Parabolic SAR Indicator Trading Strategy
The Parabolic SAR Indicator Trading Strategy is based on the Parabolic SAR Indicator.
This is how the parabolic sar works:
- when the market is in a downtrend, the parabolic sar will form above the candlesticks. This should give you the heads up that the uptrend may have ended and the market may be now going down.
- when the market is in an uptrend, the parabolic sar indicator will form below the candlesticks. Then you know that the downtrend may have ended and now the market is probably going to go up.
- The Parabolic SAR Indicator Is also good at making it clear to you the market swings.
The Parabolic SAR Indicator Trading Strategy is one of the simplest forex trading strategies using the parabolic sar indicator just as it is: without any other forex indicators.
What timeframes are suitable to trade the parabolic sar indicator trading strategy?
Use the 4hr & the daily timeframes to trade this strategy. You may also use the 1hr timeframe-but this may lead to too many false signals.
If you are trading in the smaller timeframes like the 1hr and below, it is important that you be aware of existing larger trends that may override the little trends that you may be trading on.
HOW TO TRADE THE PARABOLIC SAR
For Buy Setup:
- Wait until the parabolic sar dot forms below the candlesticks.
- Place your buy stop order above the high of the candlestick that the parabolic sar indicator formed under.
- Place your stop loss 5-10 pips below the low of that candlestick.
- Exit your trade when the parabolic sar indicator gives a sell signal (when a dot forms above a candlestick)
For Sell Setup:
- Wait until parabolic sar dot forms above the candlestick.
- Place your sell stop order 3-5 pips below the low of that candlestick.
- Place your stop loss 5-10 pips above the high of that candlestick.
- Exit your trade when the parabolic sar indicator gives a buy signal (when a dot forms below a candlestick)
DISADVANTAGES OF THE PARABOLIC SAR INDICATOR
- Responds late to price moves so your trade entries are made after a move (either upward or down) has happened.
- Because the Parabolic SAR indicator Responds late, your stop loss placements are not in the ideal locations (like behind support and resistance levels)
- A flat or non trending market in consolidation will cause you grief because there will be too many false signals.
THE POSITIVES OF THE PARABOLIC SAR
- If you are new forex trader, this is a simple swing forex trading strategy which you can use to practice to trade the forex market.
- in a good trending market, the parabolic sar indicator forex trading strategy will work very well.
The 10 and 20 SMA with 200 SMA Forex Swing Trading System Is A Very Simple Swing Trading System You Can Implement WithoutAny Difficulty At All. But First Lets Talk about Moving Averages… WHY MOVING AVERAGES ARE USEFUL There are two main reasons why moving averages are useful in forex trading: moving averages help traders define trend recognize changes in trend. If you see any forex trading strategies that have moving averages in them, the use of moving averages would be pretty much related to the two reasons given. I don’t want to bother with too many details about moving averages here…so moving on. THE TWO SIMPLE MOVING AVERAGES(SMA):10&20 SMA’s With this swing trading strategy, when the faster SMA, 10, crosses the slower SMA 20, it often signals a trend change. So when you see 10 SMA cross 20 SMA to the upside then you know there is a great possibility that the market is in an uptrend. If 10 SMA crosses 20 SMA to the downside, then you know there is a great likelihood that the market is in a downtrend. The 10 and 20 SMA with 200 SMA Forex Swing Trading System Trading Rules Trading Timeframes: Stick to 4hr timeframe and the daily Timeframe. After the faster 10 SMA crosses the slower SMA 20 look for these reversal candlesticksto enter your trade For Selling, look for bearish reversal candlesticks and place sell stop order 5 pips under the low of that bearish reversal candlestick for buying, look for bullish reversal candlesticksand place your buy stop or buy stop order 5 pips above the high of that bullish reversal candlestick. Place your stop loss above 5 pips above the high of the entry reversal candlestick if you are selling and 5 pips below the low of the bullish reversal candlestick if you are buying. Set your take profits to 3 times what your risked or look for previous swing high/lows and use these price levels as your take profit target. How To Use 200 SMA With This Forex Strategy Now as an added measure to ensure you only trade with the main trend, the 200 SMA can be used a further filter. if 10 and 20 sma are above the 200 SMA only take long positions. if 10 and 20 sma are below the 200 SMA only take short positions. This ensures you take trades only based on the significant or main trend which 200 SMA gives you an indication of. Did you enjoy this? It would mean the world to me if you shared it:
How much would you think a penny doubled everyday for 30 days would end up being just guessing? $10 dollars or $100 dollars maybe? How about over $5 million dollars? How is this possible? Through the power of compounding. “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” – Albert Einstein is reported to have said. A penny doubled everyday for 30 days…. Compounding capital is one of the greatest tools a trader or investor can use to create wealth. It is one of Warren Buffett’s Holy Grails of investing success. The principle of compounding is that you allow your money to make more money. Eventually your money is making more money than you could ever earn through working. While the growth of the doubling of a penny can be surprising and not intuitive there are ways to really compound capital with investing and trading over the long term at less impressive rates but still end up with a lot. It is good to think about the power of compounding whenever you are tempted to redeem your capital from a trading, investing, or retirement account. If you have a quantified system for growing your account over the long term, it is very expensive to not let your winner run.
I know I may take some heat for going after the trend direction indicator as a useful technical analysis tool but the fact is that they can do more harm than good for most traders. Indicators get a bad rap and the reason is not so much in the indicator themselves…but in how traders use them. Trend Direction Indicators Have You Miss The Big Picture Because most traders get handcuffed by the indicator and fail to see what price is really doing. Before I go on, I know some people are never going to give them up so here is a trend indicator for mt4 that you can download and use for free. Just apply it to your weekly or 4 hour MT4 charts if you are day trading according to the installation video and you will see how it works. Trend Indicator Download For MT4 It’s no shock to learn that since indicators are a derivative of price (or volume) they are going to be lagging behind the movement of price. Depending on your settings, especially the look-back period, you may be a little behind the turn if using a short period or be miles behind. Also keep in mind that Forex does not trade through an exchange so getting a valid volume number is impossible. If you are only keeping your eyes on the indicator, you are missing the story that price is telling you. Price will clue you in to a change in direction long before any trend indicator will. Forex Technical Analysis Tools That Most Traders Use For Trend No doubt one of the most popular tool used today is the moving average not only to identify zones where a short term trend reversal may take place (as in trading pullbacks – but there is no magic there) but also as trend direction indicator. What is the most popular? Usually the 50 period, the 100 sma, the 200 sma and the 20 sma. You could swap out the sma for an ema but it makes little difference. The question I hope you are asking is “what is so special about those numbers”? Good question!! There is nothing special except the bigger ones will be further away from current price which will lag the turns much more. Of course there are others including CCI, MACD, Stochs and other trading indicators so out of all them, is one of them ranked as the best trend indicator? Since they all depend on some mathematical calculation of the same initial input (price) there is not one that is better than the others. They all have the same drawback…they lag the actual price movement! Can Candlestick Patterns Be A Trend Indicator? There is some school of thought that an individual candlestick can help define the current trend or trend reversal. I am going to generalize here but it depends on where they form on the chart and what pattern candlestick we are looking at. Where I take notice are candlesticks that are out of the ordinary from recent price action. For example, if this bearish engulfing candlestick takes place at a prominent resistance zone, could that suggest long before an indicator does, that a new trend direction is occurring? Bearish Engulfing It certainly can be considered a trend reversal candlestick pattern due to location (even though it’s only 2 candles) and it can range from a short term trend move to putting in a top in whatever currency pair you are looking at. While a moving average or any other indicator is still indicating long trades, I’d be looking for a position short. You can bet that if there was a support zone close by, traders that look at lagging price indicators may look to take a long on a pattern like a pin bar or inside bar. And that is how a trend indicator can help drain your trading account if you only focus on the indicator. It can draw your eyes away from what is really important. PRICE! Moving Average Indicator Sets You Up On Wrong Side Of Price This may not be the best example but it gets the point home of using price and context. 50 SMA Trend Indicator You can see that price was telling a story long before that short trade set up. The bear candle after entry would have late traders jumping into what they deemed to be a move down. You can see momentum in that candles as it closed on the low of the session so you KNOW traders looked to short in the “trend direction” of short. And they lost. Moving average are not all bad though. Simply due to their calculations, you can see when a market is actually trending or consolidating. Make no mistake…there is no magic in those pullback trades after the upside turn. If you think about how the calculations work, you can fully understand why it can not only show a turn but also meet price at points on the chart. Price turns from negative to positive and turns the indicator. Price pushes to the upside giving a higher average price so indicator rises. Price pulls back at times with momentum and then consolidates. Moving average calculates a lower average…..meets price. You can use a moving average as a quick scan however to see if you are looking at a chart that is moving or one that is consolidating. Use Price Action and Patterns as Your Trend Direction Indicator Price always tells a story and sometimes the story can be a little confusing. If it is, pick another chart. Indicators can smooth out the volatile price movements so you think you are looking at a calm chart but the reality is it’s a chart with no clear direction full of spikes back and forth. Trading that environment will wipe you out. Seeing momentum candles in one direction along with weaker candles in the opposite direction can be a great indicator of the current trend of price. We also can never forget the standard higher high and higher low for an uptrend and lower highs and lows for a downtrend either. My general rule is that, as you can see on this chart with the red circle, we must see a true swing and that’s something you have to decide. Regardless, due to the strong up trend that happened after the higher low, the area with the white box, if broken, would signal to me a true trend change. Market Structure As Trend Direction Indicator You want to help save your account? Learn some price acting trading strategies (which are really great for swing trading) from my free course and learn to listen to what the chart is telling you.