DMI indicator is also called trend indicator or trend indicator. Its full name is "Directional Movement Index, or DMI for short". It is also created by the American master of technical analysis Wells Wilder. It is a medium and long-term stock market technical analysis method.
Section I Principle and Calculation Method of DMI Index
1、 Principle of DMI index
DMI index is a technical index that provides a basis for trend judgment by analyzing the change of the power equilibrium point between buyers and sellers during the rise and fall of stock prices, that is, the change of the power of both the long and short parties is affected by the price fluctuation and occurs from equilibrium to imbalance.
The basic principle of the DMI index is to find the function of the stock price to create a new high price or a new low price during the rise and fall of the stock price, study and judge the power of long and short, and then seek the equilibrium point between the buyer and the seller and the cyclical process of the fluctuation of the stock price under the interaction of both parties. In most indicators, most of them calculate different analysis data based on the trend of the closing price and the cumulative number of the rise and fall of each day. The disadvantage is that the fluctuation range between the high and low of each day is ignored. For example, the closing price of a stock on two days may be the same, but the fluctuation range of the stock price on one day is small, while the fluctuation range of the stock price on the other day is more than 10%, so the analysis significance of the market trend on these two days is definitely different, which is difficult to show in most other indicators. The DMI index takes into account the amplitude of daily fluctuations, so as to more accurately reflect the trend of the market and better predict the future development of the market. (Top Finance: Stock College http://www.58188.com )
2、 Calculation method of DMI index
The calculation method and process of DMI indicators are relatively complex. It involves the calculation of several calculation indicators such as DM, TR, DX, and four evaluation indicators such as+DI (PDI, the same below), - DI (MDI, the same below), ADX, and ADXR.
Basic procedures for calculation: Take the calculation of daily DMI index as an example, the basic procedures for calculation are:
(1) Compare the highest price, lowest price and closing price generated by daily stock price fluctuation according to certain rules, calculate the real fluctuation of daily stock price TR,+DI, - DI, and accumulate them by a certain number of days on the basis of the base date of calculation to obtain the TR,+DM, and DM values of n days.
(2) Divide the rising trend value and falling trend value in n by the true amplitude value in n days, and then calculate the rising index+DI and falling index - DI in n days.
(3) The daily trend value DX is calculated by the ratio of the difference sum between the rising indicator+DI and the falling indicator - DI in n.
(4) Average DX after accumulation according to a certain number of days to obtain the average trend value ADX in n days.
(5) Then compare the ADX of the current day with the ADX of the previous day to calculate the evaluation value of ADX, ADXR.
As with the calculation of other indicators, due to the different calculation cycles, DMI indicators also include daily DMI indicators, weekly DMI indicators, monthly DMI indicators, annual DMI indicators, and minute DMI indicators. The daily DMI index and weekly DMI index are often used for stock market research and judgment. Although their calculation values are different, the basic calculation method is the same. In addition, with the development of stock market software analysis technology, investors only need to master the basic principles and calculation methods of the formation of DMI, and do not need to calculate the value of indicators. More importantly, use DMI indicators to analyze and judge the stock market.
Section II General Research and Judgment Criteria of DMI Index
DMI index is a set of technical analysis tools that Master Wilder thinks are more successful and practical. Although the calculation process is rather tedious, the use of technical analysis software can enable investors to save the complicated calculation process and concentrate on mastering the true meaning of indicators and understanding their unique function of studying and judging the market.
Different from other technical indicators, DMI indicators are mainly used to identify market trends. In application, the research and judgment of DMI indicators mainly focus on two aspects: one is to analyze the relationship between the rising indicator+DI, the falling indicator - DI and the average trend indicator ADX; the other is to judge the trend and turning characteristics of the market. Among them, the trend relationship of the+DI and - DI curves is the signal to judge whether the market can be bought or sold, and ADX is the signal to judge the future market development trend.
1、 Rising index+DI and falling index - DI's research and judgment function
1. When the stock price moves upward and+DI breaks through from the downward direction - DI, it indicates that there are many new buyers entering the market, which is a buying signal. If ADX goes up, it indicates that the stock price may rise more strongly.
2. When the stock price moves downward, and at the same time - DI breaks through from top to bottom+DI, it indicates that the short selling force in the market is strengthening, which is a selling signal. If ADX goes down, it indicates that the decline will intensify.
3. When the stock price maintains a certain upward or downward trend, the cross breakthrough signal of+DI and - DI is more accurate, but when the stock price maintains consolidation, the buying and selling signal sent by+DI and - DI should be regarded as invalid.
2、 Research and judgment function of average trend indicator ADX
ADX is the average of the trend value DX, and DX is the percentage calculated according to the difference between+DI and - DI. Therefore, using the ADX indicator will more effectively judge the development trend of the market.
1. Judge the market trend
When the market trend develops upward, the ADX value will continue to increase. Therefore, when the ADX value is higher than the previous day, it can be judged that the current market situation is still maintaining the original upward trend, that is, the stock price will continue to rise. If+DI and - DI increase at the same time, it indicates that the current upward trend will be very strong.
When the market trends downward, the ADX value will continue to decline. Therefore, when the ADX value is lower than the previous day, it can be judged that the current market situation still maintains the original downward trend, that is, the stock price will continue to decline. If+DI and - DI decrease at the same time, it means that the current downward trend will continue.
2. Judge whether the market is consolidated
When the market price is adjusted in a small range within a certain area, the ADX value will decline. When the ADX value drops below 20 and moves horizontally in a narrow range, it can be judged that the market is bull skin consolidation, and the upward or downward trend is not clear. Investors should mainly wait and see, instead of buying and selling stocks based on the cross signals of+DI and - DI.
3. Judge whether the market turns
When the ADX value turns from rising to falling at the high point, it indicates that the market is about to reverse. The ADX in the rising trend turns from rising to falling at the high point, indicating that the rising trend is coming to an end; The ADX value in the downtrend fell from a high, indicating that the downtrend may stop.
Section III Special Analysis Method of DMI Index
The general analysis method of DMI index is mainly aimed at the relationship between+DI, - DI, ADX and other three values. On most stock market technical analysis software, the special research and judgment function of DMI index is mainly around+DI line (white line), - DI line (yellow line) The relationship between the four lines such as ADX line (red line) and ADXR line (green line), the modification of DMI index analysis parameters and the principle of moving average first are carried out. In some software, the+DI line is represented by the PDI line, which means the rising direction line; - DI line is represented by MDI, which means descent direction line.
Four line crossing principle
1. When the+DI line is at the same time below the ADX line, the ADXR line and the － DI line (especially below the 50 line), it indicates that the market is in a weak market, the downward trend of the stock market has not changed, and the stock price may still fall. Investors should wait and see or sell stocks at high prices, and should not buy stocks easily. This is the key point of DMI index research and judgment.
2. When the+DI line and the - DI line are under 50, if the+DI line quickly breaks through the - DI line, it indicates that the new main force has entered the market and the stock price will rise sharply in the short term. If large trading volume is released, it can be more sure that the market will rise, and investors should quickly buy stocks in a short term.
3. When the+DI line breaks through the - DI line from the top to the bottom (that is, the - DI line breaks through the+DI line from the bottom to the top), no matter where the+DI and - DI are located, it indicates that new short positions will enter the market and the stock price will fall. Investors should sell stocks in a short term or mainly wait and see with money.
4. When the+DI line, - DI line, ADX line and ADXR line are twisted together in a narrow horizontal movement below 50 lines at the same time, it indicates that the market is in a state of low volatility and the stock price is in a state of horizontal consolidation. At this time, investors should mainly wait and see with money.
5. When the+DI line, ADX line and ADXR line are below the 50 line at the same time, and the three lines are rapidly spreading upward, it indicates that the market is very popular, the stock price is in the rising trend, and investors can buy on the dips or hold shares to wait for the rise. (In this point, because - DI line is the downward direction line, which is not responsive to the upward trend, it is not considered).
6. For bull stocks, ADX turned downward when it was above 50, only fell back to 40-60, then turned around again and climbed up again, and the stock price went out of the sideways consolidation trend during this period. As ADX picks up again, the stock price rises again, which is a sign of the stock price rising. This situation often occurs in some bull stocks that have soared. At this time, the DMI index only provides a reference for the upcoming upward trend. In actual operation, it must be studied and judged together with the moving average system, the measuring average and other indicators.
Section IV Practical Skills of DMI Index
The practical skills of DMI indicators mainly focus on the intersection of four curves of DMI indicators, namely PDI, MDI, ADX and ADXR, as well as the location and running direction of PDI curves (note: PDI curves and MDI curves on analyst software are+DI curves and - DI curves on Qian Long and other software). The following takes the DMI indicator whose daily parameter is (42,72) on the analyst software as an example to reveal the buying and selling and wait-and-see functions of the DMI indicator. (Note: The index parameters of Qianlong Software on the 42nd day correspond to the parameters on the analyst software, and their use methods are generally the same).
1、 Buying and selling function
1. When the four curves of PDI, MDI, ADX and ADXR in the DMI index make narrow consolidation in a narrow area near 20, if the PDI curve successively breaks through the MDI, ADX and ADXR curves upward, and the stock price also breaks through the medium and long term moving average with volume upward, it means that the main force of the bulls in the market is relatively strong, and the stock price will enter a strong upward phase in the short term, which is the buying signal sent by the DMI index.
2. When PDI The four curves of MDI, ADX and ADXR are arranged in a wide range from 20 to 40. If the PDI curve falls below the ADX and ADXR curves successively, investors should pay close attention to whether the market will reverse downward. Once the PDI curve falls below the MDI curve again, and the stock price also breaks through the medium and long-term average, it means that the main short sellers in the market are relatively strong, and the stock price will fall in the short term, This is a sell signal from the DMI indicator. (Top Finance: Stock College http://www.58188.com )
2、 Holding currency function
1. When the PDI curve in the DMI index breaks through the MDI After ADX and ADXR, they have been running on these three curves. At the same time, the stock price has also been rising relying on the medium and long-term moving average, which means that the bull power in the market is still dominant and the stock price will rise. This is an obvious shareholding signal of DMI indicators. As long as the PDI curve does not fall down to break any of these three curves, investors can firmly hold shares to wait for rise.
2. When the PDI curve in the DMI index breaks through MDI, ADX, and ADXR respectively, if after a period of high consolidation, the PDI curve falls below the ADX curve but gets support at the ADXR, turns around and goes up again. At the same time, it also gets support near the medium-term average line, which indicates that the market is still strong and the stock price will rise. This is also the shareholding signal of the DMI index, and investors can also hold shares in the short term to rise.
3. When the PDI curve in the DMI index falls below the MDI After ADX and ADXR, if the PDI curve has been running below these three lines, and moves horizontally or downward in the area below 20, and the stock price is also suppressed by the medium and long-term moving average, it means that the short power in the market has an absolute advantage, and the stock price will continue to fall. This is an obvious money holding signal for the DMI indicator. As long as the PDI curve does not break through any of these three curves upward, Investors should firmly hold the currency and wait and see.
4. When the PDI curve in the DMI index falls below the MDI After ADX and ADXR, if the PDI curve has been running below these three lines, and the stock price is still suppressed by the medium and long-term moving average, it means that the short position power in the market is still strong, and the stock price will still fall, which is the signal of holding money for DMI indicators. As long as the DMI curve does not break all of these three curves upward, investors should also focus on holding money.
Application rules
When the trend index is applied, it is mainly to analyze the relationship between the three curves of rising index+DI, falling index - DI and average trend index ADX. The trend relationship between the two curves of+DI and - DI is the signal to judge the market entry and exit, and ADX is the signal to judge the market trend.
(1) The application rules of rising index+DI and falling index - DI
① When there is a new high price, ＋ DI rises and － DI falls. Therefore, when the graphic+DT14 breaks through - DT14 from bottom to top, it shows that there are new multi buyers in the market who are willing to buy at a higher price, so it is a buying signal.
② On the contrary, when - DI14 gradually breaks through+DI14 from bottom to top, it shows that there are new short sellers in the market who are willing to sell at a lower price, so it is a selling signal.
③ When the trend maintains a certain trend, the cross break signal of+DI14 and - DI14 is quite accurate, but when the trend has a cowhide price, the trading signal sent by+DI14 and - DI14 should be deemed invalid.
(2) Application principle of average trend index ADX
① Trend judgment. When the market trend moves in a single direction, ADX value will continue to increase whether it is up or down. Therefore, when the ADX value is higher than the previous day, it can be concluded that the current market situation is still maintaining the original trend, that is, the stock price will continue to rise or continue to fall. Especially when+DI14 and ADX rise in the same direction, or - DI and ADX rise in the same direction, it indicates that the current trend is very strong.
② Judgment of cowhide market. When the trend is bullish, new highs and lows of stock prices occur frequently,+DI and - DI get closer and cross again, and ADX will decline. When the ADX value drops below 20 and there is a lateral movement, it can be concluded that the market is a bull market. At this time, there is no certain trend, so investors should wait and see, and should not consider the signal sent by ± DI14 to enter the market.
③ When the trend maintains a certain trend, the cross break signal of+DI14 and - DI14 is quite accurate, but when the trend has a bull skin, the trading signal sent by+DI1L4 and - DI14 should be regarded as invalid.
(2) Application principle of average trend index ADX
① Trend judgment. When the market trend moves in a single direction, ADX value will continue to increase whether it is up or down. Therefore, when the ADX value is higher than the previous day, it can be concluded that the current market situation is still maintaining the original trend, that is, the stock price will continue to rise or continue to fall. Especially when+DI14 and ADX rise in the same direction, or - DI and ADX rise in the same direction, it indicates that the current trend is very strong.
② Judgment of cowhide market. When the trend is bullish, new highs and lows of stock prices occur frequently,+DIL and - DI get closer and cross again and again, ADX will decline. When the ADX value drops below 20 and there is a lateral movement, it can be concluded that the market is a bull market. There is no certain trend at this time. Investors should wait and see, and should not consider the signal sent by ± DI14 to enter the market.
③ Turn potential judgment. When the ADX value turns from the high point of rise to the low point, it shows that the original trend is about to reverse. If the ADX value is currently in the rising trend, it means that the falling trend is near; if the ADX value is currently in the falling trend, it means that the rising trend is near. At this time, ± DI gradually approaches or crosses. There is no certain standard for the value of ADX reversing at the high point. Generally, it is more effective to turn down when the height is above 50. When observing, the ADX turns downward, which is the signal that the trend reaches the top or the bottom.
evaluate
(1) There is no need for subjective judgment, only action under the effective market signal. Moreover, the cross signals of rising indicators and falling indicators are easy to understand.
(2) Adding an ADXR index to the trend index can expand the function of the trend index. ADXR is the "evaluation value" of ADX, which is calculated by adding the ADX value of the current day and the ADX value cut 14 days ago and dividing by 2. The fluctuation of ADXR is generally slower than that of ADX. When ± DI intersects and ADXR intersects with ADX after sending a buying and selling signal, it is the last opportunity to enter and exit the market. The subsequent market is more urgent, so immediate action should be taken.
ADXR is also an evaluation indicator of the market. When ADXR is at a high level, it indicates that the market fluctuates greatly. When ADXR is at a low level, it indicates that the market is relatively bullish.
(3) The calculation is complex and the formula is not easy to master.
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