DMH: An Improved Directional Movement Indicator

From Mladen Rakic -

In the December 2021 issue of TASC article “The DMH: An Improved Directional Movement Indicator”, John Ehlers explores a method of modernizing directional movement with Hann windowing.

Directional movement has been a mainstay in technical analysis and has been an examined concept by traders for decades. When the original directional movement indicator was created by J. Welles Wilder, technology did not easily allow for complex calculations.

Ehlers proposes it is time for an upgrade. While the DMH indicator defaults to using Wilder’s 14 bars, Ehlers suggests the length should be at the discretion of the trader or can be determined by optimization if the DMH is used in a strategy.

What is Hann Windowing?

A Hann window, named after Julius von Hann, resembles the application of a smooth, bell-shaped curtain over your data:

• It assigns the greatest significance to prices that are central within the lookback period.
• It gradually diminishes (nearly to zero) at both the beginning and the conclusion of the period.

This minimizes "spectral leakage" (essentially, artificial fluctuations or distortions caused by abrupt changes) and produces a more refined, less delayed trend signal in comparison to standard moving averages.

In summary: DMH combines the traditional concept of directional movement with contemporary Hann-window smoothing, resulting in a more refined and responsive trend/momentum tool for traders.

Recommendations:

in this version compared to the original additional color changes added :

• color change on slope change
• color change on zero line cross
• and no color change (as in the original)

Use it as Ehlers recommends it or use color changes for possible signals
some experimenting with DMH period recommended before using it

PS: For the chart setup used in our Daily Downloads page, please see here: Directional Movement w/Hann DMH + MA Cross.