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Directional Movement Index (DMI)
DMI helps provide an indication of how strong the directional movement (trend) is in a stock. It is comprised of three components. The first ADX rates the directional movement (trend) of a stock on a scale of 0-100. Generally speaking the higher the number the more a stock is trending and the more it is a candidate for a trend following system. The next two components help decipher what the trend is showing. DMI + is a measure of upward or positive movement in a stock. DMI - is a measure of negative or downward movement in a stock. A buy signal is given when DMI + crosses DMI - and a sell signal is given when DMI - crosses over DMI +. The ADX line is then used to measure the strength of these signals. Traders typically like to act upon these signals when the ADX is at a high number.