✔️ Information reviewed and updated in December 2023 by Eduardo López
One of the tools most used by traders are technical indicators such as directional movement, which are a fundamental part of technical analysis.
The indicators are divided into several groups, each having a different purpose. For this reason, traders use not just one indicator, but a combination of several.
If you want to learn more about the indicators, we recommend that you continue reading, because in this article we will tell you more about the technical indicating directional movement.
✨Definition of the directional movement indicator✨
The Directional Movement Indicator is a technical indicator, developed by Welles Wilder and published in his book in 1978.
It is composed of three separate indicators but combined into one, which are: the middle directional indicator (ADX), the positive directional indicator (+ DI), and the negative directional indicator (-DI). When these three indicators are combined, the strength and direction of a trend can be better determined and measured.
This indicator is formed by the sum of the prices that exceed the quotation on the previous day. If the price closes above the previous day, then the directional movement is positive. On the contrary, if it closes below then it is negative.
✨ What is directional movement for? ✨
The directional movement indicator has a value between 0 and 100, and is used to measure the strength of the recent trend. When combined, this indicator provides very valuable information to cryptocurrency traders. What the author wanted with this indicator was to help make better decisions.
✨ How do you get directional movement? ✨
The calculation of directional movement can be divided into two parts. First you have to calculate + DI and -DI, and second you have to calculate ADX. To calculate the first, the + DM and -DM must be found, which are found using the maximum, the minimum and the closing of each period.
Once the + DM and -DM have been calculated they have to be calculated and plotted in relation to the number of periods to be defined by the operator. Finally, the last step is to calculate the ADX.
To analyze the strength of the trend, the focus should be on the ADX line and not on the + DI and -DI lines.
DI + indicates the strength of the buyer's move and DI- the seller's move. There is a buy signal when DI + crosses DI- up, and a sell signal when DI + crosses DI- down.
✨Reasons to use it✨
This indicator helps to determine whether or not there is a trend in prices, which helps the trader make his strategies easier. In addition, the rules Wilder established serve to prevent false signals and reduce the number of completed transactions.
One of the advantages is that it can be used in trend market situations to generate buy and sell signals, and is not very useful in periods of weak range or trend.