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Created by William Blau and described in his book "Momentum, Direction and Divergence", the Directional Trend Index, DTI, can be used to measure the directional movement of a stock or security. Usually, the DTI moves along with the market. When the market moves up, the DTI moves up as well and when the market moves down, the DTI moves down.
The Directional Trend Index is either in a positive or negative territory. When it is in the positive region and its value is lower than 100, a rise in the DTI corresponds to a rise in the security' price, while a drop in the DTI could either indicate falling prices or flat prices.
In the negative region and when its value is higher than -100 (between 0 and -100), a decline in the DTI corresponds to a decline in security' price, while a rise in the DTI could either indicate a rising prices or flat prices.
The indicator name is "DTI"; it allows you to enter two smoothing periods. These periods are used to double smooth the high-low momentum using two exponential moving averages.
Example: Plot the Directional Trend Index on a chart:
a = DTI(25, 13);
plot(a, "DTI", colorBlue,ChartLine,StyleSymbolNone);
Example of a trading System:
With U.S. stocks, a simple trading strategy that shorts a stock when its Directional Trend Index crosses above 70 and covers it after 5 trading days, generated 6236 trades for an average gain per bar of 0.452%. The average gain is 2.261% and the percentage of positive trades is equal to 58.13%.
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