Crypto Trading 101: Trading Bitcoin With The DMI
The Directional Movement Index (DMI) is one of the few indicators that can be used on its own in trading, especially when it comes to swing trading. The DMI can work as a standalone indicator because it is made up of multiple indicators, specifically: the +DI, -DI, and the ADX indicator. Let’s now dive into how these components fit together!
+DI & -DI
The +DI and -DI are two lines that measure the strength of positive and negative trends. +DI indicates a positive trend, and in our case, it is marked by the color blue on the chart. -DI represents a negative trend, and it is orange in our graph. When the +DI is above the -DI, the bullish pressure is larger than the bearish one. And if the negative line is above, the bears are dominating the market. Therefore, a bullish signal is given when the +DI crosses the -DI upwards, and a bearish signal is given when the +DI crosses the -DI downwards.
ADX
You may have noticed the positive (+DI) and negative (-DI) lines have crossed many times on the chart, but we have identified only a few signals (indicated by the green circles on the graph). This is because the signals from the +DI & -DI lines are filtered out by the ADX. The ADX identifies the strength of a trend and the volatility in the market. The white line on the bottom graph represents the ADX, while the horizontal black line has an ADX value of 25. Therefore each time the ADX is above the black line, it indicates a strong market trend and volatility.
Following June 3, 2020, the ADX filtered out all of the +DI and -DI signals until the 20th of July. Not trading was preferable as the market has been ranging and was not the best time to trade due to the low volatility.
We have used the following settings when creating this analysis.
Stop Loss: 5%
Trailing Stop loss percentage 2% and arming at 7%
—CRYPTOHOPPER—
+DI & -DI
The +DI and -DI are two lines that measure the strength of positive and negative trends. +DI indicates a positive trend, and in our case, it is marked by the color blue on the chart. -DI represents a negative trend, and it is orange in our graph. When the +DI is above the -DI, the bullish pressure is larger than the bearish one. And if the negative line is above, the bears are dominating the market. Therefore, a bullish signal is given when the +DI crosses the -DI upwards, and a bearish signal is given when the +DI crosses the -DI downwards.
ADX
You may have noticed the positive (+DI) and negative (-DI) lines have crossed many times on the chart, but we have identified only a few signals (indicated by the green circles on the graph). This is because the signals from the +DI & -DI lines are filtered out by the ADX. The ADX identifies the strength of a trend and the volatility in the market. The white line on the bottom graph represents the ADX, while the horizontal black line has an ADX value of 25. Therefore each time the ADX is above the black line, it indicates a strong market trend and volatility.
Following June 3, 2020, the ADX filtered out all of the +DI and -DI signals until the 20th of July. Not trading was preferable as the market has been ranging and was not the best time to trade due to the low volatility.
We have used the following settings when creating this analysis.
Stop Loss: 5%
Trailing Stop loss percentage 2% and arming at 7%
—CRYPTOHOPPER—