When ADX falls below both Directional lines it indicates a flat, low volatility market. Don't use a trend following method but watch closely because usually major moves occure once the ADX wakes up from the lull. The longer it stays below the DI lines the stronger the base for the next move. When the ADX rallies above both DI lines it shows the market is overheated. When the ADX turns down from above bothe DI lines, its a tell that the major trend is weakening and a reversal is likely.
Technical indicators give hard and soft signals.
For example, a violation of a price low or a change in direction of a moving average are hard signals. A downturn of the ADX is a soft signal. Once you see ADX turning down you have to be wary about adding to positions, and start thinking about taking profits or tightening stop loss targets. This article is the express property of Myst Werks 1999 Mystifier - All Rights Reserved.