DMI is a Meta trader indicator used to detect the direction of movements in the forex market. DMI is the short form of directional movement index or indicators. This indicator was created by J. Welles Wilder and it was founded in 1978. This indicator is used to identify the direction of price changes and price movements.
DMI MT4 INDICATOR: –
This indicator draws three different lines on the indicator chart. One of them is a positive line (+DI), another one is a negative line (-DI), and the last one is the directional movement line (DX). It is a technical indicator that is used for technical analysis in the forex market. When the positive line is moving above the negative line then the market is trending upward and it is the best indicator that detects accurate strong uptrend and downtrends in the forex market.
When the negative line is trending up to the positive line it means the price is moving in the downward direction. This indicator uses green color for the positive line and red color for the negative line. The third line means the directional movement line is used to identify the strength of the market trends. This indicator uses a specific formula for its calculation.
The formula is given below: –
+DI= (ATR Smoothed +DM) ×100-DI= (ATR Smoothed -DM) ×100DX= (∣+DI+-DI∣∣+DI−-DI∣) ×100
+DM (Directional Movement) = Current High−PHPH= Previous high-DM= Previous Low − Current Low Smoothed +/-DM=∑t=114DM− (14∑t=114DM) +CDM
ATR=Average True Range
HOW TO CALCULATE DMI: –
There are some specific ways to calculate the directional movement index. These ways are given below: –
First of all, you have to calculate positive line +DM then negative line –DM, and at the end true range for each interval in the forex market. You can calculate the positive line by using the current high point and the previous high point of the forex market. To calculate the negative line –DM you have to identify the previous low point and current low point of the forex market. You can use the positive line +DM when the previous negative line and the current negative line is lower than the positive line +DM, and you can use the negative line when the previous low point and the current low point is greater than the previous high point and a current high point.
You can calculate all these things when the true range TR is greater than the previous high, current high, previous low, and then the current low point in the forex market. You have to use the same process till the 14th period of ATR indicator after that you have to enter a formula on the indicator chart and the formula is Sum of all first 14 average true ranges, then you have to use this formula and the formula is First 14 TR-(Prior 14TR/14) + Current TR. After that divide the value with the +DM value and then divide it by 100 and you will get the +DI. You have to do similar to –DI.
USES OF DMI INDICATOR: –
There are too many uses of directional moving index indicators and it helps them to identify trend strength and many other aspects in the forex market. It helps the traders to identify uptrend and downtrend in the forex market. It uses different colors to differentiate its signals and give accurate calculations to its users.