The DMI (Directional Movement Index) indicator is a measure of trend. The concept was introduced by Wels Wilder in 1978. A distinctive feature that distinguishes the DMI indicator is that the DMI indicator is its method is not based on the closing price of the bars, but on the analysis of the highest and lowest prices.
It is the DMI (Directional Movement Index) indicator is a measure of the area of the last bar, which is located in relation to the first appearance of the candlestick. Thus, in the case that the low and high of the latest bar exceeds the value of the previous bar, the part of the last bar that is upward in relation to the previously displayed candlestick is considered as an uptrend. In the case of lows and highs, if both are less than the values of the previous bars and the most extreme candlestick protrudes downward relative to the last candlestick is considered to be a bearish direction.
What is the function of the DMI indicator?
DMI stands for an oscillator, which is very easy to understand for beginners, also due to its visual appearance. The indicator is displayed in three colors. Each color indicates a specific period of the market. The gray color marks a consolidation, while the green color shows the beginning of an uptrend in the market. Orange is displayed when the market enters a bearish period.
However, you may also notice some noise in the indicator, which is subjective for each instrument you study with this indicator. Therefore, it is recommended to test the signal duration and the DMI period and then experiment with different time frames to reduce the amount of noise.
Buying strategy for DMI indicator
The indicator will begin to shift to green.
Verify that the indicator value must be at or above zero.
Observe the end of an uptrending candle.
Start a long trade with a stop loss set at the recent low of the swing. The profit target should be set at your next support level.
DMI Indicator Sell Strategy
The color of the indicator will need to be changed to red.
Check if the indicator’s value is below zero.
Observe if a bearish candlestick is ending.
Short trades can be entered at the recent high of the swing with a stop loss. The profit target should be set at the next support level.
The DMI indicator can play an important role in analyzing the technical aspects of the market. However, the indicator is not a complete trading method.