A directional-line cross needs a trend filter, an extreme-point rule, and a dollar stop

Three lines are not a finished rule

The charted directional-movement layout uses three lines. An average directional index is meant to say whether a trend is present. A pair of up and down directional lines produce crosses that are commonly treated as trade cues.

On one illustrated contract, the default display appeared to show fewer directional-line signals than a closer inspection found. The missed cases included short reversals and additional multi-day reversal clusters.

The stated default lookback is described as half of a longer cycle. Trying other lengths did not resolve the tradeoff between forecast usefulness and extra whipsaws.

Treat the cross as a first cue only

A directional-line cross is only the first cue that a trade may be considered. Unless the average directional index stands in a specified relation to those lines, the cue is ignored.

The required filter is that the average directional index should not sit above both directional lines and should not sit below both of them. Used this way, that reading is a smoothed trend-presence check that accepts or rejects other cues rather than a standalone forecast.

Name a price before a reverse is honored

An extreme-point rule names a specific price that must be reached before a crossing that would exit or reverse is honored. If that price is not hit, the position is left unchanged.

The same mechanical procedure must then say whether a reverse cross should be ignored or treated as a stop-and-reverse, which closes the current side and opens the opposite side.

Print entries, skips, exits, and the cash stop

The planned mechanical procedure prints whether a trend is in force and how strong it is, why a signal should be skipped, whether the extreme-point rule was broken, whether a reverse cross should be ignored or treated as a stop-and-reverse, when a user-defined profit target is reached, and when a downturn of the average directional index after it has been above both directional lines should close a profitable position.

If a position is open, the same procedure prompts for a dollar-amount stop-loss so that only a pre-set cash loss is accepted.

That printed list is what makes the work a mechanical trading system. It states entries, abstentions, exits, and reasons instead of leaving those decisions to chart inspection.

Keep the worksheet open to other measures

The worksheet can post results in a live or historical column and replay the rules on historical series. It is presented as a blank framework for adding other measures rather than as a one-indicator system.