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[DX] = (|[+DI] - [-DI]|) /  ([+DI] + [-DI]) * 100

In most cases, the Directional Movement Index appears in charts as ADX (Average Directional Movement Index) combined with positive and negative directional indexes. In addition to being able to use DX or ADX to define the strength of a trend, you can use positive and negative directional indexes to generate signals. In its most basic form, buy and sell signals can be generated by +DI and -DI crossovers. In technical analysis, a buy signal is considered to occur when +DI moves above -DI and a sell signal when -DI moves above the +DI. However, traders should be aware that, when an analyzed security is in a trading range (ADX or DX is below 20), the trading system may produce many false signals and whipsaws.

As with most technical indicators, +DI and -DI crosses should be used in conjunction with other aspects of technical analysis. Since Directional Index is based on the price, we recommend that a volume-based technical analysis be used as a partner to this indicator in a trading system.

Chart 1: S&P 500 - Directional Movement Index as
ADX (Average Directional Movement Index) combined with
positive and negative directional indexes

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