The Positive Directional Indicator (+DI) is a technical analysis indicator that gauges the market’s buying pressure. It is a component of the Average Directional Index (ADX), which determines the strength of the trend. When the +DI slopes upward, it indicates that the uptrend is getting stronger. Commonly, this indicator is plotted with the Negative Directional Indicator (-DI). In this article, we will take a closer look at the workings of the Positive Directional Indicator Indicator and explore how it can be used in the forex market.
What is the Positive Directional Indicator?
The Positive Directional Indicator (+DI) is a technical indicator used for financial market analysis. It is used as a component of the Average Directional Index (ADX) to measure the strength and direction of a market trend. When the Positive Directional Indicator (+DI) is rising above the Negative Directional Indicator (-DI), the price uptrend is strengthening. Conversely, when the +DI is heading down and below the -DI, it indicates that the price downtrend is gaining strength. Stochastic Crossovers between the +DI and -DI are regarded as significant and may serve as trading signals. This is because they signal the potential for a new market trend to emerge. +DI and -DI can be applied to a variety of financial markets and timeframes, such as stocks, commodities, forex, and more. However, it was initially intended by Welles Wilder for use on commodity charts with a daily timeframe. Traders may utilize the +DI in combination with other analysis methods to make informed trading decisions and adequately manage risk.
Positive Directional Indicator Strategy
Traders will consider the relative positions of +DI and -DI to make informed trading decisions. When +DI is greater than -DI, the trend is considered bullish, and traders may use this information to consider opening a long position in the currency pair. This bullish trend can be confirmed when the +DI crosses above the -DI, signaling the possibility of a price uptrend.
When -DI is above +DI, it is considered a bearish trend, and traders may choose to consider placing a short position in the financial instrument. This bearish trend is confirmed when -DI crosses over +DI, which may indicate the beginning of a price downtrend. In conclusion, the +DI is a valuable tool for traders to detect the trend of a currency pair, and it may be used with the -DI to form a full trading strategy.
- Determine whether +DI is greater than -DI. If so, the trend is bullish, and price increases are expected.
- Watch when +DI passes over -DI. This signals the possibility of a new price uptrend.
- If the foregoing prerequisites are satisfied, you may open a long position.
- Place a stop-loss order underneath the entry candle or in accordance with your money management strategy.
- When the indicator generates a sell signal or when the price reaches a major level of resistance, traders may exit their positions.
- Check if -DI is greater than +DI. If so, the trend is bearish, and price declines are expected.
- When -DI crosses over +DI, it might signal the start of a price downtrend.
- If the preceding criteria are satisfied, you may open a short position.
- Place a stop-loss order just above the entry candle or in accordance with your money management strategy.
- When the indicator generates a buy signal or when the price reaches a major level of support, traders may exit their positions.
Positive Directional Indicator Pros & Cons
- The +DI is easy to understand since it clearly indicates whether the trend is bullish or bearish.
- By monitoring the crossing of +DI and -DI, traders may be alerted to a possible change in trend, enabling them to prepare for new trading opportunities.
- When the +DI is significantly greater than the -DI, it might signal a strong bullish trend and provide potential trading opportunities.
- As with other moving average-based indicators, the +DI lags price action, which means it may not provide real-time signals.
- There may be occasions in which the +DI provides erroneous signals, leading to incorrect trading decisions.
- The +DI may be ineffective in ranging markets with no discernible trend.
The Positive Directional Indicator (+DI) is a technical analysis tool used in trading to detect the price trend of an asset. Nonetheless, it is essential to note that +DI and -DI should not be used independently while making trading decisions. When trading, it is advisable to confirm signals with other technical indicators and practice proper risk management.
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