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Thanks to the guys over at airridetalk.com for this handy little "how to" describing the proper use of teflon tape on pipe threads.
There seem to be many people who have problems with Teflon tape not working right on their systems and they end up with leaks all over the place. I've found that the biggest reason for this was improper wrapping of the Teflon tape on the NPT threads, which in turn caused the Teflon tape not to stay on the fitting, and caused leaking. Here is a simple how-to on properly wrapping Teflon tape on NPT threads.
Here we have a roll of Teflon tape and a fitting with 3/8" NPT threads. Your hands and the fitting should be clean of any debris or dirt.
Begin by holding the Teflon tape roll in your left hand and the fitting in your right.
Place the tape on top of the threads and hold the tape with down if your index finger and roll the fitting in a clockwise direction.
Wrap the Teflon tape 3 times around the fitting, then hold down on the threads with your thumb and pull on the tape roll to 'cut' the tape. You now have a properly wrapped fitting ready for use that will not leak when installed properly. To properly install, install the fitting hand tight, then give it up to two turns with a wrench. If it wants to stop before two turns, then DO NOT force the fitting. You can damage the threads or destroy the Teflon seal.