Going further, using the directional movement index is simple and can be learned quickly. Typically, when the DMI plus crosses above the DMI minus, that means that there is a trend to the upside. Also, if DMI minus crosses the DMI plus, that is an indication that the market could be pulling back. Now, you have to be aware of the potential false crosses if the market is trading tightly.
The formula for this is complicated, but using the DMI is certainly one of the most widely used tools out of the many that are out there. Looking at the moves, they are measured from 0 to 100, and anything below 25 is considered week, while anything above is considered strong and should be noted.
First, be sure to open a demo account and take a look at the tool and how it works. Mess around with it on the time frame you currently use and see if it will fit your current analysis setup. If you still need assistance, jump into an active investing community and bounce ideas off of the members and see if anyone uses the indicator and how they use is. Lastly, consult an investing professional and they can help to guide you in the right direction.
As with any indicator, they are not always one hundred percent and should be used as a tool for you to notice a change in the market, rather than a sure indictor to enter or exit trades. You have to consider the fundamental health of the company you are investing in because that can have a significant impact on how investors are trading the current market. The DMI is a wonderful tool that you should get to know because it is widely used. If you choose to forgo using the indicator, you will at least have the knowledge to bring with you into the future.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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