Directional Movement (DMI)

🔍 What Is It?

The Directional Movement Indicator (DMI), developed by J. Welles Wilder Jr., is a trend-following system that identifies the strength and direction of a trend. It’s composed of three components:

• +DI (Positive Directional Indicator)

• −DI (Negative Directional Indicator)

• ADX (Average Directional Index) — often used in conjunction with DMI

While ADX shows the strength of the trend, +DI and -DI tell you the direction: which side is currently in control — bulls or bears.

⚙️ How It Works

DMI compares the difference between highs and lows of consecutive price bars to determine directional strength.

• +DI measures how strongly price moved upward compared to the previous bar

• −DI measures how strongly price moved downward

The lines are then smoothed using a moving average to reduce noise.

If +DI is above -DI, it suggests upward movement is stronger. If -DI is above +DI, it implies sellers have control.

📖 How to Read It

The relationship between the two lines gives directional bias:

• 🔼 +DI > -DI = Bullish trend

• 🔽 -DI > +DI = Bearish trend

• 🔁 Crossovers of the two lines can signal trend shifts:

  • When +DI crosses above -DI → Buy signal

  • When -DI crosses above +DI → Sell signal

To improve accuracy, traders often combine DMI with the ADX:

• ADX > 20-25 = Trending market

• ADX < 20 = Weak or range-bound market

🔧 Best Settings

• ✅ Period: 14 (default by Wilder)

• 📈 Timeframes: Works well on higher timeframes like 1H, 4H, and Daily

• 🔍 Asset types: Can be applied to crypto, forex, or stocks

Pro tip: Test custom settings based on asset volatility.

📊 How to Use It in a Strategy

Here’s a practical way to use DMI:

Trend Confirmation:

• If +DI > -DI and ADX is rising above 25 → Strong uptrend

• If -DI > +DI and ADX is rising above 25 → Strong downtrend You can enter in the direction of the trend after a pullback.

Cross Trading:

• Enter long when +DI crosses above -DI and ADX > 20

• Enter short when -DI crosses above +DI and ADX > 20

Combine with:

• Moving Averages to define support/resistance

• Candlestick patterns to time entries more precisely

⚠️ Common Mistakes

• ❌ Ignoring ADX — DI crossovers alone can give false signals

• ❌ Using on low timeframes where noise dominates

• ❌ Over-relying on DMI without broader market context

Always combine it with price action or volume indicators for better decisions.

🧠 Final Thoughts

Directional Movement is a powerful trend-following tool, but it shines best when:

• Combined with ADX

• Used on higher timeframes

• Paired with a broader strategy

It helps you avoid choppy markets and jump on confirmed trends — whether you're trading BTC, gold, or SPX.