The Negative Directional Indicator (-DI) measures the presence of a downtrend and is part of the Average Directional Index (ADX). If -DI is trending upward, it’s an indication that the price downtrend is getting stronger.
This indicator is nearly always plotted along with the Positive Directional Indicator (+DI).
Key Takeaways
- The -DI is part of the Average Directional Index (ADX), which indicates trend direction and strength.
- Initially designed by Welles Wilder for commodities, it’s now used across numerous markets and timeframes.
- When -DI trends upward and exceeds the +DI, it signifies a strengthening price downtrend.
- Conversely, when -DI is trending downward and below +DI, the price uptrend is gaining momentum.
- Crossovers between +DI and -DI can signal new trends. A crossover where -DI surpasses +DI might indicate the start of a new downtrend.
The Magic Formula for the Negative Directional Indicator (-DI)
-DI = rac{ S -DM }{ ATR } \
\textbf{where:} \
-DM = \text{Negative directional movement ( \text{Prior Low - Current Low}) }
\text{S -DM} = \text{Smoothed -DM}
\text{ATR = Average True Range}
How to Calculate the Negative Directional Indicator
- Calculate -DI by identifying -DM and True Range (TR).
Related Terms: ADX, Positive Directional Indicator, Moving Average, True Range, Short Trade, Whipsaws
References
- Fidelity. “What Is DMI”?
Get ready to put your knowledge to the test with this intriguing quiz!
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## What does the Negative Directional Indicator (-DI) represent in technical analysis?
- [ ] Bullish market trend strength
- [x] Bearish market trend strength
- [ ] Market volatility
- [ ] Market volume
## In the Directional Movement Index (DMI) system, how is the -DI line typically used?
- [x] To indicate the strength of a downtrend
- [ ] To confirm bullish signals
- [ ] To identify market reversal points
- [ ] To calculate moving averages
## How do traders typically interpret a scenario where the -DI crosses above the +DI?
- [ ] As a signal to buy
- [x] As a signal to sell
- [ ] As an indication to hold current positions
- [ ] As a sign that the market is about to consolidate
## What type of market conditions would a rising -DI generally indicate?
- [ ] A strengthening uptrend
- [x] A strengthening downtrend
- [ ] A lateral trading range
- [ ] Reduced trading volume
## What happens when the -DI value increases?
- [ ] Indicates decreasing bearish momentum
- [x] Indicates increasing bearish momentum
- [ ] Indicates increased market volatility
- [ ] Indicates entry opportunity for long positions
## Which other indicator is typically used in conjunction with the -DI?
- [x] Positive Directional Indicator (+DI)
- [ ] Relative Strength Index (RSI)
- [ ] Moving Average Convergence Divergence (MACD)
- [ ] Bollinger Bands
## True or False: The -DI alone can give clear buy and sell signals.
- [ ] True
- [x] False
## Which of the following best describes the calculation base for the Negative Directional Indicator (-DI)?
- [ ] Based on closing prices only
- [ ] Based on volume data
- [x] Based on the difference in lows of consecutive periods
- [ ] Based on average price movement
## In the calculation of the -DI, what smoothing technique is used?
- [x] Moving average
- [ ] Exponential smoothing
- [ ] Weighted average
- [ ] Simple summation
## When comparing the levels of -DI and +DI, what would a larger -DI value suggest?
- [ ] An increase in bullish signals
- [ ] Stability in market trends
- [ ] Low market volatility
- [x] Dominance of downtrend strength
