Market Movement Identifier
Overview : Market Movement Identifier (MMI) uses DMI (Directional Movement Index) Indicator's logic and enhance its capabilities and visualisation. It shows 3 type of overlays over chart - black, green and red which signifies current market trend.
What is DMI ? :
The Directional Movement Index (DMI) is a technical analysis indicator used to assess the strength and direction of a trend in the price of an asset. Developed by J. Welles Wilder, the DMI is part of a broader category of indicators known as oscillators. The DMI comprises three lines: Positive Directional Indicator (+DI), Negative Directional Indicator (-DI), and the Average Directional Index (ADX).
Here's a brief overview of each component:
1. Positive Directional Indicator (+DI): Measures the strength of upward price movement. It is calculated based on the difference between the current high and the previous high.
2. Negative Directional Indicator (-DI): Measures the strength of downward price movement. It is calculated based on the difference between the previous low and the current low.
3. Average Directional Index (ADX): Represents the overall strength of the price movement, regardless of direction. It is a smoothed average of the +DI and -DI values. A rising ADX indicates a strengthening trend, while a falling ADX suggests a weakening trend.
Traders use the DMI to identify potential trends, assess their strength, and determine whether a trend is gaining or losing momentum. The crossover of +DI and -DI can signal potential changes in the trend direction. Additionally, the ADX helps traders gauge the overall strength of the trend. Please note DMI is freely available to use, you must try that before paying for MMI.
What is MMI and how is it different from DMI ? :
Frankly, It is not. If you know how to use DMI and play around with its variables and settings to get the perfect desired result then you are good anyway. But if you want a little bit extra visualisation and accuracy then MMI indicator is for you.
The MMI Indicator which we have built over DMI uses :
1. Unique variables and settings - Instead of using default variable values, we have modified them a bit for aligning it perfectly with our desired result.
2. New variables - We have added few new variables which act as threshold values.Calculations are being done using these variables to find out bool conditions true or false.
3. Background Colours - Using the bool conditions we show 3 different background colours on chart, which helps user in differentiating type of market trend.
How does MMI work? :
Let's break down the key components and logic behind this indicator:
1. DMI (Directional Movement Index) Calculation: The code calculates the DMI using the Wilder's smoothing method. It uses the true range (trur) and calculates the positive directional movement (plusDM) and negative directional movement (minusDM). The smoothed values of these are then used to compute the Plus Directional Indicator (plus) and Minus Directional Indicator (minus).
2. ADX (Average Directional Index) Calculation: The ADX is computed using the smoothed Plus and Minus Directional Indicators. The ADX is a trend strength indicator, and in this script, it is smoothed using the lensig parameter.
3. Setting Thresholds for ADX: tlow and thigh are user-defined thresholds for the ADX. If the ADX is within these thresholds, it proceeds to further conditions. This helps filter out noise and focus on significant trends.
4. Determining Market Movement: Based on the conditions of the Plus and Minus Directional Indicators, the script assigns a color to currentColor. If Plus is greater than Minus, it assigns a green color; otherwise, it assigns a red color. This suggests whether the market movement is bullish or bearish.
Setting Background Color: Finally, the background color of the chart is set to currentColor. This provides a visual representation of the market movement identified by the script.
Comparison with DMI Indicator:
This script can be considered an improvement or modification of the DMI (Directional Movement Index) indicator. It incorporates user-defined thresholds for the ADX and assigns background colors to chart to indicate market direction. The idea is to make it more visually intuitive and customizable for traders. The flexibility of adjusting parameters allows traders to fine-tune the sensitivity of the indicator to different market conditions.
Why it is worth paying for:
As mentioned earlier this indicator is built over freely available DMI indicator. The modifications which we have done with variables and visualization of DMI indicator makes it worth.
The indicator may be considered valuable for traders who appreciate a visual representation of market movements based on ADX. Normal DMI doesn't prvoide that, it displays three lines at bottom of chart like RSI. Neither does it provides alert or a visual that a threshold has been crossed. That's why to help traders see all conditions and trend status on background of chart itself we have created MMI which has
1. The customization options and visual clarity could enhance decision-making for those who prefer a more tailored approach.
2. Traders willing to pay for this indicator may find it useful in complementing their existing analysis and strategy, especially if they prioritize ADX-related insights in their trading decisions.
How to use MMI ?
Refer this snapshot for understand content below -
So the three overlays signifies something. As explained earlier the overlays are displayed checking if adx is > or < a threshold value and checking +di > or < -di. Also the interpretations is just a probability not a confirmation. To be sure, always follow price action.
Black overlay - No trading zone. This means market might be in consolidation range, no strong trend right now or the trend is so strong that it can reverse any time. So it's better not to trade in black zones.
Red overlay - Probable Bearish Trend. This means market might be in good trend and favourable direction might be in bearish or short side.
Green overlay - Probable Bullish Trend. This means market might be in good trend and favourable direction might in bullish or long side.
Preferred Timeframe : - Although as its a mathematical calculation based indicator which works on DMI's logic, the modifications which we have done on it works best in 5 minute timeframe.
Remember these visualisations of colors is based on mathematical calculations, they dont mean full 100% confirmation that market will go in said direction. It's just a probability and traders can use their research and price action to take best decision.
IMPORTANT : This indicator tells you these overlays and results based on mathematical calculations which you can check in DMI indicator logic. As Stock markets are dynamic in nature, no indicator is a magic indicator which will give you 100% accurate results on one click. You still have to use price action for best results.
DISCLAIMER : This indicator isn't a get rich quick scheme, neither it can provide 100% accurate results. It is meant to be used as an aid to Price Action Trading and proper risk management.
What is DMI ? :
The Directional Movement Index (DMI) is a technical analysis indicator used to assess the strength and direction of a trend in the price of an asset. Developed by J. Welles Wilder, the DMI is part of a broader category of indicators known as oscillators. The DMI comprises three lines: Positive Directional Indicator (+DI), Negative Directional Indicator (-DI), and the Average Directional Index (ADX).
Here's a brief overview of each component:
1. Positive Directional Indicator (+DI): Measures the strength of upward price movement. It is calculated based on the difference between the current high and the previous high.
2. Negative Directional Indicator (-DI): Measures the strength of downward price movement. It is calculated based on the difference between the previous low and the current low.
3. Average Directional Index (ADX): Represents the overall strength of the price movement, regardless of direction. It is a smoothed average of the +DI and -DI values. A rising ADX indicates a strengthening trend, while a falling ADX suggests a weakening trend.
Traders use the DMI to identify potential trends, assess their strength, and determine whether a trend is gaining or losing momentum. The crossover of +DI and -DI can signal potential changes in the trend direction. Additionally, the ADX helps traders gauge the overall strength of the trend. Please note DMI is freely available to use, you must try that before paying for MMI.
What is MMI and how is it different from DMI ? :
Frankly, It is not. If you know how to use DMI and play around with its variables and settings to get the perfect desired result then you are good anyway. But if you want a little bit extra visualisation and accuracy then MMI indicator is for you.
The MMI Indicator which we have built over DMI uses :
1. Unique variables and settings - Instead of using default variable values, we have modified them a bit for aligning it perfectly with our desired result.
2. New variables - We have added few new variables which act as threshold values.Calculations are being done using these variables to find out bool conditions true or false.
3. Background Colours - Using the bool conditions we show 3 different background colours on chart, which helps user in differentiating type of market trend.
How does MMI work? :
Let's break down the key components and logic behind this indicator:
1. DMI (Directional Movement Index) Calculation: The code calculates the DMI using the Wilder's smoothing method. It uses the true range (trur) and calculates the positive directional movement (plusDM) and negative directional movement (minusDM). The smoothed values of these are then used to compute the Plus Directional Indicator (plus) and Minus Directional Indicator (minus).
2. ADX (Average Directional Index) Calculation: The ADX is computed using the smoothed Plus and Minus Directional Indicators. The ADX is a trend strength indicator, and in this script, it is smoothed using the lensig parameter.
3. Setting Thresholds for ADX: tlow and thigh are user-defined thresholds for the ADX. If the ADX is within these thresholds, it proceeds to further conditions. This helps filter out noise and focus on significant trends.
4. Determining Market Movement: Based on the conditions of the Plus and Minus Directional Indicators, the script assigns a color to currentColor. If Plus is greater than Minus, it assigns a green color; otherwise, it assigns a red color. This suggests whether the market movement is bullish or bearish.
Setting Background Color: Finally, the background color of the chart is set to currentColor. This provides a visual representation of the market movement identified by the script.
Comparison with DMI Indicator:
This script can be considered an improvement or modification of the DMI (Directional Movement Index) indicator. It incorporates user-defined thresholds for the ADX and assigns background colors to chart to indicate market direction. The idea is to make it more visually intuitive and customizable for traders. The flexibility of adjusting parameters allows traders to fine-tune the sensitivity of the indicator to different market conditions.
Why it is worth paying for:
As mentioned earlier this indicator is built over freely available DMI indicator. The modifications which we have done with variables and visualization of DMI indicator makes it worth.
The indicator may be considered valuable for traders who appreciate a visual representation of market movements based on ADX. Normal DMI doesn't prvoide that, it displays three lines at bottom of chart like RSI. Neither does it provides alert or a visual that a threshold has been crossed. That's why to help traders see all conditions and trend status on background of chart itself we have created MMI which has
1. The customization options and visual clarity could enhance decision-making for those who prefer a more tailored approach.
2. Traders willing to pay for this indicator may find it useful in complementing their existing analysis and strategy, especially if they prioritize ADX-related insights in their trading decisions.
How to use MMI ?
Refer this snapshot for understand content below -
So the three overlays signifies something. As explained earlier the overlays are displayed checking if adx is > or < a threshold value and checking +di > or < -di. Also the interpretations is just a probability not a confirmation. To be sure, always follow price action.
Black overlay - No trading zone. This means market might be in consolidation range, no strong trend right now or the trend is so strong that it can reverse any time. So it's better not to trade in black zones.
Red overlay - Probable Bearish Trend. This means market might be in good trend and favourable direction might be in bearish or short side.
Green overlay - Probable Bullish Trend. This means market might be in good trend and favourable direction might in bullish or long side.
Preferred Timeframe : - Although as its a mathematical calculation based indicator which works on DMI's logic, the modifications which we have done on it works best in 5 minute timeframe.
Remember these visualisations of colors is based on mathematical calculations, they dont mean full 100% confirmation that market will go in said direction. It's just a probability and traders can use their research and price action to take best decision.
IMPORTANT : This indicator tells you these overlays and results based on mathematical calculations which you can check in DMI indicator logic. As Stock markets are dynamic in nature, no indicator is a magic indicator which will give you 100% accurate results on one click. You still have to use price action for best results.
DISCLAIMER : This indicator isn't a get rich quick scheme, neither it can provide 100% accurate results. It is meant to be used as an aid to Price Action Trading and proper risk management.