DSL-DMI indicator
This is a technical indicator that can be used to identify a trend change. It can be used to enter and exit the market at the appropriate levels.
Description
The DSL-DMI (Directional Movement Index) indicator is a trend detection technology. The movement was developed by Wells Wilder back in 1978. A distinctive feature of the DSL-DMI indicator is its method, which is based not on bar closing prices, but on the analysis of price highs and lows.
The DMI (Directional Movement Index) indicator analyzes the area of the last bar standing in relation to the candle that appeared earlier. So, in a situation where the minimum and maximum of the last one are higher than the values of the previous one, then the area of the last bar protruding upwards relative to the previous candlestick is defined as a bullish direction. And in a situation where the minimum and maximum prices are lower than the value of the previous bar, then the part of the extreme candle that protrudes downwards in relation to the penultimate candle is defined as a bearish direction.
How does DSL-DMI indicator work?
DMI is an oscillator indicator that is very easy to understand even for novice traders due to its visual presentation. The indicator is displayed in three colors, each of which represents a specific phase of the market. The gray color represents consolidation, while the green color appears when the market starts to enter a bullish phase. Orange color appears when the market enters a bearish phase.
However, you can also see the noise in the indicator and it is subjective for every instrument you analyze with the indicator. Therefore, it is better to play with the signal period and the DMI period and also try switching to different timeframes to reduce the noise.
DSL-DMI indicator trading strategy
Following is a simple strategy based on DSL-DMI indicator:
DSL-DMI indicator buy strategy
- Wait for the indicator color to get green.
- Confirm the indicator value to be above zero.
- Wait for a bullish candle to close.
- Enter the long trade with stop-loss around recent swing low. Place the profit target at next resistance level.
DSL-DMI indicator sell strategy
- Wait for the indicator color to get red.
- Confirm the indicator value to be below zero.
- Wait for a bearish candle to close.
- Enter the short trade with stop-loss around recent swing high. Place the profit target at next support level.
Conclusion
The DSL-DMI indicator can play an important role in your technical analysis of the market. However, this tool should not be considered as a separate way of trading. You must reasonably reduce your risk and use other tools to verify your records.