The Directional Movement indicators measure the strength of a
prevailing trend as well as determining whether movement exists in the market.
Consequently, the directional movement system is best used for either of the
§ As a stand alone trend following system, or
§ To determine if a security is trending or not; and if so,
employ other trend following indicators and if not, either decide not trade the
security or employ other non trend following indicators.
There are actually 3 parts which make up the directional
movement indicators. These are the Directional Movement Index (DX); the Plus
Directional Indicator (+DI); and the Minus Directional Indicator (-DI).
The math behind the Directional Movement Indicators can be
overwhelming and is outside the scope of this Study Guide. Understanding these
calculations however, is not imperative. Instead, be aware that the Directional
Movement Indicators denote trend strength.
The directional movement system is displayed on charts with
three main indicators, i.e. the +DI, the _DI and the DX lines. The basic trading
system involves first identifying that a stock is trending, indicated by the DX
line moving upwards. Then the +DI and the _DI are plotted on top of each other.
When the +DI rises above the -DI, it is a bullish sign; and a bearish signal
occurs when the +DI (PDI(Periods)) falls below the -DI (MDI(Periods)).
Periods _ This specifies how many periods are used to
calculate the average of the directional movement index.
The following formula obtains the value of the 14 period
Average Directional Movement:
In the above example:
Periods = 14
A more useful application of this example could be:
ADX(14)>20 AND ADX(14)>Ref(ADX(14),-1)
This formula specifies that the value of the Average
Directional Movement must be greater than 20.
article is a snippet from the
MetaStock Programming Study Guide...
The Simple Secret to Make Metastock Easy & Identify Profitable
copyright 2007 www.meta-formula.com