Profitable trend following strategies are based on identifying trends and trading according to the direction of the trend. This enables traders to make trades that are relatively more likely to be compared to other trade setups. Different traders take different approaches to identify trends. Some swear by naked charts, trendlines, and channels. Many prefer moving averages, while others prefer to use other trend-following indicators. Everyone has their own advantages and disadvantages. However, if any of these approaches are well mastered by a trader, it could all work and result in profits.
The PSAR Trend Forex Trading Strategy is a trend following strategy based on indicators. This enables traders to objectively make rule-based decisions and reduce subjective decision-making.
Parabolic stop and reverse
Parabolic Stop and Reverse, also popularly known as PSAR, is a trend following indicator first introduced by J. Welles Wilder Jr. It records points on the price chart to indicate the direction of the trend. If the points that the PSAR charts represent are below the current price movement, the trend is considered bullish. However, if the points are above the price action then the trend is considered bearish.
The calculation of the PSAR revolves around the concept of Extreme Points (EP). Extreme points refer to the highest value during an uptrend or the lowest value during a downtrend. Since PSAR highlights Extreme Points, the values shown are far removed from the current price action. When the price reaches these points, it is assumed that the trend has already reversed. That’s why it was called Parabolic Stop and Reverse.
Due to the idea that the points it represents are points where the trend is already seen as reversed, the points are very suitable as price points to place stop loss or trail stop losses. This also makes shifting the placement of the point above or below the price an excellent entry signal. The entry signals generated by the PSAR are located at points where the market has already reversed the trend.
Forex trend signals indicator
The Forex Trend Signals Indicator is a trend following indicator that locates entries based on the trend. It prints chalk bars when it detects bullish trends and red bars when it detects bearish trends. These color changes tend to coincide with the change in the medium-term trend.
The PSAR Trend Forex Trading Strategy is based on the confluence of the Parabolic Stop and Reverse Indicator and the Forex Trend Signals Indicator. These indicators complement each other and show entry signals based on the medium-term trend.
- Parabolic stop and reverse
Time window: 1-hour, 4-hour, and daily charts
Currency pairs: Major and minor pairs
Trading session: Meetings in Tokyo, London and New York
Buy Trade Setup
- The Parabolic Stop and Reverse indicator should print points below the price movement, indicating a bullish medium-term trend
- The forex trend signals indicator should change to lime, which indicates a bullish medium-term trend
- These bullish reversal signals should be somewhat aligned
- Place an order to buy at the confluence of the above conditions
- Place the stop loss on the support level below the entry candle
- Close the trade as soon as the Parabolic Stop and Reverse indicator prints dots above the price movement, indicating the beginning of a bearish medium-term trend
- Close the trade as soon as the forex trend signals indicator turns red, indicating the start of a bearish medium-term trend
Sell Trade Setup
- The Parabolic Stop and Reverse indicator should print dots above the price movement, indicating a bearish medium-term trend
- The forex trend signals indicator should turn red, indicating a bearish medium-term trend
- These bearish reversal signals should be somewhat aligned
- Enter a sell order for the confluence of the above conditions
- Place the stop loss on the resistance level above the entry candle
- Close the trade as soon as the Parabolic Stop and Reverse indicator prints dots below the price action, indicating the start of a bullish medium-term trend
- Close the trade as soon as the forex trend signals indicator changes to lime, indicating the start of a bearish medium-term trend
This strategy is an excellent trend following strategy based on the established trend reversal signals shown by the Parabolic Stop and Reverse indicator and the Forex Trend Signals indicator. Since these indicators indicate entry points for established trend reversals, the likelihood that the price will move in the trade direction is high. However, these indicators are still considered to be lagging indicators. This can mean that some entry points are already a little late and quickly turn around. In this case, the price can reverse too low before the reversal signals are detected, which can cause the trade to lose. To mitigate this, traders need to move the stop loss to breakeven as quickly as possible without moving it too early, which can result in the stop loss being hit prematurely.
Forex Trading Strategy Installation Instructions
The PSAR Trend 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.
The PSAR Trend Forex Trading Strategy offers the opportunity to identify various peculiarities and patterns in the price dynamics that are not visible to the naked eye.
Based on this information, traders can assume further price movements and adjust this strategy accordingly.
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How do I install the PSAR Trend Forex Trading Strategy?
- Download PSAR Trend Forex Trading Strategy.zip
- * Copy mq4 and ex4 files to your Metatrader directory / Experts / Indicators /
- Copy the tpl file (template) into your Metatrader directory / templates /
- Start or restart your Metatrader client
- Select the chart and timeframe in which you want to test your forex strategy
- Right click on your trade chart and hover over “Template”.
- Move right to select PSAR Trend Forex Trading Strategy
- You will see that the PSAR Trend Forex Trading Strategy is available on your chart
* Note: Not all forex strategies come with mq4 / ex4 files. Some templates are already built into the MT4 indicators of the MetaTrader platform.
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