The Directional Movement System View as Adobe Acrobat PDF file Most technical tools used today fall into one of two categories, oscillators and trend followers. RSI and Stochastics are examples of the former and moving averages and bands are examples of the latter. However, not all studies are effective in the different types of markets.
Trend following studies often cause false signals, and hence losses, in flat or erratic markets.
Welles Wilder has developed a system to determine whether the market is in a trending mode and if so, how strong that trend is. The Directional Movement System, while simple to use, is too complex in its calculation to explain. We will only cover the basics here. Definition of Directional Movement Wilder has taken the concept of direction down to the individual bar level. For daily analysis, he compared today's bar with yesterday's.