File Includes: Indicator - Dynamic Momentum Index
Category: Indicator > Oscillators
This indicator plots Dynamic Momentum Index indicator. 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 maximum time periods the DMI can reach is 30 and the minimum is 3. This calculation method is similar to the Variable Moving Average, also developed by Tushar Chande.
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.
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.
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.
RsiLen - number of bar to calculate RSI
BuyZone - oversell level
SellZone - oberbought level
UpLimt - number used in VarLenDMI function calculation
LoLimt - number used in VarLenDMI function calculation
PLOT1(RSI(VARLENDMI(UPLIMT, LOLIMT), RSILEN),"PLOT1");
IF CHECKALERT THEN BEGIN
IF PLOT1 CROSSES ABOVE PLOT2 OR PLOT1 CROSSES BELOW PLOT2
OR PLOT1 CROSSES ABOVE PLOT3 OR PLOT1 CROSSES BELOW PLOT3
OR PLOT2 CROSSES ABOVE PLOT3 OR PLOT2 CROSSES BELOW PLOT3