The Directional Movement Index (DMI) is the directional component of Welles Wilder's Directional Movement System, working alongside ADX. Where ADX tells you trend strength, DMI's +DI and -DI lines tell you who is winning — buyers or sellers — and by how much. Together they form one of the most complete trend identification frameworks in technical analysis.
The Directional Movement Index separates upward and downward price movement into two distinct measures. Wilder's breakthrough insight was that by isolating the directional components of price movement, you could measure not just whether price moved but which side was more aggressively pushing.
+DM (Positive Directional Movement) captures upward price movement: the excess of the current high above the previous high (when positive and greater than the downward movement). After smoothing over 14 periods and dividing by Average True Range, this becomes +DI. A high +DI means buyers are actively extending price to new highs with significant force.
-DM captures downward price movement: the excess of the previous low below the current low (when positive and greater than the upward movement). After identical smoothing, this becomes -DI. A high -DI means sellers are actively driving price to new lows with significant force.
The spread between +DI and -DI is as important as their crossover relationship. A +DI at 35 and -DI at 10 means bulls are dramatically dominant — a spread of 25. A +DI at 22 and -DI at 20 means the market is nearly balanced — a spread of only 2. Wide spread = strong directional conviction. Narrow spread = indecision or transition.
| Scenario | +DI | -DI | Spread | Interpretation |
|---|---|---|---|---|
| Strong bull trend | 40 | 10 | 30 | Dominant buying — strong uptrend |
| Moderate uptrend | 28 | 18 | 10 | Bullish but less conviction |
| Balance | 22 | 21 | 1 | No directional edge — ranging |
| Moderate downtrend | 15 | 27 | 12 | Bearish but moderate |
| Strong bear trend | 8 | 38 | 30 | Dominant selling — strong downtrend |
When +DI crosses above -DI, buyers have taken control of directional movement. The crossover signals that recent upward price extensions have become larger than recent downward extensions. This is a potential buy signal — most reliable when ADX is simultaneously above 25 and rising, confirming that the trend change has genuine strength.
When -DI crosses above +DI, sellers have taken control. Recent downward extensions are now larger than upward ones. This is a potential sell signal — again, most reliable with ADX above 25. A bearish crossover when ADX is below 20 is unreliable and likely to whipsaw.
Wilder recognised that DI crossovers generate false signals, particularly during choppy markets. His solution was the Extreme Point Rule: On a bullish crossover, mark the High of the crossover day as the Extreme Point. Enter long only when price trades above that Extreme Point. Place the stop at the Low of the crossover day. On a bearish crossover, mark the Low as the Extreme Point. Enter short only when price trades below it. This waiting period filters most false signals.
The Extreme Point Rule is the single most important addition to raw DI crossover trading. It may seem like you are entering later and missing the initial move — but the reduction in false signal losses more than compensates. Wilder himself considered it essential, not optional.
The power of the Directional Movement System comes from combining DMI direction with ADX strength:
Beyond crossovers, DMI serves as a powerful directional filter. When entering a long trade based on any signal (MACD crossover, RSI bounce, breakout), check that +DI is above -DI before entering. This simple filter eliminates counter-trend entries and significantly improves overall win rates. Never go long when -DI is above +DI, regardless of other signals.
The slope of individual DI lines reveals momentum shifts before the crossover occurs. If +DI is above -DI but +DI is declining and -DI is rising, the bull trend is weakening. This pre-crossover warning allows you to begin tightening stops or reducing position size before the actual crossover signal appears.
| Market Condition | DI Relationship | ADX | Recommended Approach |
|---|---|---|---|
| Strong uptrend | +DI well above -DI | Above 30, rising | Hold longs, add on pullbacks to support |
| Uptrend weakening | +DI above -DI but converging | Above 25, falling | Tighten stops, no new entries |
| Trend transition | DI lines crossing | Any | Apply Extreme Point Rule, wait for confirmation |
| Range / chop | DI lines oscillating near each other | Below 20 | Use RSI/Stochastic for mean reversion |
| New downtrend | -DI breaking above +DI | Rising above 20 | Consider shorts after Extreme Point confirmation |