If you like Average directional movement index ADX indicator and Parabolic SAR indicator, you will like this trading system because this trading system is using ADX indicator and Parabolic SAR. For some Foreign exchange traders think the trend trading is very easy but the truth is not so simple. Sometimes we find the trend reversal potential in the market chart but in the next moment the prices continue again in the direction of the market trend. Even though trading in the Forex market is not about gambling, all we have to do is reducing the risk and push the profit potential in the same chance. When we do analysis we have to collect many information to help us set our risk and reward ratio and keep us in the right analysis.
In this post we will discuss about ADX Average directional movement index indicator and Parabolic SAR technical indicator trading system. The combination of Paravolic indicator and Average directional movement index indicator can give good trading results. As you know these indicators are famous technical indicators, ADX indicator can gives you better trend reading and parabolic SAR can helps you set your risk and helps you to read market trend also. These indicators are available in your trading platform metatrader 4.
Average directional movement index ADX indicator was made by W Wilder. This indicator is traded to determine the market trend. ADX indicator has 2 lines, DI+ and DI-. If the DI- cross above the DI+ line open sell trading position and if the DI+ cross above the DI- open buy trading position. The DI cross gives us the trading alert for entry and exit trading. The Average Directional Movement index indicator itself is a trading strategy that made by Wilder. ADX indicator gives us signals to read the market price condition when the market is going to change the trend direction or trend reversal, and gives the current trend signal in the Forex trading. But the ADX trend indicator can not identify the strength of the market trend.
In the first image, the red and blue line are DI, and the green one is the Average Directional movement index indicator line.
In the first image we should read carefully the DMI line, this line can show us the potential trend signal, and gives you the right trend direction. The red line indicated bearish trend when the -DI line above the + DI. The blue line indicated bullish trend if the +DI line above the - DI line.
The reversal signal can be determine when DI+ and DI- cross again in the opposite direction and followed with ADX indicator line.
The exit trading signals from ADX indicator can be found when DI lines cross the ADX indicator line in the opposite direction. All DI cross movements can show us the trend reversal signals. Using the Average directional movement index indicator to change the trading position also named the reversal level strategy.
Let's see the trading example in the image above. The entry trading potential indicated at the point A, as soon as the average directioanal movement index ADX indicator starts to bullish move from the bellow. The trading potential is determined when the DMI+ touched its high point after the ADX Average directional movement index trades bearish.
These signals are reliable, and we can wait another trading signal for make sure, when ADX move bearish after DI lines crossed.
Parabolic SAR trading indicator
P SAR also made by W Wilder, and used to determine the market trend. The Welles Wilder suggested to determine the market trend first with Parabollic SAR indicator to trend following trend. Usually this indicator is used to determine the stop loss order or exit level,
How to use the Parabolic SAR indicator
If the market trend is bullish, open buy trading position after the parabolic SAR trade below the market price, and these dots will be our stop loss. And if the market trend is bearish, open sell trading position after the parabolic SAR technical indicator trade above the market price, and these dots will be our stop loss levels.
The parabolic sar indicator will be inefficient in the side ways market. As soon as we found the market trend in undetected or not directed stay away from your computer.
In the picture above, take a long position when the parabolic sar moves below the market price. This indicator also acts as a continuous stop loss level till the market price stay in above the parabolic sar. In this situation we can also estimate the strength of the market trend by the distance between the market price and parabolic sar indicator Forex. If the market price start to fall the parabolic sar indicator approach the market price. The greater the distance between market price and parabolic sar indicator - the stronger of the market trend, and the closer the distance between the market price and parabolic sar indicator - the weaker of the market trend.
In the image above the parabolic sar technical indicator trade below the market price, once the parabolic sar dot occur it is the time the market price start the bullish trend. And the parabolic sar is also reflect as moving stop loss level.
Same with the bearish trend. Short trading position is identified after the parabolic sar indicator trade above the market price. And the parabolic sar dots act as a stop loss level. As you see in the picture above, the parabolic sar technical indicator works very well in the trending market and shows the forex traders accurate trading signals.
And in the picture above, we can see an example of a market trend reversal.
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