Cush:
I don't know if you or the other regulars have Elder's book, but since it's late I'm going to quote his trading rules on the ADX.
1. Trade only from the long side when +DI13 is above -DI13. 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 the uptrend is getting stronger. Go long and place a protective stop below the latest minor low. The best time to be short is when -DI and ADX are above +DI and ADX rises. This shows that bears are becoming stronger. Go short and place a protective stop above the latest minor high.
2.When ADX declines, it shows that the market is becoming less directional. There are usually many whipsaws, just as there are turbulences in the water during the change of tide. When ADX points down, it is better not to use a trend-following method.
3.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.
4. The single best signal of the Directional system comes after ADX falls below both Directional lines. The longer it stays there, the stronger the base for the next move. When ADX rallies from below both Directional lines, it shows that the market is waking up from a lull. When ADX rises by four steps (i.e. from 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. Buy if +DI is on top and place a stop below the latest minor low. Sell short if - DI is on top and place a stop above the latest minor high. For example, if ADX rises from 8 to 12 while both lines are above 13 and -DI is on top, it shows that a new downtrend is starting.
The Directional System is unique in telling you when a major new trend is likely to begin. It rings a bell once or twice a year in any given market. It signals when a new baby bull or baby bear is being born. Monetary risk is usually low at that time, due to low volatility while the trend is still young.
5. When ADX rallies above both Directional lines, it identifies an over-heated market. When ADX turns down from above both Directional lines, it shows that the major trend has stumbled. It is a good time to take profits. If you trade multiple contracts, you definitely want to take partial profits.
Hope this helps
Bob
P.S. Peter:
I love this book, you may not get it back too soon <LOL> |
