MetaStock How To’s – Directional Movement

MetaStock has hundreds of indicators and functions, one of the more commonly known is Directional Movement.

The DMI measure the strength of a prevailing trend as well as determining whether movement exists in the market. Consequently, the directional movement system is best used for either of the following:

– As a stand alone trend following system, or

– To determine if a security is trending or not; and if so, employ other trend following indicators and if not, either decide not trade the security or employ other non trend following indicators.

There are actually 3 parts which make up the directional movement indicators. These are the Directional Movement Index (DX); the Plus Directional Indicator (+DI); and the Minus Directional Indicator (-DI).

How it’s calculated:

The math behind the DMI can be overwhelming. That said, understanding these calculations however, is not imperative. Instead, be aware that itdenote trend strength.

The directional movement system is displayed on charts with three main indicators, i.e. the +DI, the _DI and the DX lines. The basic trading system involves first identifying that a stock is trending, indicated by the DX line moving upwards. Then the +DI and the _DI are plotted on top of each other. When the +DI rises above the -DI, it is a bullish sign; and a bearish signal occurs when the +DI (PDI(Periods)) falls below the -DI (MDI(Periods)).

MetaStock Syntax: ADX(Periods)

Periods _ This specifies how many periods are used to calculate the average of the DMI.

Here’s an example, the following formula obtains the value of the 14 period Average Directional Movement:

ADX(14)

In the above example:

Periods = 14

A more useful application of this example could be:

ADX(14) > 20 AND ADX(14) > Ref(ADX(14),-1)

This formula specifies that the value of the indicator must be greater than 20. There’s many other ways this indicator can be used but that should get you started.