Understanding the DMI Oscillator: A Key Indicator for MetaTrader 4

The DMI Oscillator is derived from Wilder's Directional Movement Index (DMI), which includes two key components: the Plus Directional Indicator (+DI) and the Minus Directional Indicator (-DI). These indicators lay the groundwork for the more commonly known Average Directional Index (ADX). While the ADX tells you how strong a price movement is, it doesn’t indicate the direction. That’s where +DI and -DI come in—they reveal whether the price is trending upwards or downwards over a certain period.

If you’re curious about the nitty-gritty of how these indicators work, Wilder dives deep into their functions and construction in his classic 1978 book, New Concepts in Technical Trading Systems. In a nutshell, +DI and -DI focus on the current bar’s trading range compared to the previous bar. If the current range is higher, it’s marked as positive (+), and if it’s lower, it’s negative (-). These figures are then divided by the true range and averaged over a set period, typically 14 periods.

When the +DI crosses above the -DI, it signals that upward price momentum is taking the lead, while a drop below indicates that selling pressure or a lack of bullish momentum is gaining control. Watch out for these intersections—they often hint at potential trend reversals.