Overview
Directional Movement Trend Following is a trend-following strategy based on NinjaTrader’s Directional Movement (DM) indicator.
The Directional Movement indicator combines three components:
ADX measures the strength of directional price movement.
+DI represents positive directional movement.
-DI represents negative directional movement.
ADX does not indicate whether a trend is bullish or bearish. Instead, it measures how strong the directional movement is. The +DI and -DI lines are then used to determine its direction. NinjaTrader describes DM as the ADX indicator with the addition of +DI and -DI.
Directional Movement Trend Following combines these components in two stages.
First, ADX must be above the configured DM Lower level. This indicates that the market has reached the minimum trend strength required by the strategy.
Once this condition is satisfied, the strategy uses a crossover between +DI and -DI to determine trade direction.
A long signal is generated when +DI crosses above -DI while ADX is above the configured DM Lower level.
A short signal is generated when -DI crosses above +DI while ADX is above the configured DM Lower level.
This allows the strategy to focus on directional changes that occur during markets that already show sufficient trend strength.
Signal Logic
The strategy evaluates both trend strength and trend direction.
The first part of the signal is based on ADX. ADX must be above the configured DM Lower level before the strategy considers the market sufficiently directional for a trade.
The second part is the crossover between +DI and -DI.
When +DI crosses above -DI, positive directional movement becomes dominant. If ADX is also above the required level, the strategy generates a long signal.
When -DI crosses above +DI, negative directional movement becomes dominant. If ADX is also above the required level, the strategy generates a short signal.
The two components therefore serve different purposes:
- ADX determines whether the trend is strong enough.
- +DI and -DI determine the direction of the signal.
DM
| Parameter | Description |
|---|---|
| Period | DM defines the calculation period of NinjaTrader’s Directional Movement indicator. The period affects all three components used by the strategy: ADX, +DI, and -DI. A shorter period makes the indicator react more quickly to recent price movement. This can produce earlier and more frequent changes in the directional movement values. A longer period smooths the indicator and makes it respond more gradually to changes in market direction and trend strength. |
DM lower
| Parameter | Description |
|---|---|
| Period | DM Lower defines the minimum ADX level required for the strategy to consider the market sufficiently trending. When ADX is below this level, +DI and -DI crossovers are ignored because the market does not meet the strategy’s minimum trend-strength requirement. When ADX is above this level, the strategy can use a +DI/-DI crossover to generate a trading signal. Increasing DM Lower makes the trend-strength requirement more restrictive and generally requires stronger directional movement before a trade can occur. Decreasing DM Lower allows the strategy to respond to directional crossovers in weaker trend conditions. |
Common Features
Each strategy has its own signal logic, but installation, setup, and trade management are identical across the product line. Once you know how to use one, you know how to use the rest.
See also: