Directional Movement DMI is actually a collection of three separate indicators combined into one. ADX's purposes is to define whether or not there is a trend present. It does not take direction into account at all. They serve the purpose of determining trend direction. By combining all three, a technical analyst has a way of determining and measuring a trend's strength as well as its direction.
Much like the indicators mentioned, the DMI is still widely used and has great importance in the world of technical analysis. DMI has a value between 0 and and is used to measure the strength of the current trend. When combined, the indicator can provide some valuable insight. One thing to be considered is that what DMI values determine, strength or a potential signal, is up to the trader's interpretation.
Acceptable values may change depending on the financial instrument being examined, therefore some historical analysis of the instrument in question would be prudent. A technical analyst can make better decisions based on what has occurred in historical examples. Analyzing trend strength is the most basic use for the DMI. Wilder believed that a DMI reading above 25 indicated a strong trend, while a reading below 20 indicated a weak or non-existent trend. A reading between those two values, would be considered indeterminable.
However, as previously mentioned, an experienced trader would not take the 25 and 20 values and apply them in every situation. What is truly a strong trend or a weak trend depends on the financial instrument being examined. Historical analysis can assist in determining appropriate values. Also, keep in mind that Wilder developed the dmi for use with currencies and commodities which are typically more volatile than stocks and have stronger trends.
This will factor into determining which values are appropriate not just for analyzing the strength of a trend, but also for any signals generated. There is a particular set of conditions for each cross. It takes the very complex subject of trend strength and direction and calculates it down into a very simple and straightforward visual. The key takeaway of using the DMI is that even though it can provide quality information and even trading signals , it is not an easy indicator to master.
To truly get the most out of DMI, a technical analyst will have to continually study and tweak their use of the indicator. Combining the knowledge of how DMI works and its capabilities, along with a decent amount of historical analysis and experience, will help the trader to make the DMI a good, possible addition to their overall trading strategy.
The time period to be used in calculating the ADX which has a smoothing component 14 is the Default. Can toggle the visibility of the -DI Line as well as the visibility of a price line showing the actual current value of the -DI. Sets the number of decimal places to be left on the indicator's value before rounding up.
The higher this number, the more decimal points will be on the indicator's value. Toggles the visibility of the indicator's name and settings in the upper left hand corner of the chart.