Technical indicator: The DMI "Directional Movement Index
What does it represent?
The DMI (Directional Movement Index) is one of the trend indicators. It provides a set of indicators (ADX, D+ and D-) that can be used to indicate the existence of a trend and to assess its strength and power. The DI+ (indicator accumulating increases) and the D- (indicator accumulating decreases) are used to measure the balance of power between buyers and sellers and the ADX "Average Directional Index" which aims to measure the strength of the trend.
How to use it?
The DI+ and the DI- form two curves and the positioning reading of these two curves in relation to each other allows us to see if the market is dominated by buyers or sellers. In addition to the DMI+ and DMI- curve, the ADX curve acts as a second filter to identify whether or not the trend exists. ADX above its critical threshold of 20 shows that the market is following a marked trend. Conversely, when the indicator is below the 20 level, the market evolves without a real trend and the dominance of buyers or sellers is only temporary and it is not worth taking a position on value.
The DMI cannot be used as the only buy or sell signal and can be perfectly matched with other indicators such as the RSI.