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:
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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Learn more about technical analysis indicators, concepts, and strategies including:
- VIX / VXN Volatility Indexes
- Mass Index
- Herrick Payoff Index
- Commodity Channel Index
- Commodity Select Index
- Stochastic RSI
- Swing Index
- Ulcer Index