When the ADX goes up

Cho Sing Kum
6^th May 2004

It's been eleven months since I wrote When the ADX goes flat - Part II in June 2003 as an update to the article, When the ADX goes flat, written in January 2003. The technical indicators had identified the market opportunity well and if you had read these two articles when they were written, you would know without doubt that they were written in real time.

Based on the position of the ADX line in relation to both DI+ and DI- lines, it is now time to write another update. Like the first two articles, this one too is written in real time.

If these articles have been written with the benefit of hindsight then they are the similar technical patterns that have occurred in the past on other instruments. It is said that charts are pictorial presentation of human nature. If you have been long enough in the market, you will know that human nature will never change. Therefore, this technical pattern will repeat itself again and again.

The past, the present and the future. We have been like this in the past, we are still like this in the present, and we will continue to be like this in the future.

The ADX line started to rise in June 2003 when Part II was written. This was the purpose of writing Part I in the first place.

Since the end of March 2004, the ADX has risen above both the DI+ and DI- lines and is still rising at the time of this writing. This is the main reason for this update.

J Willes Wilder, Jr. wrote on page 47 of his book, New Concepts In Technical Trading Systems, that when the ADX line goes above the DI+ line (in the case of an uptrend) or it goes above the DI- line (in the case of a downtrend), a price turning point is indicated. He further elaborated: "The turning point often occurs concurrent with the first down turn of the ADX line after the ADX has crossed above both the DI lines."

In the case of our subject study, the position of the ADX line versus the DI+ and DI- lines is exactly what is described in the book. What we should be looking out for is the first down turn of the ADX line since this often occurs concurrent with price turning point, in other word, a price top in our example. It may not happen immediately. In fact there is no way one can predict when it will happen. Since we are working with monthly chart you will have to work with patience. Don't lace your learning process with impatience.

So whenever it happens - next week, next month or next year- you know the trend has run its course. That will be our next and probably last update on this topic.





 

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