Subtext – the key to powerful dialogue
When people talk, they don’t always say what they mean, they don’t say everything they know, and they don’t know everything they feel. That’s why god created subtext.
Often we empathize with a character more when she fights what she feels than when she expresses it. Strive to keep your characters from being too articulate and self aware.
Writing exercise: Take a scene that you have already written and ask: is the dialogue too on the nose, too direct? If it is, revise it so that your characters communicate one thing by saying something else.
For each character it helps to ask: What is their motivation? What are they feeling as they say these lines? What are they trying to accomplish?
It can actually be more fun to witness characters talking to each other when they are indirect, misdirected, inarticulate, or unaware.
Try it. When you are finished you can post it here if you like.