What does a peak in the ADX line typically indicate?

A peak in the Average Directional Index (ADX) line is significant because it typically indicates a strong trend in one direction. When the ADX rises to a peak and then starts to decline, it signals that the strength of the trend may be waning and could potentially lead to a reversal in price action. This means that traders often watch for a peak in the ADX as a signal to either take profits or adjust their positions, anticipating that the ongoing trend may not last much longer.

Your choice of a potential reversal in price action is the rationale behind interpreting ADX peaks, as they can preemptively indicate changing market dynamics. It's important to note that while the ADX itself does not indicate trend direction, the action of hitting a peak often correlates with declining momentum, which some traders interpret as a sign to prepare for a reversal or at least a significant slowdown in the existing trend.