Monday, August 23, 2010

The DMI and ADX Forex Indicator

The DMI and ADX Forex Indicator

The DMI and ADX

DMI creates by JW Wilder compares the buying and selling pressure. Used in conjunction with the ADX (Average Directional Movement Index) measures the strength of the market trend. This system is primarily used for trading the market short term.

The sample used by default for this indicator is 14 days.

The ADX line can appreciate the strength of the trend. When the indicator is above 25, the market follows a strong trend. Conversely, when the indicator is below the level of 25, the market moves without a real trend

The ADX line can be used in addition to systems that work reasonably well in trend as moving averages. It will indicate whether the market is sufficient for directional or not to follow the signals given by moving averages.

If the value of the ADX is low, it can be used with systems performing in trading range as stochastic.

Lines DI + and DI-detect pressures and short the market. Reading positioning of these two curves one over the other, lets see if the market is dominated by buyers or sellers.

Over the two curves DI + and DI-depart and we consider that the current trend is growing. Conversely, when the curves come together and intersect, the probability that the current trend is reversed becomes high.

The signals of purchases or sales can be determined by the intersection of DI + and DI-. This signal will be stronger if the ADX is at a high level.