In this article I am going to show you and expain you a trend indicator, the DMI indicator and I will say you how a I use it. This indicator has a seperate window and look like this.
In the indicator settings I have a 20 Period and I have choose to show only DI plus and DI minus. We have signals when the green or the red moving average go above level 25. When green moving average is going above 25 we have a possible movement up. When the red moving average is going above the 25 level we have a possible movement down. The good for this indicator is that it doesn’t repaint. It is moving after the candle close and not when the candle is moving. Of course it is just an indicator but personally I find its signals more accurate in a trending market than other indicators. How can you use it? I will show some examples.
Look at this chart. It’s from GBPUSD currency pair. I drew a trendline as you can see in the chart and after bullish move from some minutes we have lower highs with buiyng climax at tops. The price is making one try to break the moving average with selling climax but it didn’t make it.Look the DMI behavor in this spot. It is below the 25 level. It protects you from an early entry. The next time that the price is trying to break the moving average the DMI indicator is above average and finally the price broke down the moving average and we have a strong bearish move after this. Can the indicator predict the price movement? Of course not. But the DMI counts the strength of the trend and it can filters some of your trades like the condition above.
You could also combine DMI with Ichimoku Kinko Hyo. Look at this chart. I drew two rectangles. One in DMI and another one in the main chart when the price is trying to break up the Kumo cloud. DMI shows us again that this price try has strength and it is possible break out of the Kumo. Finally the price broke the Kumo and moved up. When i use DMI to filter my trades I usually take longer expiry time like 10 or 15 minutes. DMI it’s a good tool for me.