The Directional Movement Index
and the Average Directional Movement Index

The DMI (Directional Movement Index), created by J. W. Wilder, allows traders to compare buy and sell pressure. When used along with the ADX (Average Directional Movement Index), it measures the force and strength of the market's direction. This system is mainly used for short-term trading.

The default sample used for this indicator is 14 days.

The ADX line allows you to evaluate the strength of a trend. When the indicator is above 25, the market is following a definite trend. On the other hand, when the indicator is below 25, the market is evolving with no genuine direction.

The ADX line can be used as a complement to systems that track trends relatively well, such as moving averages. It will indicate whether the market is sufficiently directional for a trader to follow signals given by the moving averages.

If the ADX value is low, it can be used with powerful trading range systems such as the stochastic indicator.

The DI+ and DI- lines display the market's buy and sell pressure. By analysing how each of these two lines are positioned with respect to each other, you can see whether the market is dominated by buyers or sellers.

The further apart the DI+ and DI- curves are from each other, the more we consider that the price trend is becoming stronger. On the other hand, when the curves get close or cross each other, it becomes likely that the price trend will reverse.

Buy or sell signals can be determined when the DI+ and DI- lines cross each other. This signal will be stronger if the ADX has a high value.