ADX for Trend Followers

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The basics:
* A declining ADX shows that the vehicle is losing direction.
* When ADX has fallen below 20 it signifies the vehicle is not trending and the use of trend following indicators is not appropriate.
* When ADX crosses from below to above 20 it signals that a new trend is emerging.
* When ADX is between 20 and 40 there is a confirmed trend and the use of trend following indicators is appropriate.
* When ADX is above 40 it signifies a very strong trend.
* When ADX crosses from above to below 40 it signals the trend is probably ending.
* +DI and -DI crossovers are commonly used as trading signals but they are likely to result in many whipsaws if used mechanically by themselves.

A few fine points:
* In diagnosing trends, the direction and velocity of ADX have more predictive value than its absolute level.
* Trade only from the long side when +DI is above -DI and trade only from the short side when -DI is above +DI.
* When ADX first falls below both +DI and -DI it warns of a dull market which should be avoided by trend followers.
* But the longer ADX remains below both +DI and -DI, the stronger the subsequent trend is likely to be.
* Although upside ADX 20 crossovers are commonly used to identify new trends, by the time the ADX has already risen from a very low level to above 20, it might only be safe to buy on dips or sell on rallies, as the case may be.
* When ADX rises several points off of a low below 15 it provides an earlier but less reliable signal of a new trend than an upside ADX 20 crossover. This signal is more reliable if the price chart exhibits a clear sideways basing pattern before ADX starts rising.
* When ADX rises above both +DI and -DI it signals that the market is becoming dangerously overbought or oversold and an abrupt reversal could be imminent. If you are in a profitable trade and see this pattern developing, you should protect your profits by exiting when there is a +DI/-DI crossover; if price has gone parabolic and ADX is above 35 it might be better to use a very fast exit indicator such as Parabolic SAR.
* The best time to be long is when both +DI and ADX are above -DI and ADX is rising. This shows that the trend is strengthening. Conversely, the best time to be short is when both -DI and ADX are above +DI and ADX is rising.
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