The world of trading is always evolving, and it’s essential to stay ahead of the curve. In the December 2021 issue of TASC, John Ehlers introduced a fresh take on directional movement indicators with his article titled “The DMH: An Improved Directional Movement Indicator.” This innovative approach utilizes Hann windowing to modernize how traders analyze market trends.
Directional movement has been a core component of technical analysis for decades, thanks to J. Welles Wilder's original formulation. Back in the day, complex calculations were a tall order due to technological limitations. However, Ehlers believes it’s high time for an upgrade, and he presents the DMH indicator as a more refined tool.
The DMH indicator typically defaults to Wilder’s 14-bar setting, but Ehlers encourages traders to customize this length based on their strategy or to optimize it for better results.
Here are some recommendations for using the DMH indicator:
- This version comes with additional color changes compared to the original:
- Color changes when the slope shifts
- Color changes at zero line crosses
- And color remains unchanged, just like the original
- Use it as Ehlers suggests, or leverage the color changes as potential trading signals.
- We recommend experimenting with the DMH period before diving in.
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