FOREX PSAR and ADX
FOREX trading strategy is a combination of indicators PSAR and ADX.
It's no secret that absolutely any forex trader would like to know, where is the bottom or the top of the trend on the chart ... And even though sometimes it seems a solution to this problem lies simple, in reality this is not so simply.
predict, completed a coherent wave pattern, or we are witnessing at the moment just rolled back the larger trend - it's really nothing like an art, not science.
In these situations we have to use multiple sources of supply information , and usually it helps to avoid some false trading signals and ultimately save our money deposited precisely in those cases that predict us as traders horosheee ratio of risk to profit . Always in mind, I'll tell you in the forex strategy of using 2 completely different indicators, which we will use in conjunction - this Average Directional Movement Index (ADX) and index Parabolic Stop and reversal (PSAR) . The combination of these two indicators is possible to create a forex strategy that allows open trades as close as possible to the top or bottom of a trend.
(These indicators ADX (Average Directional Movement Index) and PSAR (Parabolic SAR) is already registered in the trading terminal DC, working on best platform for trading Metatrader 4 . To activate them, go to the Insert menu / Indicators / Trends and activate them one by one).
To begin, consider both the indicator data by one and analyze their characteristics.
indicator ADX, or otherwise - Average Directional Movement Index:
indicator ADX is nothing like the trading trend following system, which was developed by Welles Wilder. This index can be used to trade on its own, but usually it is applied to the price chart along with an indicator of DMI. Which in turn is used to measure market trend.
Let's look at the mechanics of the digital indicator DMI:
1) It consists of 2 lines of DI + and DI -
2) It is used as follows: will open the position to buy as soon as the DI + line crosses up DI-. And we will open a short position as soon as DI - crosses above the DI +.
3) crossing lines DI + / DI - gives trading signals for entry or exit . But if these trading signals are used in isolation, they are quite often wrong, which often leads to a double loss. So, to filter these trading signals and is used indicator ADX.
ADX indicator is part of the trading system that was developed of Wilder. It signals to us that the price in the market is ready to change their direction of motion. As a result, combining ADX with DI, we eliminate unnecessary losing trades. The ADX helps the trader to determine whether there is a moment in the forex market trend or not, and gives us information about what stage we are the trend - the trend has just started or is already in its final stage. He also gives us information about the states of prices in the market as soon as there is no trend, and priduprezhdaet of turns and the resumption of traffic on the current trend.
But, remember that ADX can not determine the strength of the current trend and the more his direction .
In Figure 1, red line denotes DI -, Blue Line - DI +, and the green line is the ADX . At level 20 held horizontal line for the indicator ADX , how do some of the rules of the growth indicator ADX - values ??higher than 20 means nothing, as the formation of a trend.
Therefore from the above, if the trading, we will closely monitor the line indicator - DMI, it will allow us to see the correct display of the trend, as well as allow you to open trading positions in the right direction. The red line we have already indicated on the chart the situation where there is above-DMI + DMI, indicating that the downtrend. Blue line, we have already identified the situation in the chart, when + DMI is above the-DMI, indicating that the upward price trend.
also noticeable that on the chart there are gaps where the DMI lines davolno often overlap with each other. This is precisely the situation that easily could lead our commercial position to double damages, and when inidikator ADX gives us a good filter. This indicator indicates the start of the formation of the trend line as soon as it begins to move from their lows up. Ideally, the analysis of possible entry into the market, ADX must always be directed upwards only.
Also, he will surely help us to determine the time, which indicates the end of the trend.
turning point of the market prices can be found as soon as the DI + / DI roll on the upper or lower extremes , followed by a turn down indicator ADX. These units often coincide with the turn of the market price.
Based on the foregoing, to exit the market, have formed the following trading terms:
1) line DI + / DI-must specify the us on the damping of momentum at the level of extreme values, turning down at the same time.
2) they just have to cross indicator ADX , which is directed upward from the top down.
3) Trading deal closes as soon as the ADX begins to unfold after it down .
All intersections in the future DI + / DI-can give us more additional trading signal a change of trend.
If the trend is still there, the line DI + points on his transition to the lateral movement (flat) , and then crosses down the line indicator ADX (which can still be directed up). Final confirmation of trend change down to just turn down the line indicator ADX. And after further confirmation of this may be crossing a line down the line DI + DI-.
absolutely the same in the case of an existing downtrend DI-will signal a passing trend in the lateral movement - flat, after which it is possible intersection lines ADX (which may still be pointing upwards). To confirm the changes to the existing trend is up, will turn down the line indicator ADX. And for this may be followed by crossing the line DI-DI + line down.
inidikatora Using ADX to connect to the trading position in the market, called the concept of "turning points ».
If we apply these rules to the above example in Figure 2, you will get this.
possibility of entering the market can be considered only at a point which is marked by the letter "A" as soon as the ADX begins to rise from the bottom. The chance of a trade position considered as DMI + reaches its extreme level, then the ADX turns down.
Although these units are quite reliable, we can use for yourself yet another signal to confirm that, as usually turn down the ADX is less than intersection follow him DI + / DI-.
However, davolno often crossing followed by a turn down the ADX is much later that the price on the chart was not already a small distance from the moment of change in trend. That is, we will lose part of their profits.
this very purpose - to reduce the gap here, it was decided to slightly improve this trading strategy, while introducing into it the indicator PSAR. It will provide much more timely signals to enter the market .
Digital Indicator - Parabolic SAR was developed by Welles Wilder as well and offered for use in trending markets . The author recommended to first determine the trend, and only then begin to use the indicator PSAR to trade in the direction of the trend going.
indicator, its use, draws on the chart points that are collinear with the trend . This trading system is often called the pivot and use it to set the trade order - a stop-loss, and not to trade with the trend.
Interpretation of the indicator PSAR.
And so, if the trend at the moment is up, we conclude deal to buy as soon as the SAR begins to move under the price . data point will be our stop-loss below the current price on the chart, and it will move upward until the stop-loss does not work (ie, the price does not fall below the level of stop-loss).
If the trend - downward, starting sell as soon as the SAR point draws over priced . And it will be a stop-loss level above the current price, it will also move down each time, until activated (when price rises above the level of stop-loss).
This concept implies that if the price will rise, then the points will also be moving up, slowly at first perhaps, and then will pick up speed along with the moving trend. And gradually, with the development trend, SAR begins to draw a little faster as a result of traced points coincide with the price levels. This phenomenon is called activation of the stop level and mean trading signal for the position's closing.
Disadvantages indicator PSAR.
Although the SAR indicator davolno works well in the financial markets with the prevailing trend, its use is completely ineffective at fletovyh and fluctuating markets for small intervals of . Once in the currency market is not addressed, sustainable trend indicator point jump up and down, and at the same time to determine levels of entry and exit into the market is difficult.
Figure 3 shows an example of using this indicator.
suggest, for example, more closely follow the behavior of the indicator SAR.
Let's open a buy position at the point marked on the chart. This point was under the price at the time when it started an uptrend. Moving and drawn together with the movement of the price points will be used as a stop level. Looking at the schedule, we can estimate the strength of the upward trend by analyzing the distance between the points and costs. The greater the distance - the stronger the trend, the less the points closer to the price schedule .
The same will be kasaetsya and the downward trend. Position on the sale will be opened, after the point is moved and is over priced. Data point is used as a stop-loss. And as in the previous year, rassmotrinom example, just under withering trend close to the price.
Now let's combine two trading techniques and combine them into one, improved.
So how do we see light PSAR works quite well in trending markets and gives the trader an excellent trading signals , but only in clearly defined trends. And the closer the trend of fading, the closer to him are points digital indicator. This is precisely what we really need for a profitable forex trading!
That is, as soon as the parabolic SAR indicator closer to the price and once formed install "pivot" on indicator ADX, we have everything for making a profitable trade!
And even with a very small counter-trend movement in the price chart will display the intersection of the parabolic and we will be a signal for entry into the market.
These signals are usually generated more until such time as the ADX turns down .
In addition, we can also use an indicator PSAR to determine the output of the trading position . The open position is closed as soon as the dot indicator PSAR is on the other side of the price chart.
In Figure 6 you can see two examples of a change in trend: the sale and purchase.
entrances to the market, stop-loss and outs of trading positions are marked on the chart, in accordance with the above rules.