Negative Directional Indicator (- DI)

What is the Negative Directional Indicator (- DI)?

The Negative Directional Indicator (- DI) measures the presence of a downtrend and is part of the Average Directional Index (ADX). If - DI is slanting vertical, it's an indication that the price downtrend is getting stronger.

This indicator is almost consistently plotted along with the Positive Directional Indicator (+DI).

The Formula for the Negative Directional Indicator (- DI) Is

$\begin &\text{-DI} = \frac { \text{S -DM} }{ \text } \ &\textbf \ &\text{-DM} = \text \ &\phantom{\text{-DM}} = \text - \text \ &\text{S -DM} = \text{Smoothed -DM} \ &\phantom{\text{S -DM} } = \sum_{t = t - 14}^t { \text{-DM} } - \left ( \frac{ \sum_{t = t - 14}^t {\text{-DM} } } {14} \right ) + \text{Current -DM} \ &\text = \text \ \end$

Step by step instructions to Calculate the Negative Directional Indicator

1. Ascertain - DI by finding - DM and True Range (TR).
2. • DM = Prior Low - Current Low
3. Any period is considered a - DM if the Previous Low - Current Low > Current High - Previous High. Use +DM when Current High - Previous High > Previous Low - Current Low.
4. TR is the greater of the Current High - Current Low, Current High - Previous Close, or Current Low - Previous Close.
5. Smooth the 14-periods of - DM and TR utilizing the formula below. Substitute TR for - DM to compute ATR. [The calculation below shows a smoothed TR formula, which is marginally different than the official ATR formula. Either formula can be utilized, however utilize one consistently].
6. Initial 14-period - DM = Sum of initial 14 - DM readings.
7. Next 14-period - DM value = First 14 - DM value - (Prior 14 DM/14) + Current - DM
8. Next, divide the smoothed - DM value by the smoothed TR (or ATR) value to get - DI. Increase by 100.

What Does the Negative Directional Indicator Tell You?

The - DI line is utilized related to the +DI line to assist with showing the direction of the trend.

When - DI is above +DI then the trend is down, or possibly downward movement is outperforming up movement as of late. On the off chance that +DI is above - DI, the trend is up, or up price movement is dominating downward price movement as of late.

Since these two lines can indicate trend direction, crossovers are now and again utilized as trade signals. The - DI crossing over the +DI signals a down move price, and is, hence, a sell or short trade signal. A buy signal happens in the event that the +DI crosses over the - DI.

These indicators are part of the Average Directional Index (ADX) system. The addition of the ADX line, which is a smoothed average of the difference between the +DI and - DI, assists traders with perceiving how strong the current trend is. Ordinarily, readings over 20 on the ADX, and particularly over 25, show a strong trend is available.

Traders can use every one of the components in the ADX system to assist with pursuing better trading choices. For instance, the +DI and - DI lines show the trend direction and crossovers. ADX shows trend strength, so a trader might choose to possibly take long trades when ADX is over 20 and the +DI is above, or crossing, the - DI.

The Differences Between the Negative Directional Indicator and a Moving Average

A moving average takes the average price of an asset throughout a set time span. The Negative Directional Indicator (- DI) is just worried about the prior low relative to the current low, when applicable. Along these lines, the - DI is definitely not an average, even however it might at times seem to follow the price when the price is falling.

Due to the different calculations of the two indicators, the - DI and the moving average will furnish the trader with different data.

Limitations of Using the Negative Directional Indicator

The - DI gives limited data all alone. It is substantially more helpful when combined with the +DI line. By taking a gander at the relationship between the two lines traders can better evaluate whether vertical or downward price movement is stronger.

Since traders frequently take a gander at the relationship between these two lines, and crossovers, it ought to be noticed that +DI and - DI lines might converge often. This can result in whipsaws. Whipsaws are the point at which the lines cross this way and that, triggering trades, yet the price of the asset doesn't follow through and the trader loses money.

Sharp financial backers utilize different forms of technical and central examination to affirm what the DI lines are proposing.

Highlights

• The indicator was planned by Welles Wilder for commodities, it is utilized for different markets and on all time spans.
• At the point when +DI and - DI crossover, it indicates the possibility of a recent fad. On the off chance that - DI crosses over the +DI, a new downtrend could begin.
• At the point when the Negative Directional Indicator (- DI) goes up, and is over the Positive Directional Indicator (+DI), then the price downtrend is getting stronger.
• When - DI is moving down, and below the +DI, then the price uptrend is strengthening.
• -DI is part of a more extensive indicator called the Average Directional Index (ADX). The ADX uncovers trend direction and trend strength.