Directional Movement Index – How To Generate Buy & Sell Signals

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Part of the ADX indicator, the Directional Movement Index (DMI) consists of two lines, the DMI plus line (DMI+) and the DMI minus line (DMI-), which 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

 

DMI Bullish Crossover Potential Buy Signal

When the DMI+ crosses above the DMI-.

DMI Bearish Crossover Potential Sell Signal

When the DMI- crosses below the DMI+.

Note: The DMI crossovers can generate many false signals, 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. Click ADX to go to the ADX webpage (see: ADX).

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