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Directional Movement Index – How To Generate Buy & Sell Signals

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In this guide to understanding the Directional Movement Index (DMI), we’ll show you what this chart looks like, teach you how to interpret it, and provide tips on how to avoid false signals.

What is the Directional Movement Index (DMI)?

The Directional Movement Index (DMI), part of the ADX indicator, consists of two lines, the DMI plus line (DMI+) and the DMI minus line (DMI-). These lines generate potential buy and sell signals.

The chart below of the E-mini Russell 2000 Future shows an example of the DMI:

directional movement indicator dmi+ dmi- adx

How to Interpret the DMI

The DMI can indicate potential buy or sell signals.

DMI Bullish Crossover: Potential Buy Signal

When the DMI+ crosses above the DMI-, it can indicate a potential buy signal.

DMI Bearish Crossover: Potential Sell Signal

When the DMI- crosses below the DMI+, it can indicate a potential sell signal.

Beware of False Signals

The DMI crossovers can generate many false signals, so other indicators should be used for confirmation of the DMI crossovers.

The Average Directional Movement Index (ADX) is an important addition to the DMI+ and DMI- indicators. In fact, the ADX is calculated using both DMI lines.

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Further Reading

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