When trading in forex or other financial markets, you may come across the term -DI (Negative Directional Indicator). 

But what exactly does it mean, and how can traders use it effectively? Understanding -DI is crucial for spotting trends, identifying market movements, and making better trading decisions. 

Keep reading as we look into -DI in the simplest way possible with relatable examples and step-by-step explanations.

What is -DI in Trading?

The Negative Directional Indicator (-DI) is part of the Directional Movement Index (DMI), which is a technical indicator used to measure market trends. 

The -DI specifically tracks the downward movement of price over time, helping traders understand whether sellers are in control of the market.

In simple terms, when -DI is high, it means the price is moving downward strongly, indicating a possible downtrend. If -DI is low, it means the price is not declining significantly, and buyers may have more strength in the market.

The -DI is often used alongside the +DI (Positive Directional Indicator) and the Average Directional Index (ADX) to provide a clearer picture of market conditions. 

Traders rely on these indicators to determine trend strength, direction, and potential reversals.

How is -DI Calculated?

The calculation of -DI involves several steps. Let’s break them down:

1. Find the Negative Directional Movement (-DM)

If the previous low minus the current low is greater than the previous high minus the current high, record that difference as -DM.

Otherwise, -DM is zero.

Example:

Previous low: 1.1500

Current low: 1.1450

Previous high: 1.1550

Current high: 1.1530

Negative movement (-DM) = 1.1500 – 1.1450 = 0.0050 (5 pips)

Positive movement would be 1.1550 – 1.1530 = 0.0020 (2 pips)

Since -DM (5 pips) is greater than the positive movement (2 pips), we record 5 pips as -DM.

2. Calculate the True Range (TR)

The TR is the highest of these three values:

Current high – Current low

Current high – Previous close

Current low – Previous close

Example:

Current high: 1.1530

Current low: 1.1450

Previous Close: 1.1520

TR = max(1.1530 – 1.1450, 1.1530 – 1.1520, 1.1520 – 1.1450)

TR = max(0.0080, 0.0010, 0.0070) = 0.0080 (8 pips)

3. Find the -DI Value

Formula: -DI = ( -DM / TR) X 100

Example Calculation: -DI = (⅝ ) x 100 = 62.5

A higher -DI value means stronger downward movement, indicating a downtrend.

How to Use -DI in Forex Trading

Understanding the -DI indicator allows traders to make informed trading decisions. Below is how it is commonly used:

1. Identifying Downtrends

When -DI is above +DI, it suggests that the market is in a downtrend.

This means sellers have more control, and the price is likely to continue declining.

Traders may look for sell opportunities or avoid buying until the trend reverses.

2. Confirming Trend Strength

If -DI increases while the Average Directional Index (ADX) is also rising, it confirms a strong downtrend.

A strong downtrend signals that sellers are dominating, making it a good time to sell.

3. Spotting Trend Reversals

If -DI starts falling and crosses below +DI, it suggests that the downtrend is weakening.

This can indicate a potential uptrend, signaling traders to reconsider their sell positions and look for buy opportunities.

Example of -DI

Let’s say, you are watching the EUR/USD forex pair. Yesterday, the price fell significantly, and today, -DI rises above +DI. 

This tells you that the downtrend is gaining strength, meaning you might consider selling or holding off on buying until you see a reversal.

Alternatively, if -DI begins to decrease and falls below +DI, this suggests that the sellers are losing control and the market may start trending upward. In this case, you might consider buying opportunities.

What Does Minus Mean in Trading?

In trading, “minus” can refer to different situations where an account, trade, or position is in a negative state. 

Below are the meanings:

1. A Loss 

If your trade is negative, it means your asset’s value has dropped below your purchase price. For example, if you bought Bitcoin at $50,000 and its price falls to $48,000, your position is in minus (-$2,000).

2. Negative Balance 

If your trading account goes into the minus, it means you have lost more money than you deposited. 

This can happen with leverage trading, where brokers may allow you to trade more than your actual balance. Some brokers offer negative balance protection to prevent traders from owing money.

3. Short Selling Position 

If a stock or asset is shown as negative (e.g., -2), it means you have sold it short. Short selling is a strategy where traders borrow an asset, sell it at a higher price, and hope to buy it back at a lower price. 

If the price rises instead of falling, your position remains in the minus until the market moves in your favor.

4. Bid/Ask Spread

When you open a trade, it may immediately show a minus due to the spread (the difference between the buying and selling price). 

This happens because brokers charge a small fee for every trade, and you must first recover this cost before making a profit.

5. Margin Call & Liquidation

If your trade goes too deep into the minus and your account doesn’t have enough funds to cover losses, your broker may issue a margin call (asking you to add more funds). 

If you don’t, they might liquidate (automatically close) your trade, locking in the loss.

6. Portfolio Drawdown 

In long-term investing or trading, “minus” can refer to the drawdown, which is the percentage decrease from a peak value. 

For example, if your total portfolio was worth $10,000 and now it’s worth $8,500, you have a drawdown of -15%.

Pros of Using -DI in Trading

• Helps identify downtrends early.
• Useful for trend confirmation when combined with ADX.
• Works well with other indicators like moving averages and RSI.
• Can help traders avoid false breakouts.

Cons of Using -DI in Trading

• Does not work well in sideways markets.
• Requires other indicators for better confirmation.
• Can give false signals if used alone.

FAQs

What happens when -DI is higher than +DI?

• When -DI is greater than +DI, it signals that the market is in a downtrend and that sellers are stronger than buyers.

Can -DI be used alone for trading decisions?

• No. It is best used alongside other indicators like ADX, moving averages, and RSI to confirm trends and avoid false signals.

How do I know when a downtrend is over using -DI?

• A downtrend may be over when -DI crosses below +DI, indicating that buyers are regaining strength in the market.

Is -DI useful for all types of trading?

• Yes, it is useful for forex, stocks, and commodities trading, but it works best in trending markets.

Conclusion

Understanding -DI in trading is essential for spotting downtrends, confirming market movements, and making smart trading decisions. 

When used alongside other indicators, it becomes a powerful tool for traders looking to profit from price movements. 

By learning how to interpret -DI, you can improve your trading strategy and make more informed decisions in the financial markets.