Directional System Rules/References
- Trade only from the long side when +DI is above -DI narrow down. Trade only from the short side when -DI is above +DI. The best time to be long is when both +DI and ADX are above -DI and ADX rises. This shows that uptrend is getting stronger. Go long and place a protective stop below the latest minor low. The best time to be short when -DI and ADX are above +DI and ADX rises.
- When ADX decline, it shows that the market is becoming less directional. There are usually many whipsaws, just as there are turbulances the water during the change of tide. When ADX points down, it is better not to use trend following method.
- When ADX falls below both directional lines, it identifies a flat, sleepy market. Do not use a trend following system but start getting ready, because major trends emerge from such lulls.
- The single best signal of directional system comes after ADX falls below both directional lines. The longer its stays there, the stronger the base for the next move. When ADX rallies from below both directional lines, its shows that the market is waking up from a lull. When ADX rises by four steps (i.e 9 to 13) from its lowest point below both directional lines, it rings a bell on a new trend. It shows that a new bull market or bear market is being born. But if +DI is on top and a stop below the latest minot low. Eg. if ADX rises from 8 to 12 while both lines are above 12 and +DI is on top, it indicates that a new uptrend is beginning.
- When ADX rallies above both directional lines, it identifies an overheated market. When ADX turn down from above both directional lines, it shows that the major trend has stumbled. It is a good time to take profits.