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Directional Movement index
The Directional Movement index was also developed by Welles Wilder and is an oscillating indicator that allows us to determine if the price of a stock is found in a high or low tendency. Due to its complexity, the method of calculus of Directional Movement is not in the reach of this site but can be found in books of the author. It is suggested to put the direction positive of + DI minus the negative directional – DI in a graph, for a cycle of fourteen days.
D = ( + DI ) – ( - DI )
As a result of the previous we will obtain an indicator that will oscillate in cycles of positive values and cycles of negative values. The interpretation of this indicator is to consider that when the price starts to show positive values, we find ourselves faced with a period of prices with inertia to the rise, which will display a maximum positive point of the indicator to then go expiring to zero. On the other hand, it will be interpreted that when the price starts to show negative values, we will find ourselves in front of a price plummet until a minimum negative of the indicator which will go back to zero once again.
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