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[EquisMetaStock Group] Re: Dynamic Momentum Index (DMI)



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Tom,

I personally am not that fond of them in most instances and would 
rather just use the 0 to 100 scale but there in is the problem. The 
theory is that by using a bipolar index you can swing much farther 
out of the boundaries of the 0-100 scale. Have you ever noticed how 
an indicator will shoot to the extremes of the overbought/oversold 
side and then flatline? The bipolar in supposed to overcome that.

Preston


--- In equismetastock@xxxxxxxxxxxxxxx, Tom Loyd <lifferds@xxxx> wrote:
> 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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