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7 Charting Tools for Spread Betting: A practical guide to making money from spread betting with technical analysis by Malcolm Pryor

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Tool 2 – Directional Movement

Background and construction

I have already referred to Welles Wilder’s book New Concepts in Technical Trading Systems, when discussing ATR. Now we look at another concept first described in that historic book, Directional Movement. The main benefit of this tool for traders is that it helps to define whether an instrument is trending or not trending. Since trending markets and non-trending markets usually call for different trading strategies it is clearly useful to be able to determine whether or not a trend is in place.

Let’s look at a few months of FTSE 100 price action, with Directional Movement indicators added.

This chart is a great example of the indicator in action. There are three lines on the indicator, ...

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