The forex market is much like a pendulum. Price could swing up and down across the chart. Price swings would seem chaotic and unpredictable, confusing most new traders, causing them to lose money. However, even with its seemingly chaotic movements, the market does leave some hints as to what it wants to do next and where it wants to go.
Market trends are cyclical. It goes back and forth between an expansion phase, then a contraction phase, and another expansion phase, and back again. However, market reversals are quite different. This is because although it is the same pattern of expansion and contraction, the contraction phases are much more of an exhaustion. This means that the market is contracting not because it is resting prior to another thrust, but that the contraction is due to the trend losing momentum. But how do we determine these exhaustion phases?
Differentiating contraction phases from exhaustion phases is quite difficult. Some may be able to predict it using reversal patterns, however new traders still might have not developed such skill in identifying patterns. The PSAR Super Trend Forex Trading Strategy is a strategy that aids traders in identifying exhaustion phases using some indicators that specialize in identifying trends and trend reversals.
Table of Contents
The Supertrend indicator is a trend following indicator that works well in identifying trend direction and trend reversals. It is much like Moving Averages and Moving Average Convergence and Divergence (MACD), which identifies trends based on the movement of price action. However, it is also quite unique in some ways. Unlike other technical indicators, the Supertrend indicator not only makes use of price action movements, it also incorporates the Average True Range (ATR) in its identification of trend directions. The indicator measures the ATR for a certain period of days and multiplies it with a multiplier. It then plots a line a certain distance away from the price action based on the product of the ATR and the multiplier. The location of the line is based on the direction of the trend. The line is plotted below price action if the trend is bullish, and above price action if the trend is bearish. Trend signals are generated when price breaches and closes beyond the line.
Because the Supertrend indicator is based on the ATR, the line tends to be drawn closer to price action whenever the market is contracting. This is because the ATR also tends to be lower during contraction phases. Reversal signals become more apparent as price gets closer and closer to the line. This makes the Supertrend indicator an excellent trend reversal indicator, which incorporates exhaustion.
Parabolic Stop and Reverse
The Parabolic Stop and Reverse indicator (PSAR) is one of the most popular trend following indicators. It is also much like the Supertrend indicator, which determines trend direction based on momentum and the ATR.
The PSAR plots dots around price action based on the direction of the trend and momentum. On bullish trends, the PSAR plots dots below price action. On the other hand, the PSAR plots dots above price action during bearish trends. These dots are initially intended as stop loss placement points. This is because the assumption of this indicator is that the trend should be reversing whenever price breaches these points.
However, this indicator is also an excellent trend reversal indicator. Like the Supertrend, it also determines trend direction and trend reversals based on momentum and exhaustion. Reversal entry signals are generated whenever the dots shift from being plotted above price action to being plotted below price action, and vice versa.
The MMR indicator is a trend following oscillating indicator based on momentum. It measures momentum based on Moving Average (MA) crossovers, Moving Average Convergence and Divergence, and Relative Strength Index (RSI). It then plots histograms and a line on a separate window. During a bullish trending market, the indicator plots a line above zero and positive histograms that are painted green. On the other hand, during a bearish trend, the indicator plots the line below zero and negative histograms painted red. Some traders make use of the crossing of the line over zero as an entry signal. A more conservative approach though would be to take the trade as the histogram bars change colors.
This strategy is based on the confluence of trend direction and signals of the PSAR, Supertrend and MMR indicator. The PSAR and Supertrend indicators are used to determine trend direction and reversals based on exhaustion. This allows us to anticipate trend reversals more effectively. The MMR indicator is then incorporated to determine if the trend reversal signals have momentum behind it. This allows us to catch trend reversal signals that have a high probability to trend.
- Parabolic SAR
- Step: 0.005
Timeframe: 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York sessions
Buy Trade Setup
- The Parabolic SAR indicator should be plotting dots below price action indicating a bullish trend
- The SuperTrend indicator should be plotting a lime line below price action indicating a bullish trend
- The MMR line should cross above zero and the histogram should change to green indicating a bullish trend
- These trend reversal signals should be somewhat close to each other
- Enter a buy order on the confluence of the above conditions
- Set the stop loss on the support level below the entry candle
- Close the trade if the Parabolic SAR indicator prints a dot above price action
- Close the trade if the SuperTrend indicator line changes to color red
- Close the trade is the MMR histogram changes to red
Buy Trade Setup
- The Parabolic SAR indicator should be plotting dots above price action indicating a bearish trend
- The SuperTrend indicator should be plotting a red line above price action indicating a bearish trend
- The MMR line should cross below zero and the histogram should change to red indicating a bearish trend
- These trend reversal signals should be somewhat close to each other
- Enter a sell order on the confluence of the above conditions
- Set the stop loss on the resistance level above the entry candle
- Close the trade if the Parabolic SAR indicator prints a dot below price action
- Close the trade if the SuperTrend indicator line changes to color lime
- Close the trade is the MMR histogram changes to green
This strategy is one that allows traders to catch trend reversals that could result to high yielding trades. The confluence of the three complimentary indicators allow traders to determine probable trend reversals based on exhaustion and momentum.
Although trend reversal strategies are inherently not high probability trades, given that exhaustion usually precedes trend reversals, trading this strategy leads to high probability trend reversal setups. Add to it the factor of having momentum behind the trade yields an even better possibility of a trend reversal.
Lastly, since trend reversals are usually the start of a fresh trends, holding on to trade setups that would result to a trend could result to high yielding trades.
Forex Trading Strategies Installation Instructions
PSAR Supertrend Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
PSAR Supertrend Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install PSAR Supertrend Forex Trading Strategy?
- Download PSAR Supertrend Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select PSAR Supertrend Forex Trading Strategy
- You will see PSAR Supertrend Forex Trading Strategy is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
Click here below to download: