Wilder’s Directional Movement Indicators (DMI), a set of 3 directional indicators, is an effective technical analysis tool that identifies the trend and then determines its impact on price action. It was created and developed by an American engineer named J. Welles Wilder, to show the strength of a trend- either up or down. Wilder’s DMI is one of the main indicators used in Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course..
While the concept behind it is rather straightforward, using it as advised helps you eliminate critical errors. For an experienced trader who intends to evaluate a trend’s reliability prior to following it, you may want to learn more about the indicator.
What Is Wilder’s DMI?
Wilder’s DM is composed of 3 separate indicators, namely:
(1) DI- or Minus Direction Indicator
(2) DI+ or Plus Direction Indicator
(3) ADX or Average Directional Index
Wilder’s DMI points out trend activity regardless a bullish or a bearish market. With DI- and DI+, price directions can be identified easily; their sum is ADX, and according to Wilder, a trend is present when the ADX is above 25. The higher the ADX value, the stronger the trend.
(1) DI+ It is the positive price direction indicator (orange line)
(2) DI- It is the negative price direction indicator (blue line)
(3) ADX It is the trend’s strength or weakness based on DI+ and DI-
According to Wilder’s DMI, a potentially profitable trend is identified only when the ADX reading is 20 and above. If DI+ goes below DI-, the price momentum is currently following a downtrend. Conversely, if DI- goes below DI+, the price momentum is currently following an uptrend. An ADX reading of 20 indicates range trading and that a trend can easily form. A high ADX means a strong trend.
When using Wilder’s DMI, a crossover signal can sometimes appear. It can be easily interpreted as follows
– A DI+ crossover on DI- indicates a buying signal
– A DI- crossover on DI+ indicates a selling signal
A crossover means new opportunities for new trading ideas. The case of a crossover grants the chance to execute new positions instead of continuing to pursue the current trend. Again, the primary objective of Wilder’s DMI indicator is to identify the trend and determine its strength before proceeding with them.