LanaTaylor, hopeful10
You typed, 'question ed, does it make a difference if the red or green line is first under the black adx line, or just that the adx line in pointing down and is above the red or green line.'
Elder writes,'The best time to be short is when both red and black ADX are above green and ADX rises.'
So yes it does matter. The red line should be above the green line and the black ADX line should be above the green line and rising.
You typed, 'I have a stock that i am looking at where the adx line is on top pointing down but the red line is above the green? think it is ready for shorting but would think the green line would be next, not the red.'
Elder writes,'It pays to use a trend following method when ADX rises and not when ADX declines.'
I know, I left that part out of my challenge post.
Elder writes, 'ADX declines when a trend reverses or when a market enters a trading range.'
A fine example of this is seen in the 3 yr weekly chart of GDT. Look at the July 2001 time frame. One can see the black ADX line is above both directional lines, the red line is above the green and the ADX line is pointing down. During this time period, GDT is in rally mode. I think this answers your question. I would not short the stock you mentioned.
Here are more of Elder's thoughts.
Elder writes, 'When ADX rallies above both directional lines, it identifies an overheated market. When ADX turns down from above both directional lines, it shows that a major trend has stumbled. It is a good time to take profits.'
According to Elder, this is a time to take long or short profits not a time to go short. It's a change in trend either from bullish to bearish or bearish to bullish. My reasoning was to look for an early signal of a turn from bullish to bearish since your original question was about short opportunities. The problem is the signal may be very early. I was looking for stocks like G, Mo and GDT. In all three the black ADX line is above both directional lines on the 6 month daily charts.
Interesting to note on the above stocks, look at each in a 3yr weekly chart. G and MO are making cups while GDT was already made a cup, a handle and a breakout to the upside. G and MO may be next.
Elder writes, 'When a trend proceeds in a healthy manner, the spread between two smoothed Directional lines increases and ADX rises.'
So the trend can either be bullish with green on top of red or bearish with red on top of green but either way if the trend is healthy, the black adx line will be moving up.
Thanks for participating with me in learning more about TA. Your asking a question makes me work to find the answer and that type of exercise is good for me too.
AI
