Something Interesting in Financial Video November 2013 - page 7

[Sergey Golubev]

Moving Average Crossover - Forex Technicals

Briefly reviewing ema and sma moving averages and how a moving average crossover can be traded. The moving averages cross as the faster moving average reacts to the more recent price action. If the market turns bullish or bearish the faster moving average will respond to this quicker than the slower moving average, creating moving average crosses.

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Indicators: Moving Averages, multi-timeframe

newdigital, 2013.11.28 10:49

Death Cross pattern (based on How to Trade the Death Cross on Oil article)

What is the ‘Death Cross’ pattern?

Though its sounds scary and ominous, the ‘Death Cross’ (DC) pattern is neither. In fact, consumers that are tired of paying $80 or more to fill up their gas tank will rejoice at what this pattern means to the price of oil. The DC occurs when the short-term 50-day simple moving average crosses below the 200-day simple moving average. Typically, in a moving average crossover, a shorter term moving average crosses below a longer term moving average a sell signal is generated and price is expected to move lower. What makes the DC different is that the 200-day SMA is watched by so many traders to determine long term bullishness or bearishness that when the 50-day crosses below the 200, the selling can be substantial as institutional and retail selling converge.

In the chart above there are 4 DCs on USOil which led to significant price moves lower. There is one DC on June 18, 2010 in which the decline was minimal. In fact, since 1984, there has been 21 Death Cross (DC) formations on oil with an average decline of 8.3% over the following 6 months after the crossover. With the current price of oil just south of $92.00 per barrel, we could see a decline down to the $80- $84.00 region once oil closes, on a daily basis, below the current trend line. This will be good news for oil bears and US holiday drivers but bad news for Oil bulls, for now.

In each of case of the DC, the following price decline was short-lived and a sharp rebound followed. This could give new life and a great entry point for those who are bullish oil. Such a rebound would need confirmation. Oil bulls will wait their turn and may look for the advent of the Golden Cross before initiating longs. The Golden Cross is made up of the 50-day simple moving average crossing above the 200-day simple moving average and is a major buy signal. The DC is nothing to fear if you know which direction to trade. It marks the possible acceleration and extension of and oil “slide” lower.

[Sergey Golubev]

16. How to trade Parabolic SAR in Forex

In this Forex training video we discuss the Parabolic SAR and how it can be used in your trading. Whilst it can be an unreliable trend indicator on its own, when in used in conjunction with the ADX indicator it can be very successful.

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Indicators: Parabolic SAR

newdigital, 2013.08.08 14:02

Introduction To The Parabolic SAR

In the world of short-term trading, experiences are defined by a trader's ability to anticipate a certain move in the price of a financial asset. There are many different indicators used to predict an asset's future direction, but few have proved to be as useful and easy to interpret as the parabolic SAR. In this article, we'll take a look at the basics of this indicator and show you how you can incorporate it into your trading strategy.

The Indicator

The parabolic SAR is a technical indicator that is used by many traders to determine the direction of an asset's momentum and the point in time when this momentum has a higher-than-normal probability of switching directions. Sometimes known as the "stop and reversal system", the parabolic SAR was developed by the famous technician Welles Wilder, creator of the relative strength index, and it is shown as a series of dots placed either above or below an asset's price on a chart.

One of the most important aspects to keep in mind is that the positioning of the "dots" is used by traders to generate transaction signals depending on where the dot is placed relative to the asset's price. A dot placed below the price is deemed to be a bullish signal, causing traders to expect the momentum to remain in the upward direction. Conversely, a dot placed above the prices is used to illustrate that the bears are in control and that the momentum is likely to remain downward.

The first entry point on the buy side occurs when the most recent high price of an issue has been broken; it is at this time that the SAR is placed at the most recent low price. As the price of the stock rises, the dots will rise as well, first slowly and then picking up speed and accelerating with the trend. This accelerating system allows the investor to watch the trend develop and establish itself. The SAR starts to move a little faster as the trend develops and the dots soon catch up to the price action of the issue. As you can see in Figure 1, the indicator works extremely well when a stock is trending, but it can lead to many false signals when the price moves sideways or is trading in a choppy market.

Parabolic SAR and the Short Sale

The parabolic SAR is extremely valuable because it is one of the easiest methods available for strategically setting the position of a stop-loss order. As you become more acquainted with technical indicators, you'll find that the parabolic SAR has built up quite the positive reputation for its role in helping many traders lock-in paper profits that have been realized in a trending environment. You can also see that professional traders who short the market will use this indicator to help determine the time to cover their short positions.

It is important to note that this indicator is extremely mechanical and will always assume that the trader is holding a long or short position. The ability for the parabolic SAR to respond to changing conditions removes all human emotion and allows the trader to be disciplined. On the other hand, the disadvantage of using this indicator can also be seen in Figure 1. Notice how the signals can lead to many false entries during periods of consolidation. Being whipsawed in and out of trades can often be extremely frustrating, even for the most successful traders.

Figure 2, below, shows the chart of American Express (NYSE:AXP) from the last part of 2008. The trader can see no real way to get into a long position as the strong downtrend continues. This is shown by the dominance of dots placed above the price.

SAR: United It Stands

Given the mechanical properties of the parabolic SAR, it is no surprise that it is a favorite among traders who develop their own strategies. In trading, it is better to have several indicators confirm a certain signal than to solely rely on one specific indicator, so most traders will choose to compliment the SAR trading signals by using other indicators such as stochastics, moving averages, candlestick patterns etc.

For example, a reversal of the dots from below the price to above is much more convincing when the price is trading below a long-term moving average than when it occurs when the price is above the moving average. Having the price remain below a long-term moving average suggests that the sellers are in control of the direction and that the recent reversal could be the beginning of another wave lower. Furthermore, a signal is considered stronger each time that an additional indicator confirms the same trend. For example, diving into the American Express example again in Figure 3, you'll notice that the parabolic SAR indicator triggered a sell signal (black arrows) each time it neared the resistance of its 50-day moving average (green line). Traders would also take note that the stochastic oscillator crossed below its signal line around the same time as the SAR signals (shown by the red circles). The simultaneous sell signals are then used as confirmation of a move lower.

Bottom Line

The parabolic SAR is a fairly good tool for traders looking for a strategic method of gauging a stock's direction or for portioning a stop-loss order. As illustrated above, this indicator proves to be extremely valuable in trending environments, but it can often lead to many false signals during periods of consolidation. This indicator is simple to implement into any strategy, but like all indicators, it is usually best if it is used in conjunction with other indicators to ensure that all information is being considered.

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Indicators: Parabolic SAR

newdigital, 2013.08.08 14:13

Metatrader Parabolic SAR Settings - A Simple SAR Trading System

Forex traders focus on the Parabolic SAR key points of reference, which are the “switchover” points above and below the “candlestick” formations. As with any technical indicator, a Parabolic SAR chart will never be 100% correct in the signals that it presents, but the signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding SAR signals must be developed over time. In the example below, let’s develop a simple trading system based on Parabolic SAR signals and alerts.

The following trading system is for educational purposes only. Technical analysis takes previous pricing behavior and attempts to forecast future prices, but, as we have all heard before, past results are no guarantee of future performance. With that disclaimer in mind, the “red” circles on the above chart illustrate optimal entry and exit points, and the “green” circles indicate false SAR signals accompanied by weak ADX readings.

A simple trading system would then be:

1. Determine your entry point after the SAR switchover for an uptrend accompanied by a strong ADX reading;

2. Execute a “Buy” order for no more than 2% to 3% of your account;

3. Place a stop-loss order at 20 “pips” below your entry point;

4. Determine your exit point when the SAR switches over at the end of the trend.

Steps “2” and “3” represent prudent risk and money management principles that should be employed. This simple trading system would have yielded a profitable trade of 70 “pips”, but do remember that the past is no guarantee for the future.