A. Directional Movement Index (DMI)
One of the easy way to trade for profit is to follow the trend. But with the market moving up and down on a daily basis, we need an indicator such as the DMI to confirm whether it is an actual trend or not.
The Directional Movement Index (DMI) is an indicator that measures the strength of a trend. It is used to answer question like, "Is this a strong uptrend?" or "Is this a strong downtrend?"
Developed by J. Welles Wilder, Jr., it is designed to determine whether a security is in a trending or non-trending market.
There DMI itself is a combination of 3 indicators
+DI: current positive directional index, the range of highs divided by the price range over the last day and previous close, smoothed over a given number of periods.
-DI: current negative directional index, the range of lows divided by the price range over the last day and previous close, smoothed over a given number of periods.
ADX: (Average Directional Index) modified moving average of the difference of +DI and -DI divided by the sum of +DI and -DI, multiplied by 100.
The most important of the 3 is the ADX which tells the strength of the trend, whether up or down, as long as its value is above 30 or 40.
To confirm an UpTrend:
ADX > 30 the higher the better
+DI > -DI
To confirm a DownTrend:
ADX > 30 the higher the better
-DI > +DI
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