The key feature of the Directional Movement System is that it first identifies whether the market is trending before providing signals for trading the trend. Directional Movement System measures the ability of bulls and bears to move price outside the previous day’s trading range. This should be taken into account when selecting indicator time periods. Trading Signals A number of different trading systems have developed around Directional Movement. See ADX below for further details.
ADX: Declining ADX shows that the market is losing direction. DI and -DI it signals a lifeless market. Do not trade with DMS until ADX has clearly turned off the bottom. DI and -DI the stronger the subsequent trend is likely to be. DI and -DI it signals that the market is becoming overheated.