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in today's video you learn how to use the macd parabolic sar trading strategy
the combination of these two indicators will give you accurate trend reversal setups
this strategy can be used on any time frame on your chart
so day traders swing traders and scalpers are all welcome to use this type of strategy
advantages of this strategy the advantages of this strategy are it is a very simple and easy
day trading swing trading and scalping system to use you can easily spot the trade setups happening
in a nice trending market you will make a lot of pips quite easily
so make sure to watch this video until the end so that you don't miss any important moment in this
strategy and also before you don't forget just now hit the like button and subscribe to the channel
before we dive into our strategy let's first understand how these two indicators work
understanding the macd indicator the macd is one of the most popular and broadly used indicators
for trading the letters macd is abbreviation for moving average convergence divergence
the macd indicator which requires moving averages as its input falls into the group of the lagging
indicators the basic function of the macd forex indicator is to discover new trends and to help
identify the end of current trends there are various ways to gauge the signals generated
by macd and many traders use their own unique settings and methods around this trading indicator
the macd indicator is typically placed at the bottom of the trading chart in a separate window
beneath the price chart let's take a close look at the structure of the macd indicator
and its default settings macd structure the macd indicator consists of three components
there are two lines and a histogram let's now discuss each of these separately mac line the
macd line is the faster line on the indicator since it reacts faster it and is more sensitive
it generally moves above and below the second line of the indicator mack signal line the macd signal
line is the second line of the macd indicator it is called a signal line because it generates the
basic macd signals since the line is slower it gets frequently breached by the faster macd line
mack histogram the macd histogram simply represents the difference between the macd
line and the signal line the bigger the gap between the lines the higher the bars that the
macd histogram will display on the chart you see an example of the macd indicator
on most trading platforms the macd indicator typically comes with the default parameters 26 12
and 9. the structure of the macd line comes with calculating a 12 period exponential moving average
on the price action and then subtracting a 26 period exponential moving average from the result
the difference between the two exponential moving average gives you the value of the faster line
the nine comes from the calculation of the slower line aka the signal line this
line is a product of a nine period exponential moving average plotted on the faster macd line
macd signals although the macd indicator consists only of three components the two lines and the
histogram it can provide a myriad of signals we recognize six basic signals of the macd
and now we will discuss each of these separately macd crossovers the macd crossovers involve the
interaction between the two mapped lines the macd line is faster than the signal line and it will
typically cross above and below the slower signal line bullish macd crossover we have a bullish macd
crossover when the macd line crosses the slower signal line in the bullish direction this action
generates a bullish signal on the chart which implies that the price might start and increase
bearish macd crossover the bearish macd crossover is opposite to the bullish macd crossover
when the macd line crosses the signal line in the bearish direction we have a bearish crossover
macd divergences one of the best uses of the macd study in forex trading is in identifying
divergent signals when the general price action on the chart and the macd direction
are in contradiction this clues us in that the price is likely to change directions
bullish macd divergence the bullish macd divergence occurs when the price action
is moving downwards and the mac is showing higher bottoms in this case the macd indicator is giving
us a strong bullish signal very often we will see price begin a strong upwards move after a bullish
divergence with the macd bearish macd divergence the bearish macd divergence happens when the
price action is increasing and the macd lines are creating lower tops the bearish divergence
by the macd hints that the price might start a bearish move in many cases we will see a rapid
bearish move after a bearish macd divergence on the chart you see an example of a bullish macd
divergence after the occurrence of the divergent we see that the price starts an uptrend
macd overbought oversold many people don't know this about the macd indicator but the macd
indicator can also provide overbought oversold signals as well overbought macd the macd is
overbought when the macd line gains a relatively big distance from the signal line in such cases we
expect the bullish move to exhaust after the strong increase and a bearish move to appear
oversold macd the oversold macd signal is opposite to the overbought signal when the macd line gains
a relatively significant bearish distance from the signal line then you are getting an oversold macd
signal in this case we expect the price to exhaust in its decrease and to initiate a new bullish move
the parabolic sar the parabolic sar is an indicator favored by technical traders that
captures reversal signals what this tool basically does is helps traders determine when the current
trend will end or when it is about to end the way it shows you this is by placing dots that show up
above or below the price candle they appear above or below the current candle for a specific reason
if the dot is above the candle it will be a sell signal or downtrend market starting
however if the dot is below the candle this can be a signal to buy or an uptrend market starting
when the change occurs the dot goes from below to above the next candle this indicates a potential
price reversal may be happening some may think why not just trade the dots when it reverses
just make an entry at that price technically you can trade like this and may win some but this
is a very risky way to trade this indicator you need other tools to validate this potential trend
as you can see on this chart if you simply just trade the dots this will frequently happen what
does the parabolic sar calculate the parabolic sar is used to track price changes and trend reversals
over time in order to calculate today's parabolic sar you will need to know the most extreme price
the acceleration factor as well as the most recent parabolic sar you will also need to
determine whether there is currently an uptrend or a downtrend this is how the parabolic sar works
when the market is in a downtrend the parabolic sar will form above the candlesticks this should
give you the heads up that the uptrend may have ended and the market may be now going down
when the market is in an uptrend the parabolic sar indicator will form below the candlesticks
then you know that the downtrend may have ended and now the market is probably going to go up
how to trade with macd parabolic sar the mac parabolic sar trading strategy is a trading system
that uses two indicators the parabolic sar and the macd for mac to use the default settings 26
12 and 9. this trading system can be used with any currency pair and any time frame suitable for you
buying rules step number one wait for macd line to cross over the signal line to the upside
once the macd lines have crossed over then move to the next step step number two look to see if the
parabolic sar has also switched position on the chart if it does so then move to the next step
step number three by or if you want to wait a little bit you can place a by stop order above
the high or low of the candlestick at the point where both the macd and parabolic sar confirm
trade entry signal step number for your stop loss should be placed below the low of that candlestick
anywhere from 5 to 30 or so pips depending on what time frame you are using as well the larger time
frame you use the stops may be a bit larger so you need to adjust your risk per trade accordingly
step number five to exit the trade take profit when an opposite trade entry signal is given
then you exit the trade selling rules step number one wait for macd line to cross over
signal line to the downside once the macd lines have crossed over then move to the next step
step number two look to see if the parabolic sar has also switched position on the chart
if it does so then move to the next step step number three sell or if you want to
wait a little bit you can place a cell stop order above the high or low of the
candlestick at the point where both the macd and parabolic sar confirm trade entry signal
step number for your stop loss should be placed below the high of that candlestick
anywhere from 5 to 30 or so pips depending on what time frame you are using as well the
larger time frame you use the stops may be a bit larger so you need to adjust your risk per trade
accordingly
step number five exit the trade take profit when an opposite trade entry signal is given
then you exit the trade thanks for watching hope you guys have enjoyed the video and
please don't forget to like and subscribe to the channel i'll see you in the next video