Directional Movement Index trading indicator (DMI).

Directional Movement Index (DMI) - it's unique trading indicator based on filtering by price's rate of change. Directional Movement Index trading indicator (DMI) released by J.W. Wilder - Jun. in 1978. Directional Movement Index trading indicator (DMI) - it's a quite complex trend-following trading indicator. Wilder says that price on Forex being in powerful trends about 30 percents of all the time only. For avoiding losses when trend-following trade strategy is used and there is no trend on Forex Wilder have created his Directional Movement Index trading indicator Forex (DMI). Trader who work with Directional Movement Index trading indicator Forex (DMI) will not trade on flat Forex. By using moving averages Directional Movement Index trading indicator Forex (DMI) recondition high, low and close prices to united scale from 0 to 100. Directional Movement (DM) calculated like most part of price range current time period, laying outside range previous period, i.e.:

PDM = H - Hp
MDM = Lp - L

here:
H - current High
Hp - previous High
L - current Low
Lp - previous Low

Minimal from its two DI leveled to 0. So, if PDM > MDM, MDM = 0; if MDM > PDM, PDM = 0. Any values less than 0 leveled to 0 also. True Range calculated like most from three values:
1) True Range = High - Low
2) True Range = High - Close previous
3) True Range = Close previous - Low

Before next calculations all data smoothing by exponential moving average. Wilder suggest to use 27 period simple moving average. Positive direction trading indicator (PDI) - it's smoothed by exponential moving average PDM, divided by smoothed True Range.

PDI = SPDM/STR

Need to remember that in the cases when (Low previous - Low)>(High previous - High), PDM will leveled to 0 and PDI will fall.

Negative direction trading indicator calculated by next way:

MDI = SMDM/STR

Need to remember that in the cases when (High previous - High)>(Low previous - Low), MDM will leveled to 0 and MDI will fall.

Next stage - Directional movement trading indicator calculating:

DX = 100*|PDI - MDI|/(PDI + MDI)

DX values are constantly situated in range between 0 (when PDI = MDI) to 100 (when PDI = 0 or MDI = 0).

Average Directional movement (ADX) - this is DX, smoothed by exponential moving average.

Power of Directional Movement Index (ADXR) - this is ADX, smoothed by exponential moving average.

So for its calculating smooth smoothed trading indicator. ADXR - it's a sum current ADX and ADX 14 periods before, divided by two. Wilder say, that high and growing ADX and it's ADXR say about powerful trend on Forex, or up or down. Low and falling ADX and it's ADXR say about flat Forex. As a rule, if ADX and it's ADXR less than 20, it's mean flat Forex, if ADX and it's ADXR more than 25, it's mean powerful price trend.

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