Combination of Technical Indicators: ADX with Parabolic SAR

Trend-following is always considered the best trading strategy that any trader should follow. In previous articles, we have presented a lot of profitable trend-sticking systems with high win-rate. To continue with the series, today, we would like to introduce to you a trending strategy composed of two quite popular indicators - Average Directional Index (ADX) and Parabolic SAR.

How to Combine Two Technical Indicators: ADX + Parabolic SAR


Like every other trending technique, this strategy is also combined with one leading indicator, used to define trends and signals, and one lagging beacon, applied to confirm the reliability of spotted trading opportunities. In this case, Parabolic SAR, a very good trend-highlighting indicator which doesn’t repaint, is responsible for detecting, while the function of Average Directional Index (ADX) – widely used to determine the strength of the tradable trends - is to affirm. The setting of this strategy is as follows:

  • ADX indicator set with the period of 14 days.
  • Parabolic SAR established with Step setting of 0.01 and Maximum one of 0.2.
Based on basic principles of the trend-following theory, this perfect system will be a good companion of Forex traders, enabling them to easily catch market’s large movements – also known as the steps of market markers such as banks and investment funds.

Having been checked carefully by us over the last 12 months, the technical strategy has engendered more than 2500 pips with a win-rate of about 85%. Needless to say, it’s really beneficial.

If you like this strategy, you might also be interested in this London Breakout Strategy

Using Two Technical Indicators: ADX and Parabolic SAR for Forex Trading


The installation of this strategy is pretty simple because all above-mentioned indicators are available in Metatrader 4. Besides working well on various time frames from short-term charts like 1-hour to long-term charts such as 1-week, it is also suitable for all currency pairs.

A bullish trading opportunity is defined when:

  • Prices cross above the bearish trend presented by the upper dots, forming a new bullish trend.
  • ADX’s main line remains above the 25 level.

Combination of Technical Indicators: ADX with Parabolic SAR

On the contrary, a bearish occasion is determined when:

  • Prices break below the bullish trend presented by the lower dots, forming a new bearish trend.
  • ADX’s main line turns above the 25 level.

Combination of Technical Indicators: ADX with Parabolic SAR

There are some important entering rules when trading with this strategy as follows:

  • A minimum of three dots is required to confirm the new forming trend valid.
  • Only enter the market after the third dot is fully developed.
  • The stop-loss is set below the dot line, while the take-profit could be left open. Once prices move toward the expected direction, the stop-loss will be gradually trailed toward the breakeven point. And, when the ADX’s main line turns below 25, the position should be exited manually.

Pros and cons Strategy of Combination Indicators


Pros:
  • Providing highly accurate signals.
  • Helping profit from various market conditions.
  • Helping earn a big profit on the whole trend.
  • Easy-to-use, general-purpose.
  • Easily established.

Cons:
  • Requiring to constantly observe charts.

Conclusion


With plenty of big advantages mentioned above, this technical strategy has shown itself as a truly effective and beneficial technique for Forex traders regardless of the trading style (short-term, mid-term, long-term). We hope you will enjoy our recommendation. Anyhow, don’t forget to use this strategy with indispensable tools like risk controlling and psychological managing methods to profit substantially from the currency market.
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