The directional movement index (DMI) is an indicator developed by J. Welles Wilder in 1978 that identifies in which direction the price of an asset is moving. The indicator does this by comparing prior highs and lows and drawing two lines: a positive directional movement line (+DI) and a negative directional movement line (-DI). An optional third line, called the average directional index (ADX), can also be used to gauge the strength of the uptrend or downtrend.
Function
When +DI is above -DI, there is more upward pressure than downward pressure in the price. Conversely, if -DI is above +DI, then there is more downward pressure on the price. This indicator may help traders assess the trend direction. Crossovers between the lines are also sometimes used as trade signals to buy or sell.
The directional movement index (DMI) is a technical indicator that measures both the strength and direction of a price movement and is intended to reduce false signals. The DMI utilizes two standard indicators, one negative (-DM) and one positive (+DN), in conjunction with a third, the average directional index (ADX), which is non-directional but shows momentum. The larger the spread between the two primary lines, the stronger the price trend. If +DI is way above -DI the price trend is strongly up. If -DI is way above +DI then the price trend is strongly down. ADX measures the strength of the trend, either up or down; a reading above 25 indicates a strong trend.
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