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Forex trading strategy #2 (Parabolic SAR + ADX)

The two indicators we are going to talk about here are found to be very well working when used side by side. This Forex trading system is an another simple discovery; and hundreds of such discoveries can be made when traders are there to learn and experiment.

Any currency pair and time frame can be used.
Indicators: Parabolic SAR default settings (0.02, 0.2), ADX 50 (with +DI, -DI lines)


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Hi Matt,

Thank you for commenting on reducing false signals!

I do manual backtests exactly the way you described: by going back to old price data and noticing entries and exits as if I was trading live. It does take a lot of time. Also it is important to know the way each indicator behaves — sometimes picking entires and exits in much trickier than what's been seen on the chart once price is fixed in time..
The only method to get information quickly and in bulk known to me is coding a system in MetaTrader and running a backtest form there. I've not yet mastered this coding; it's in the plans, however..

For backtesting you can use charts from IBFX broker. As for today I can see data back to 1989 there.

Regards,
Edward

Good results I have obtained with SAR(0.01,0.01) and ADX(4). Regards, Sustratus

Hi Edward,

I like this strategy, but 1 question I have regarding an entry for example a buy entry is when the +DI crosses over the -DI and PSAR shows an uptrend, but is there any way I can do to detect a possible whipsaw of +DI and -DI crossing up and down each other twisting like a helix? Please let me know. Cheers. You're all doing a great job.

Tom

Thank you Tom,

DI lines of ADX are indeed unpredictable WHILE moving.
The best thing you can do is to wait till a candle is closed and DI lines become fixed. Your chances to get whipsawed will be lower then.

Should you decide to be even more conservative, you would need to wait for DI lines to signal FIRST and then wait for PSAR to flip with a new dot in your direction.
Should PSAR be already moving your way when DI lines cross, you'd need to pass on this invitation and wait for price to retrace and PSAR give you another entry opportunity later.

Regards,
Edward

try using awesome osc. on your charts it will help you to stay out of some of the bad trades as well

Hi Edward,

You were saying that this strategy has the flaw that both are follow up indicators. Is there any way to correct this problem?

Also, I have tested this strategy in Forex Strategy Builder and it has has done very well. It performed better than I anticipated.

Keep up the great work!

George

Hi George,

Thank you for your feedback.
At the moment I have no solutions for this strategy. I think it can easily be taken as a base, on which you can build more advanced methods. I'm sorry for not being able to provide a quick fix - nothing comes to mind this late time...

Kind regards,
Edward

Hi Guys,
In conjunction with this strategy I also use 5 and 15 EMA - helps with entry confirmations and definitely gives earlier exits for more conservative traders. Try it and let me know what you think. I have always used 80 EMA for general direction, but 63 EMA(or even better 62 EMA) looks more accurate. 62 EMA is as close to Fibonacci 61.8 as possible.

Thanks Edward & others
Keep on testing!!!
Rafael