Description

• Developed by Bill Williams, is variant of very popular Oscillator RSI
• It adjusts its length according to market volatility and period can vary between 3 to 30
• It oscillates from 0 to 100 level to give overbought and sold conditions
• Since it adjusts its length according to volatility, it helps to better time market using oscillator to trade very short-term price trend without negative impact of over smoothing
• It outperforms when trading non-trending markets based on over bought sold levels

Interpretation

• Readings below 30 indicate oversold
• Readings over 70 indicate overbought
• DMI cutting level 30 upward is a buy signal
• DMI cutting level 70 downward is a sell signal

Default Parameters Used/Inputs

• Close Line

Returns/Output

DMI values of stock for the specified period

Formula

DMI = 100 - (100 / (1 + RSn))
where, n = 14 / Volatility index
Volatility index = 5 bar SD / SMA10(5 bar SD)
RS = (Avg_of_n_day_up_closes) / (Avg_of_n_day_down_closes)