Negative Directional Movement Index

The Negative Directional Indicator (-DI) indicates the downward trend of the stock worth. It's typically employed in combination with the positive directional indicator to know the strength of a trend. It helps to gauge whether to buy or sell trade and even whether to trade at all

The directional movement index (DMI) the indicator assesses whether or not an asset is trending by comparing highs and lows over time

What is the Negative Directional Indicator (-DI)?

  • The Negative Directional Indicator (-DI) measures the presence of a downtrend and is a component of the Average Directional Index (ADX). If -DI is sloping upward, it is a sign that the value downtrend is obtaining stronger.
  • Average Directional Movement Index Rating (ADXR) may be a simple average of today’s ADX worth and therefore the ADX from fourteen periods past.
  • The indicator is planned together with the Positive Directional Indicator (+DI).
  • The positive directional movement indicator (+DMI) measures however powerfully price moves upward; the negative directional movement indicator (-DMI) measures how powerfully price moves down.

Understanding the Negative Directional Indicator (-DI)

  • The negative directional indicator is employed together with the positive directional indicator to indicate the price trend movement.
  • The 2 lines are the combination of the Average Directional Index (ADX) page. ADX is the smoothed average of each directional indicator and is planned together with the directional indicators.
  • Suppose the +DI is higher than the -DI, the worth movement is upward, and vice-versa.
  • Once the strength of the recent upward behaviour (i.e., positive directional indicator) is larger than the strength of the recent downward movement (i.e., negative directional indicator), it indicates a get or long position.
  • Similarly, if the strength of the recent downward movement is larger than that of the recent upward movement, it indicates a sell or short sell position.
  • When the trading range is outlined, crossover signals are generated more frequently, and plenty of them is also false signals.
  • Therefore, ADX ought to even be checked out together with the directional indicators.
  • Suppose the ADX is higher than twenty-five, it indicates that the present trend, either upward or downward, is strong, and therefore the crossovers generated can persuade be authentic signals.
  • If the ADX is below twenty-five, it indicates that the present trend is weak, and therefore, the directional indicators' cross signals could false signals.
  • The directional indicators guarantee a worth momentum and so facilitate to extend the possibilities of the trade to be profitable. Hence, the investors will verify directional indicators just like the negative directional indicator before creating a trading decision.

Negative Directional Indicator (-DI) Formula

(S-DM)/ATR*100=-DI

Where:

  • -DM – Negative directional movement
  • S-DM – ironed negative directional movement
  • ATR – Average True range

 

Calculation of the Negative Directional Indicator (-DI)

The negative directional indicator may be calculated by making use of the subsequent steps:

  • . Find -DM.

-DM = previous Low value – Current Low price

  • . Count the period as -DM if:

Previous Low price – Current low worth is greater than Previous High worth – Current High worth
Otherwise, count as +DM.

  •  Find TR.

TR = maximum [(Current High – Current Low), abs (Current High – Previous Close), abs (Previous close – Current Low)]
Where:
abs – Absolute operate

  •  Record the worth of TR for fourteen periods and so take a median. It provides the ATR worth for the initial 14-period.
  • . For later periods, use the below formula to induce sleek data:
  • Current ATR = [(Prior ATR * 13) + Current TR] / 14
  • One also can use the below formula to level the 14-period TR price and use that to search out the Negative Directional Indicator.
  • Next 14-Period price of TR = Previous 14-Period worth of TR – (Previous 14-Period price of TR)/14 + Current TR
  • Either of the higher than 2 formulas may be used. However, the formula chosen ought to be followed systematically.
  •  For a smoothed price of -DM, determine the 14-period price of -DM.
  • First fourteen-Period worth of -DM = add of initial 14 Readings of -DM
  • For the ensuing 14-period, apply the formula accustomed sleek TR replacement TR by -DM, given as:
  • Next 14-Period is worth of -DM = Previous 14-Period worth of -DM – (Previous 14-Period worth of -DM) /14 + Current -DM.
  • Now, divide the ironed worth of -DM by ironed worth of TR (or current ATR value) and multiply by a hundred. It provides a negative directional indicator worth