The DMI (Directional Movement Index) indicator is a technical analysis indicator developed by Wells Wilder. For the first time, the author mentions him in his 1978 book.
The main idea of the author is that in markets only 30% of the time there are strong unidirectional movements, that is, trends. That is why most traders have a lot of negative deals, since they enter the market when there are no trends.
The Directional Movement Index (DMI) works great on highly volatile trading instruments. For example, the pound and its cross rates. According to Wells Wilder, the indicator was initially created as additional to existing trading systems. But at the same time, on trading instruments that show high volatility, the Directional Movement Index (DMI) can easily become the basis for determining market entry points.
You can experiment. Try to trade this way and that. Only when your own understanding of how the indicator works will you be able to make a sensible choice in favor of a particular trading tactic.
Adding a DMI Indicator in MT
DMI indicator is not included in the standard equipment of MT4 and MT5 trading platforms. In order to add it, you need to copy the indicator files to the appropriate directory on your computer.
If you have MetaTrader 4. Open C: \ Program Files. Next, find the folder for the files of the trading terminal and open it. Go to the directory … \ MQL4 \ Indicators and copy the file / files there Directional Movement Index (DMI).
If you have a MetaTrader 5. Open C: \ Program Files . Next, find the folder for the files of the trading terminal and open it. Go to the directory … \ MQL5 \ Indicators \ Examples and copy the file / files there Directional Movement Index (DMI).
After that, launch the trading terminal. Click Insert / Indicators / Custom. A list of indicators opens. Select the Directional Movement Index (DMI).
Option to add Directional Movement Index No. 2
Add files as above. Then launch MT. By default, the Navigator window is open on the desktop. Select the Directional Movement Index (DMI) in it, as shown in the figure, and drag it onto the chart of the trading instrument.
DMI Indicator Parameters
Directional Movement Index (DMI)
Author’s indicator. The ideas embodied in it are non-standard. In such cases, it is always recommended to use the default settings.
The Directional Movement Index (DMI) gives several types of trading signals:
- The indicator line is in the zone close to +1, which means that an uptrend has been formed. One should look for buy signals;
- The indicator line is in the zone close to -1, which means that a falling trend has been formed. Look for sell signals;
- The indicator line crosses the zero level up / down – these are buy and sell signals, respectively.
Simple trading tactics
We will use two indicators: the Directional Movement Index (DMI) and the SMA (25) (a simple moving average of 25 periods).
For a purchase transaction:
- Prices are above the SMA (25), at least one candle did not touch the price of the SMA (25). It may be the candle on which the DMI signal forms.
- The DMI line crosses the zero mark from bottom to top – if all the conditions of paragraph 1 are met, we buy at the opening of the next candle.
- We set Stop Loss 3-5 points below the local minimum extremum.
- When the price closes below the SMA (25) – close the deal.
A few simple rules in conclusion
Remember, there are no indicators on Forex that are not mistaken. The Directional Movement Index (DMI), like any other, requires confirmation of its signals. When building your own trading system, use several indicators.
Follow Mani Management. Never in one transaction risk more than 2 percent of your capital. This approach will protect you from ruin and allow you to consistently make money on Forex using the Directional Movement Index (DMI).
Follow your trading strategy clearly. If, according to the Directional Movement Index (DMI) strategy, you need to open a deal – open it, if you fix the result – fix it, and it does not matter if you are in the black. Only following the rules of the Directional Movement Index (DMI) “from and to” will make money.
Files for loading the DMI indicator
DMI indicator for MT4 can be downloaded here
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