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DMI - What are the advantages of a bipolar index?
--- pumrysh <no_reply@xxxxxxxxxxxxxxx> wrote:
> An indicator I think you will enjoy.
>
> Preston
>
>
>
> Description:
>
> The Dynamic Momentum Index (DMI) was developed by
> Tushar Chande and
> Stanley Kroll. The indicator is covered in detail in
> their book The
> New Technical Trader.
>
> The DMI is identical to Welles Wilder's Relative
> Strength Index
> except the number of periods is variable rather than
> fixed. The
> variability of the time periods used in the DMI is
> controlled by the
> recent volatility of prices. The more volatile the
> prices, the more
> sensitive the DMI is to price changes. In other
> words, the DMI will
> use more time periods during quiet markets, and less
> during active
> markets. The time periods the DMI can reach is
> around a maximum of
> 30 and a minimum of 3. The volatility index used in
> controlling the
> time periods in the DMI is based on a calculation
> using a five period
> standard deviation and a ten period average of the
> standard
> deviation. The advantage of using a variable length
> time period when
> calculating the RSI is that it overcomes the
> negative effects of
> smoothing, which often obscure short-term moves.
> In this indicator the option to use a bipolar index
> is also
> introduced. The formula for a bipolar index is
> Bipolar =( up -
> down ) / ( up + down )
>
> Interpretation:
> Chande recommends using the DMI much the same as the
> RSI. However,
> because the DMI is more sensitive to market
> dynamics, it often leads
> the RSI into overbought / oversold territories by
> one or two days.
>
> Like the RSI, look for overbought (bearish)
> conditions above 70 and
> oversold (bullish) conditions below 30. However,
> before basing any
> trade off of strict overbought/oversold levels using
> DMI or any
> overbought/oversold indicator, Chande recommends
> that you first
> qualify the trendiness of the market using
> indicators such as r-
> squared or CMO. If these indicators suggest a
> non-trending market,
> then trades based on strict overbought/oversold
> levels should produce
> the best results. If a trending market is suggested,
> you can use the
> DMI to enter trades in the direction of the trend.
> Formula:
> {Dynamic Momentum Index (DMI)}
> {written by Preston Umrysh}
> {This indicator uses Dll software developed by
> MetaStock Forum Crew}
> {http://forum.equis.com)}
> x:=Input("normal ouput=1 Biplolar index=2",1,2,1);
> Vt:=(Stdev(C,5)/Mov(Stdev(C,5),10,S))*10;
> Umom:=If(C>Ref(C,-1),C-Ref(C,-1),0);
> Dmom:=If(C<Ref(C,-1),Ref(C,-1)-C,0);
> UPS:= ExtFml( "ForumDll.VarSUM", Umom,Vt);
> DNS:= ExtFml( "ForumDll.VarSUM", Dmom,Vt);
> SumU:=ExtFml("ForumDll.VarMOV",UPS,Vt,e)/Vt;
> SumD:=ExtFml("ForumDll.VarMOV",DNS,Vt,e)/Vt;
> RS:=SumU/SumD;
> DMnm:=100-(100/(1+RS));
> DMIn:=(SumU-SumD)/(SumU+SumD);
> If(x=1,DMnm,DMin); {end}
>
>
>
>
>
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