Directional Movement System
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Directional Movement System contains five indicators; ADX, DI+, DI-, DX, and ADXR. The ADX (Average Directional Movement Index) is an indicator of how much the market is trending, either up or down- the higher the ADX line, the more the market is trending and the more suitable it becomes for a trend-following system. This indicator consists of two lines- DI+ and DI-, the first one being a measure of uptrend and the second one a measure of downtrend. The standard Directional Movement System draws a 14 period DI+ and a 14 period DI- in the same chart panel. ADX
is also sometimes shown in the same chart panel. A buy signal is given when DI+ crosses over DI-, a sell signal is given when DI- crosses over DI+. The Directional Movement System helps determine if an instrument is trending.The system involves 5 indicators which are the Directional Movement Index (DX), the plus Directional Indicator (+DI), the minus Directional Indicator (-DI), the average Directional Movement (ADX) and the Directional movement rating (ADXR).
For intra-day analysis, he compared current period with the previous period. the trading range for current period extended primarily above previous period then directional movement was considered to be up. If it extended primarily below previous period’s range then directional movement was considered to be down. There are also rules for handling inside, outside and limit periods. stating that the directional movement is the largest part of current period’s range that lies outside previous period’s range.
The key feature of the Directional Movement System is that it first identifies whether the market is trending before providing signals for trading the trend. It measures the ability of bulls and bears to move price outside the previous period’s trading range
+DI measure positive, or upside, movement, -DI measures downward, or negative, movement.. The basic Directional Movement Trading system involves plotting the 14period +DI and the 14 period -DI on top of each other. When the +DI rises above the -DI, it is a bullish signal. A bearish signal occurs when the +DI falls below the -DI.