Directional Movement Indicator

Directional Movement Indicator DMI

Comes with formula, calculation steps and VBA code

Introduction

The directional movement indicator DMI is the directional movement smoothed by the Welles Wilder's moving average normalized by the average true range. Like directional movement, the DMI is made of two studies - Positive DMI and Negative DMI or +DMI and -DMI respectively. Both +DMI and -DMI are behave like indices and are positive numbers. The +DMI and -DMI measures the strength of the up and the down trends respectively.

+DMI=WWMA(+DM,n) / ATR(n)

-DMI=WWMA(-DM,n) / ATR(n)

, where WWMA(DM,n) refers to a n period Welles Wilder's moving average of the DM and ATR(n) refers to a n day average true range.

Smoothing the DM and dividing the result by average range allows the DMI to be compared across different trading ranges and hence, across time. On the other hand, an upward sloping WWMA of the DMI alone may be inflated by a spike in trading ranges.

VBA Code

Method A uses functions, while Method B uses sub procedures to calculate DMI. Method B is faster and more flexible.

Method A

To calculate +/-DMI, insert into a module the DM function from the page on directional movement, WWMA function from the page on Welles Wilder's moving average and TR function from the page on average true range.

1. Calculate +DM and -DM, by entering into any cell "=DM([current high], [current low], [previous high], [previous low])". Select the cell and the neigbouring cell right next to it, press F2 and Crtl+Shift+Enter.
2. Calculate WWMA for +/- DM by entering in another cell "=WWMA([previous WWMA],[current +/-DM],[n])".
3. Calculate true range, "=TR([high],[low],[previous close])".
4. Calculate average true range "=WWMA([previous WWMA],[current TR],[n])".
5. +/-DMI = ouput from step 2 / output from step 4

Method B

Method B is more convenient as it does not require you to remember the computation steps. To run Method B, you have to copy the Runthis sub of Method B from the page on Accumulation/Distribution line. You will run the DMI_1 sub from the Runthis sub.

You will need the DM_1, WWMA_1, ATR_1 subs of Method B from the directional movement, Welles Wilder's moving average and the average true range pages respectively.

'Copy the following line into the Runthis sub

'Just before the line End Sub

'Disable all other macros that Runthis will call e.g. CLV, ADL, by

'marking them out as comments with single quotes

DMI_1 high, low, close1, output, n

'Insert this as a new sub

Sub DMI_1(high As Range, low As Range, close1 As Range, output As Range, n As Long)

DM_1 high, low, output

WWMA_1 output, output.Offset(0, 2), n

WWMA_1 output.Offset(0, 1), output.Offset(0, 3), n

Range(output(2, 3), output(2, 4)).Copy output(3, 3)

Range(output(2, 3), output(2, 4)).Clear

ATR_1 high, low, close1, output.Offset(0, 4), n

output0 = output(3, 3).Address(False, False)

output1 = output(3, 4).Address(False, False)

output2 = output(3, 6).Address(False, False)

output(0, 7).Value = "Positive DMI"

output(3, 7).Value = "=" & output0 & "/" & output2

output(3, 7).Copy output.Offset(0, 6)

output(0, 8).Value = "Negative DMI"

output(3, 8).Value = "=" & output1 & "/" & output2

output(3, 8).Copy output.Offset(0, 7)

Range(output(1, 7), output(2, 8)).Clear

End Sub

Other References

http://fxtrade.oanda.com/learn/graphs/indicators/adx.shtml

Like what you have just read? Digg it or Tip'd it.

The objective of Finance4Traders is to help traders get started by bringing them unbiased research and ideas. Since late 2005, I have been developing trading strategies on a personal basis. Not all of these models are suitable for me, but other investors or traders might find them useful. After all, people have different investment/trading goals and habits. Thus, Finance4Traders becomes a convenient platform to disseminate my work...(Read more about Finance4Traders)