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MetaStock How To’s – Directional Movement

MetaStock has hundreds of indicators and functions, one of the best known is Directional Movement.

The DMI measures the strength of a prevailing trend and determines if there is movement in the market. Therefore, the directional movement system is best used for either of the following:

– As a standalone trend following system, or

– To determine whether a stock is trending or not; and if so, use other trend following indicators and if not, decide not to trade the stock or use other trend following indicators.

There are actually 3 parts that make up directional movement indicators. These are the Directional Movement Index (DX); the direction indicator Plus (+DI); and the minus direction indicator (-DI).

How it’s calculated:

The calculations behind the DMI can be overwhelming. That said, understanding these calculations is not imperative, however. Instead, know that it denotes the strength of the trend.

The directional movement system is displayed on charts with three main indicators, namely the +DI, _DI and DX lines. The basic trading system involves first identifying that a security is trending, indicated by the DX line moving up. Then the +DI and the _DI are plotted one above the other. When the +DI exceeds the -DI, ​​it is a bullish sign; and a bearish signal occurs when the +DI (PDI(Periods)) falls below the -DI (MDI(Periods)).

MetaStock syntax: ADX (periods)

Periods _ This specifies how many periods are used to average the DMI.

Here is an example, the following formula obtains the value of the average directional movement over 14 periods:

ADX(14)

In the example above:

Periods = 14

A more useful application of this example might be:

ADX(14) > 20 AND ADX(14) > Ref(ADX(14),-1)

This formula specifies that the value of the indicator must be greater than 20. There are many other ways to use this indicator, but this should get you started.

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