Directional Movement Index (DMI)

The Directional Movement Index (DMI) is a method of telling whether or not a security is trending. Invented in the late 1970s, the DMI helps investors determine whether or not a security is actually trending up or down, canceling out market “noise” that could be mistaken for trending.

The DMI takes into account the price range of trading (highs and lows) and calculations like the Welles Wilder’s Smoothing Average to find which way (if any) a stock is going. The DMI puts small windows of time into the larger context, helping traders have some idea of whether the stock is trending up or down. While there are many methods of analyzing stocks, the DMI is a basic one that’s used to this day for its baseline-like measures.