Using +DI and -DI Readings to Identify Market Trends 

Content Details 

Summary: This article explores how traders can use the 14-day +DI (Directional Indicator) and -DI readings to identify and confirm market trends. It covers the significance of these indicators, how to interpret their values, and practical strategies for implementing them in trading decisions. 

Target Audience: Intermediate to advanced traders who have a basic understanding of technical indicators and are looking to enhance their market analysis and trend identification skills. 

Expanded Response 

Quote: "The 14-day +DI reading must be greater than the 14-day -DI reading." 

Expanded Response: 

Definition: The Directional Indicator (DI) readings are part of the Average Directional Index (ADX) system. The +DI measures the strength of upward movements, while the -DI measures the strength of downward movements. When the 14-day +DI is greater than the 14-day -DI, it indicates a bullish trend. 

Stages: 

Calculating +DI and -DI: Use a charting platform to calculate the 14-day +DI and -DI readings for a given market. 

Comparing Readings: Ensure the +DI is above the -DI to confirm a bullish trend. Conversely, if the -DI is greater than the +DI, it indicates a bearish trend. 

Trading Decisions: Use the +DI and -DI readings in conjunction with other technical indicators to make informed trading decisions. 

Example in SPX: As of now, the current price of SPX is 4400. Suppose the 14-day +DI for SPX is 25 and the 14-day -DI is 20. This indicates a bullish trend, suggesting that traders might consider long positions. 

Practical Application: Traders should combine the +DI and -DI readings with the ADX to confirm the strength of the trend. A high ADX value along with +DI above -DI suggests a strong bullish trend, while a low ADX value might indicate a weak trend. 

Trading Strategy: 

Bullish Trends: Enter long positions when the +DI crosses above the -DI, confirming an upward trend. 

Bearish Trends: Enter short positions when the -DI crosses above the +DI, indicating a downward trend. 

Trend Confirmation: Use the ADX value to confirm the strength of the trend. An ADX above 20-25 indicates a strong trend. 

Risks: 

False Signals: Crossovers of +DI and -DI can sometimes produce false signals in volatile or sideways markets. 

Lagging Indicator: As a trend-following indicator, DI readings may lag behind actual market movements, leading to late entries or exits. 

Indicators for Identifying Trends: 

ADX Indicator: Use the ADX to measure the strength of the trend. Values above 20-25 indicate a strong trend. 

Moving Averages: Use moving averages to confirm the direction of the trend. 

Volume Analysis: Increased volume on a +DI crossover above -DI can confirm the strength of a bullish trend.