in the mid-1970s. It identifies trends and shows
when a trend is moving fast enough to make it worth following. It helps traders to
profit by taking chunks out of the middle of important trends.
1. Trade only from the long side when the positive Directional line is above the
negative one. Trade only from the short side when the negative Directional line
is above the positive one. The best time to trade is when the is rising, show-
ing that the dominant group is getting stronger.
2. When declines, it shows that the market is becoming less directional. There
are likely to be many whipsaws. When points down, it is better not to use
a trend-following method.
3. When falls below both Directional lines, it identifies a flat, sleepy mar-
ket. Do not use a trend-following system but get ready to trade, because major
trends emerge from such lulls.
4. The single best signal of the Directional system comes after falls below
both Directional lines. The longer it stays there, the stronger the base for the
next move. When rallies from below both Directional lines, it shows that
the market is waking up from a lull. When rises by four steps
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, depending on what Directional line is on top.
5. When rallies above both Directional lines, it identifies an overheated mar-
ket. When turns down from above both Directional lines, it shows that the
major trend has stumbled. It is a good time to take profits on a directional trade.
If you trade large positions, you definitely want to take partial profits.
This particular version uses (double exponential moving averages) in attempt to catch moves sooner.