete examples of the Directional Movement concept far discussed first + DI and-DI: These two sub-indicators are always between 0 and 100, the position of the two lines are another indication of the direction and intensity of the prevailing trend. In an uptrend, + DI is above-DI, vice versa for a downtrend. The distance between the two lines allows a conclusion on the trend intensity, the greater the distance the stronger the trend. DMI itself as a pure trend strength indicator only and not a conclusion to the trend direction is possible. DMI is primarily in the smoothed version of the ADX use, another possibility is to filter it and trend predictions by two different period information is used to confirm that both the implied statements.

In summary, it should be noted that the concept in today's time no longer is applicable equally well as the time of development by Wilder (late 70s). Above all, the rapidly increasing market volatility and the exchange between choppy and corrections lead to an increase in the rate of false signals. A trend change is also often appear only begin if a correction phase.