Which calculation is the first step in determining the DMI?

The first step in determining the Directional Movement Index (DMI) is to construct a 14-day Wilder moving average for +DM (positive directional movement) and -DM (negative directional movement) days. This step is essential because the DMI is calculated using these averages to assess market trends.

To elaborate, the DMI aims to quantify whether a security is trending and in what direction by comparing the directional movement of the price over a specific period. The Wilder moving average is a smoothing technique that gives more weight to recent prices, which is critical for the DMI calculation because it helps to filter out noise and provides a clearer view of the current trend.

Prior steps, like calculating the average true range or recording closing prices, would be supportive but are not the determining factors in initially establishing the directional movements. Likewise, identifying significant highs and lows is a part of the process but comes into play after these averages have been calculated. In this context, constructing the Wilder moving averages for +DM and -DM sets the foundation for subsequent analysis and interpretation of directional movement.