We have been talking for months now about the US Dollar going higher and with another strong month for jobs growth last week fundamental data and the technical view remain aligned.
We thought that we would take a look at the USD/JPY chart this morning, which has recently broken above the 20-year resistance line and looks well placed for further gains to the 125.86 2015 peak. We are going to discuss why we think that this will break for a move to the 78.6% retracement (of the move down from 2002 to the 2012 low) at 132.33.
Firstly we note price itself, the strength of the move prior to breaking the 20-year resistance line – the market rallied almost 10 big figures last month and secondly we have what I like to refer to as a ‘confirmed BUY signal’ on the DMI indicator (Directional Movement Index). These occur when the blue line breaks above previous blue peaks (the +DI line) and the previous sell peaks of the indicator (the -DI line) – see chart. Ideally ADX is also above 25.
As a side note, I only use it when it gives these ‘confirmed’ signals.
What Is the Directional Movement Index (DMI)?
The directional movement index (DMI) is an indicator developed by J. Welles Wilder that identifies in which direction the price of an asset is moving. The indicator does this by comparing prior highs and lows and drawing two lines: Positive and negative directional movement form the backbone of the Directional Movement System.
The Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI) are derived from smoothed averages of these differences and measure trend direction over time. These two indicators are often collectively referred to as the Directional Movement Indicator (DMI).
The Average Directional Index (ADX) is in turn derived from the smoothed averages of the difference between +DI and -DI; it measures the strength of the trend (regardless of direction) over time.
Using these three indicators together, chartists can determine both the direction and strength of the trend.
When +DI is above -DI, there is more upward pressure than downward pressure in the price. Conversely, if -DI is above +DI, then there is more downward pressure on the price. This indicator may help traders assess the trend direction. Crossovers between the lines are also sometimes used as trade signals to buy or sell.
KEY TAKEAWAYS
• The directional movement index (DMI) is a technical indicator that measures both the strength and direction of a price movement and is intended to reduce false signals.
• The DMI utilizes two standard indicators, one negative (-DI) and one positive (+DI), in conjunction with a third, the average directional index (ADX), which is non-directional but shows momentum.
• The larger the spread between the two primary lines, the stronger the price trend. If +DI is way above -DI the price trend is strongly up. If -DI is way above +DI then the price trend is strongly down.
• ADX measures the strength of the trend, either up or down; a reading above 25 indicates a strong trend.
• I find this works better when using the ‘confirmed buy or sell’ and this only occurs when the +DI or -VE breaks above its previous peaks.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
We thought that we would take a look at the USD/JPY chart this morning, which has recently broken above the 20-year resistance line and looks well placed for further gains to the 125.86 2015 peak. We are going to discuss why we think that this will break for a move to the 78.6% retracement (of the move down from 2002 to the 2012 low) at 132.33.
Firstly we note price itself, the strength of the move prior to breaking the 20-year resistance line – the market rallied almost 10 big figures last month and secondly we have what I like to refer to as a ‘confirmed BUY signal’ on the DMI indicator (Directional Movement Index). These occur when the blue line breaks above previous blue peaks (the +DI line) and the previous sell peaks of the indicator (the -DI line) – see chart. Ideally ADX is also above 25.
As a side note, I only use it when it gives these ‘confirmed’ signals.
What Is the Directional Movement Index (DMI)?
The directional movement index (DMI) is an indicator developed by J. Welles Wilder that identifies in which direction the price of an asset is moving. The indicator does this by comparing prior highs and lows and drawing two lines: Positive and negative directional movement form the backbone of the Directional Movement System.
The Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI) are derived from smoothed averages of these differences and measure trend direction over time. These two indicators are often collectively referred to as the Directional Movement Indicator (DMI).
The Average Directional Index (ADX) is in turn derived from the smoothed averages of the difference between +DI and -DI; it measures the strength of the trend (regardless of direction) over time.
Using these three indicators together, chartists can determine both the direction and strength of the trend.
When +DI is above -DI, there is more upward pressure than downward pressure in the price. Conversely, if -DI is above +DI, then there is more downward pressure on the price. This indicator may help traders assess the trend direction. Crossovers between the lines are also sometimes used as trade signals to buy or sell.
KEY TAKEAWAYS
• The directional movement index (DMI) is a technical indicator that measures both the strength and direction of a price movement and is intended to reduce false signals.
• The DMI utilizes two standard indicators, one negative (-DI) and one positive (+DI), in conjunction with a third, the average directional index (ADX), which is non-directional but shows momentum.
• The larger the spread between the two primary lines, the stronger the price trend. If +DI is way above -DI the price trend is strongly up. If -DI is way above +DI then the price trend is strongly down.
• ADX measures the strength of the trend, either up or down; a reading above 25 indicates a strong trend.
• I find this works better when using the ‘confirmed buy or sell’ and this only occurs when the +DI or -VE breaks above its previous peaks.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
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