Directional Movement Index (DMI)

Developed by Welles Wilder and explained in his book, New Concepts in Technical Trading Systems, the Directional Movement Indicator can be used by itself or as a filter on a trend-following system. The DMI helps determine if a security is trending.

In a DMI study, two lines are generated: DMIu and DMId. The first line measures positive (upward) movement or buying pressure and the second number measures negative (downward) movement, reflecting selling pressure. The DMIu line crossing over the DMId line is interpreted as a buy signal, and the DMIu line crossing below the DMId line is considered a sell signal.

Wilder also suggests that when a crossover occurs, the extreme price (the high or low made during the trading interval of the crossover) can be interpreted as a reversal point.

This study is best used in any trending markets.

For additional information: http://help.geckosoftware.com/40manual/indicators/dmi.htm

Directional Movement Index Parameters

Parameter	Description
Display	Opens sub-window to set parameters • Color = Line color. • Weight = Line thickness. • MarkIt = Opens Specify Conditions window. • Display = Line style: line or histogram. • ShareScale = Determines whether sharing of the vertical scales between studies is accepted. Auto = System determine whether sharing is feasible. On = Scale is shared regardless of the functions and studies displayed. Off = Scale is not shared. ShareScale must be On if study is overlaid on a study with multiple outputs.
Period	Number of bars in the lookback range.
OB/OS	Opens sub-window with overbought and oversold parameters: • Color = Select a color for the line. • Weight = Choose a thickness for the indicator. • Type = Choose fixed or dynamic. Fixed = uses Level as a fixed OB/OS value. Dynamic = uses Standard Deviation and Lookback for a dynamic OB/OS value:. OB: MA(@,Sim,lookback) + factor * STDDEV(@,lookback) OS: MA(@,Sim,lookback) - factor * STDDEV(@,lookback) where @ is the study • Std Dev = Multiplier used to calculate high and low. • Lookback = Number of bars to compare to the current bar. • Level = Percentage of average OB/OS used to calculate predictor Ob/OS levels. • Display = Click this check box to display the component. • Style = Choose a line style.