What is the DMI?

Key takeaways

• By analyzing the changes of the equilibrium point of power between buyers and sellers during the rise and fall of stock prices.

• The rising (or falling) trend of quotes is quite apparent. When + DI crosses above - DI, a buy signal is given.

• This indicator is more suitable for medium and long-term investors.

Understanding

DMI, also known as Directional Movement Index, is a medium to long-term stock market technical analysis method.

The basic principle of DMI: It is a technical indicator that provides a basis for judging the trend by analyzing the changes of the equilibrium point of the power between buyers and sellers during the rise and fall of the stock price, i.e., the change of the power between the long and short sides is affected by the price fluctuation and the cycle from equilibrium to imbalance.

How to use the DMI

The DMI has four lines: + DI(PDI), - DI(MDI), ADX, and ADXR.

+ DI and - DI represent the trend change value of rising and falling, respectively.

When + DI rises, it means that the buying power in the market is being released. Assuming that the stock price continues to rise, then the +DI will continue to rise, and the -DI will continue to fall.

This is a timely and obvious reflection of the results of comparing buying and selling power between the long and short sides of the market in the trend of this indicator.

If quotes' rising (or falling) trend is quite apparent when +DI crosses above -DI, a buy signal is issued; when +DI crosses below -DI, a sell signal is given.

If the ADX drops below 20 and results in the stock price going sideways, the stock price is slightly consolidated; when the ADX reaches 40 and rises significantly, the stock price upward trend is established.

If the ADX reverses downwards above 50, whether the stock price is rising or falling at this time, it indicates that the quotes are about to change.

When the spread between the four lines narrows, the quotes are in consolidation, and the indicator will be distorted. Advantages and disadvantages

Advantages: The DMI takes into account the magnitude of the daily high and low fluctuations to more accurately reflect the trend of quotes and better predict the future development and changes of quotes.

Disadvantages: The DMI cross signal is slower than other indicators on prompting the market trend, so this indicator is more suitable for medium and long-term investors and is not recommended for short-term investors. Sometimes, despite the fact that the ADX indicator has turned, the stock price continues to rise and does not reverse.

Precautions

1. PDI and MDI are always entangled and will fluctuate within the range of 040 in most cases. And these two lines are roughly symmetrical to each other, with 20 as the central axis. PDI counts the strength of the bullish side, and MDI counts the strength of the bearish side. Therefore, bulls are stronger than bears; when PDI is below MDI, bears are stronger than bulls.

2. The ADX counts the spread between PDI and MDI as long as the spread between the two lines increases. No matter which line is above, the ADX will rise rapidly.

3. The ADXR can be seen as the moving average of the ADX.

How to set DMI in moomoo

1. Open moomoo and the stock's candle chart.

2. Switch to the 1D chart.

3. Tap the icon in the upper right corner of the chart, tap "Chart Settings," search for DMI in the indicator search bar, find the DMI, and set it.

4. Set the date and color of DMI.

5. Go back to the chart page and check whether the DMI in the quotes chart meets the set requirements.