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// Description // // The Dynamic Momentum Index (DMI) was developed by Tushar Chande and Stanley // Kroll. The indicator is covered in detail in their book The New Technical // Trader. // // The DMI is identical to Welles Wilder&#8217;s Relative Strength Index // except the number of periods is variable rather than fixed. The variability // of the time periods used in the DMI is controlled by the recent volatility // of prices. The more volatile the prices, the more sensitive the DMI is to // price changes. In other words, the DMI will use more time periods during // quiet markets, and less during active markets. The maximum time periods the // DMI can reach is 30 and the minimum is 3. This calculation method is // similar to the Variable Moving Average, also developed by Tushar Chande. // // The advantage of using a variable length time period when calculating the // RSI is that it overcomes the negative effects of smoothing, which often // obscure short-term moves. // // The volatility index used in controlling the time periods in the DMI is // based on a calculation using a five period standard deviation and a ten // period average of the standard deviation. // // Interpretation // // Chande recommends using the DMI much the same as the RSI. However, because // the DMI is more sensitive to market dynamics, it often leads the RSI into // overbought / oversold territories by one or two days. // // Like the RSI, look for overbought (bearish) conditions above 70 and // oversold (bullish) conditions below 30. However, before basing any trade // off of strict overbought/oversold levels using DMI or any // overbought/oversold indicator, Chande recommends that you first qualify the // trendiness of the market using indicators such as r-squared or CMO. If // these indicators suggest a non-trending market, then trades based on strict // overbought/oversold levels should produce the best results. If a trending // market is suggested, you can use the DMI to enter trades in the direction // of the trend. // //------------------------------------------------------------------------------ //Dynamic Momentum Index Tushar Chande Translated to AFL by Jayson Casavant //Cmo5 formula CMO5_1=Sum( IIf( C > Ref( C, -1 ) , ( C - Ref( C ,-1 ) ) ,0 ) ,5 ) ; CMO5_2=Sum( IIf( C < Ref( C ,-1 ) , ( Ref( C ,-1 ) - C ) ,0 ) ,5 ); CMO5=DEMA(100 * Nz(( CMO5_1 -CMO5_2) /( CMO5_1+CMO5_2)),3); //Cmo10 formula CMO10_1=Sum( IIf( C > Ref( C, -1 ) , ( C - Ref( C ,-1 ) ) ,0 ) ,10 ) ; CMO10_2=Sum( IIf( C < Ref( C ,-1 ) , ( Ref( C ,-1 ) - C ) ,0 ) ,10 ); CMO10=DEMA(100 * Nz(( CMO10_1 -CMO10_2) /( CMO10_1+CMO10_2)),3); //Cmo20 formula CMO20_1=Sum( IIf( C > Ref( C, -1 ) , ( C - Ref( C ,-1 ) ) ,0 ) ,20 ) ; CMO20_2=Sum( IIf( C < Ref( C ,-1 ) , ( Ref( C ,-1 ) - C ) ,0 ) ,20 ); CMO20=DEMA(100 * Nz(( CMO20_1 -CMO20_2) /( CMO20_1+CMO20_2)),3); // dmi formula dmi=((StDev(C,5)* CMO5)+(StDev(C,10)* CMO10)+(StDev(C,20)* CMO20))/(StDev(C,5)+StDev(C,10)+StDev(C,20)); pds=Param("Smoothing",3,1,10,1); pds1=Param("Trigger Line",5,1,10,1); Plot(EMA(dmi,pds),"Dynamic Momentum Index",colorWhite,1); Plot(MA(dmi,pds1),"trigger",colorYellow,1); Buy=Cross(EMA(dmi,pds),MA(dmi,pds1)); Sell=Cross(MA(dmi,pds1),EMA(dmi,pds)); PlotShapes(IIf(Buy,shapeUpArrow,shapeNone) ,colorBrightGreen); PlotShapes(IIf(Sell,shapeDownArrow,shapeNone),colorRed); PlotGrid(70,colorRed); PlotGrid(30,colorBrightGreen);