The Parabolic SAR is an indicator that follows the trend and determines the reversal point in the price channel. SAR literally means “stop and reverse.”
Visually, it takes the form of a series of dots that are either above or below the price chart.
First, switch to the Japanese candlesticks chart.
You can set the period and the color of the indicator dots. For the period, we recommend leaving the standard value – 0.02.
If you increase it, the indicator will give more signals, but their accuracy will decrease.
If you decrease it, the signals will be more accurate, but there will be fewer of them.
The longer the indicator’s period, the greater the expiration time must be.
The farther the Parabolic SAR dots from the chart, the more stable the trend. The closer the dots, the more likely the trend is to reverse.
The Parabolic SAR gives accurate signals only if the market trend is strong.
You can use the Parabolic SAR to trade on the direction of price movement or when the trend reverses.
Observe the chart. If the dots do not change direction, this means that there is no trend reversal signal and you can open a trade on the trend.
The trend is ascending if the Parabolic SAR dots are beneath the chart and the parabola is being built bottom up.
The trend is descending if the dots are above the chart and the parabola is being built top down
If the first Parabolic SAR dot appears beneath a green candlestick, this is probably a signal of an upward price reversal.
If the first Parabolic SAR dot appears above a red candlestick, this is probably a signal of a downward price reversal.
Note that the appearance of a second confirming dot after the indicator has changed direction is a trend reversal signal.
The Simple Moving Average or SMA is often called the ordinary or simple moving average because it is calculated with the simplest formula in the class.
In this case, the average asset price for the selected period is used.
The SMA helps identify a trend and clearly shows when it will end.
In the SMA settings, you can change the sole parameter – the number of price periods that are used to calculate the average.
The standard period is 10.
Depending on your goal, you can average a different number of periods.
For short-term analysis on a 15-minute time frame, choose periods between 5 and 10.
And for the medium term, between 15 and 20.
SMA is used both in combination with other indicators and independently. If the SMA is rising, then the trend is bullish. It’s better to open Up trades. When the chart crosses the indicator going upwards, it is probably signaling an uptrend.
If the SMA is falling, then the trend is bearish. It’s better to open Down trades.
When the chart crosses the indicator going downwards, it is probably signaling a downtrend.
The Average Directional Index (ADX) indicator reveals the presence of a trend and shows the strength of the trend.
It is presented visually as two opposing lines, +DI and -DI, and the ADX curve:
– the +DI line (blue) shows increases in price;
– the -DI line (yellow) shows decreases in price;
– the ADX line (red) indicates the trend in the market (trend or flat).
It is best to leave the indicator setting (period) at the standard 14. You may also use periods of 12, 18, or 21 for the ADX; periods from 7 to 30 are occasionally used.
With longer periods, trend information is more reliable, but the calculation of the indicator takes more time, and it is possible to miss a significant portion of a trend before the indicator reveals it.
The use of shorter periods allows the quicker indication of trends, but the quality of such signals is worse.
Generally, this indicator is considered an oscillator. It fluctuates between 0 and 100.
The indicator's main line, the ADX, shows the strength of a trend: the higher it is, the stronger the trend (regardless of direction). Values up to 20 indicate a weak trend, from 20 to 40 a medium trend, and over 40 a strong trend. Values from 40 to 60 indicate a very strong trend. ADX values over 60 are very rare.
The two opposing lines of the ADX indicator (+DI and -DI) mark bullish or bearish trends:
– if the +DI line is above the others, the trend is bullish,
– if the -DI line is highest, the trend is bearish.
An intersection of the +DI and -DI lines may be a signal of a change in a trend.
- +DI line moves up. When the +DI line crosses above the -DI line from below, it gives a buy signal.
- -DI line moves up. When the -DI line crosses above the +DI line from below, it gives a sell signal.
When the ADX is located between the +DI and -DI lines and continues to grow, it indicates a strengthening of the current trend in the market. Trades in the direction of the trend have a good chance of success.
If the +DI line is on top, the ADX continues to grow, and the -DI line is on the bottom, open an up trade.
If the -DI line is on top, the ADX in the middle, and the +DI line on the bottom, open a down trade.
When there is a pronounced trend in the market, but the ADX is above the +DI and -DI lines and continuing to grow, then, the current trend is most likely coming to an end. It is already too late to open a new position in the direction of the trend. Closely follow the trend and wait for reversal signals.
When the three lines are intertwined with one another and are located in the lower part of the chart, the market has established sideways movement (flat). It is necessary to use oscillators because trend indicators can give false signals.
Pay close attention when the ADX indicator line is below both the +DI and -DI lines. The longer it is located in this position, the stronger the new trend will be. This position frequently indicates consolidation, which often happens before the start of strong movement breaking through key levels.
Sentiment shows the ratio of all open trades for a selected asset.
The red segment of the indicator line shows what percentage of traders is opening DOWN trades, the green, UP trades.
Hence the second name for Sentiment — Traders’ Choice
Sentiment requires no additional settings. Just add it to the chart.
Watch the indicator line to assess what traders prefer now: trading on the rise or fall of the price of the selected asset.
Bollinger bands are an indicator that shows the direction of a trend and helps find the trend reversal point.
The basic principle for trading with this indicator is, therefore, trading on a trend reversal.
We advise leaving the standard period and deviation settings — 20 and 2.0, respectively.
You can change the color and thickness of the indicator lines if you want.
By the way, the Japanese candlesticks chart with a time frame of 5 or 15 minutes is the best for trading.
The EMA stands for the Exponential Moving Average.
A kind of Moving Average indicator, the EMA likewise helps determine the strength of a trend and its reversal points.
But, unlike the simple moving average, the EMA sends more accurate and timely signals, while the SMA can be late.
The exponential moving average (EMA) is calculated using a special formula. EMA describes price behavior more accurately than SMA or WMA. You can keep the standard settings or change them to your liking.
You can also change the thickness and color of the line.
The main principle of trading using EMA is to trade in the direction of the trend.
The best time to open a trade is when the asset price reverses. This is indicated by a change in the EMA line’s direction and it crossing the chart’s candlestick.
When the EMA line reverses and goes up and the chart’s candlestick crosses the indicator going upward, this is probably signaling an uptrend.
If the chart’s candlestick crosses the indicator going downwards and the EMA line reverses downward, this probably indicates a price reversal downward.
The Donchian Channel is an indicator developed by Richard Donchian. It is a trading channel created between the minimum and maximum prices over a chosen time interval.
The Donchian Channel can be used with any type of chart, but it is best to use a Japanese candlestick or bar chart.
In the indicator settings, you can change the color of the lines and the area between them, and also specify the time period for the indicator.
Donchian recommended using his indicator on daily time frames with an interval of 20, but you can change the time frame, and also increase or decrease the interval.
With a greater interval, the channel becomes less sensitive to price fluctuations and gives fewer signals. With a shorter interval, the channel will give more signals, but they will be less reliable.
You can trade in the direction of a trend using Donchian Channels.
Watch the direction the channel moves in. As soon as the maximum price exceeds the maximum value of the channel, open a "buy" trade.
As soon as the minimum price falls below the minimum value of the channel, open a "sell" trade.
If the Donchian Channel narrows, the market is entering a flat. If the channel widens, then a trend movement is beginning in the market.
Fractals are an indicator developed by Bill Williams. They are represented by triangles located at the top or bottom of the chart.
The principle for the construction of fractals is relatively simple. The price is created from a series of a few candlesticks (five, by default). A fractal forms at the top of the chart when the third candlestick is the tallest of the five (that is, it is taller than both the previous two candlesticks and the following two). A fractal forms at the bottom of the chart when the third candlestick is the shortest of the five (that is, it is shorter than both the previous two and the following two candlesticks).
To use Bill Williams' Fractals, you must use a Japanese candlestick or bar chart.
You can change the period in the settings. It is set at five by default. The longer the period chosen, the fewer fractals there will be on the chart. But in that case they will give clearer signals. Conversely, the smaller the period, the greater the number of fractals there will be on the chart, but they will be less reliable.
Williams' Fractals help determine levels of support and resistance.
To trade using fractals:
– you must choose a Japanese candlestick or bar chart;
– choose the "Fractals" indicator;
– choose the "Horizontal Line" indicator;
– create lines according to the last two fractals.
To open a "buy" trade, use green fractals, and to open a "sell" trade, use red fractals.
If the price passes upward through the upper line (resistance level; upper fractal), you can open a "buy" trade.
If the price falls through the lower line (support level; lower fractal), you can open a "sell" trade.
Pivot Points are a technical indicator created from the calculation of the average of closing, maximum, and minimum prices.
They are used to determine levels of support and resistance.
To use Pivot Points, you must use a Japanese candlestick or bar chart. You can change the color and thickness of the lines in the indicator settings.
Pivot Points can be used for any time interval. In trading with Pivot Points, you can trade on breakthroughs or on rebounds.
Wait until a candlestick crosses one of the levels up or down. If the candlestick crosses one or more levels upward, you can open a "buy" trade.
If the candlestick crosses one or more levels downward, you can open a "sell" trade.
Wait until a candlestick rebounds upward off the lower level, then open a "buy" trade.
Wait until a candlestick rebounds downward off the upper level, then open a "sell" trade.
The Ichimoku Cloud is an integrated trend indicator. It allows to identify both the direction of a price and the strength of a trend. The indicator consists of 5 lines similar in operation, but with different types of moving averages.
With this structure, it generates several types of signals at once to help find market entry points with high accuracy.
We recommend using standard periods and an offset.
As for style settings, the Tenkan Sen and Kijun Sen lines can be highlighted with brighter colors or their thickness can be increased.
In the majority of cases, a trade is opened when these lines intersect.
The more noticeable they are, the easier it is to read their signals.
The Ichimoku Cloud generates 3 types of signals.
The first and basic is the intersection of the Tenkan Sen and Kijun Sen lines.
When the Tenkan Sen crosses the Kijun Sen upwards from below, it likely indicates a rise.
The shape that these lines form is called a "golden cross".
If the Tenkan Sen crosses the Kijun Sen downwards from above, it likely indicates a fall.
The shape formed when the lines intersect this way is called a "dead cross".
One more kind of signals that the indicator generates is the intersection of the Chikou Span line with the price chart.
It is secondary and serves to confirm the main signal — the intersection of the Tenkan Sen and Kijun Sen.
It is therefore not advisable to open a trade on the basis of it alone.
If the Chikou Span intersects the price chart bottom up, you can expect the asset's price to rise.
The intersection of the Chikou Span line and price chart top down indicates that the asset's value will probably fall.
And the third type of signals that the Ichimoku Cloud generates is the intesection of Senkou Span A and Senkou Span B lines.
Like the previous signal, it is a conditional, confirming signal.
Therefore, we do not recommend opening a trade just because it appears.
If the Senkou Span A line intersects the Senkou Span B bottom up, the asset's value is likely to go up.
If the Senkou Span A line intersects the Senkou Span B top down, you can expect a drop in the asset's value.
ZigZag is an indicator used to analyze the movement of an asset’s price.
It does not forecast the future behavior of the price. ZigZag shows how the price has changed in the past – the direction of trends and their reversal points.
Visually, the indicator appears as an unbroken line similar to a zigzag, which is where the name comes from.
We recommend using the indicator's standard settings: a depth of 10 and 5% deviation.
The color and thickness of the line can be changed for ease of analysis.
ZigZag doesn’t give signals for opening trades, so don’t use it as a stand-alone indicator.
ZigZag is only used in combination with other indicators. It removes market noise (i.e., random and unpredictable fluctuations), which greatly simplifies analysis of the asset's chart.
ZigZag is best used over long time frames of one hour or more.
The WMA (an abbreviation for Weighted Moving Average) is a member of the Moving Average family.
Like all moving averages, the WMA helps identify the direction of a trend and its reversal point. But, unlike the others, the weighted moving average for each price assigns a certain rating or, as they say, a weight.
While the SMA assigns all prices the same weight, the WMA ranks them differently.
The last price is assigned the greatest weight, the price before it, a little less, and so on.
As a result, recent prices become the most important and previous prices less important.
Which means that the WMA quickly reacts to recent price changes and lags less.
The moving average period is the number of closing prices used to create the WMA.
The general rule for all moving averages is to select a period so the chart will touch the indicator many times, i.e., so the indicator acts as a kind of resistance or support level.
The first thing that the WMA shows is the trend.
If the moving average is going up, then the trend is ascending, or bullish. If down, then its descending, or bearish.
The second thing is the time when the chart and moving average intersect.
If the chart intersects the WMA top down, this is a signal for down trades.
If the chart intersect the WMA bottom up, this is a signal for up trades.
Alligator is a trend indicator.
It helps to find the moment a new trend is created.
The “Alligator” consists of three modified moving average lines.
The blue line is called the “Jaw”. The red line is called the “Teeth”. The green line is called the “Lips”.
Together, they’re called the “Snout” of the alligator.
The crossing of these lines gives signals to open trades with the corresponding forecast.
If the following 3 signals appear in the chart in succession, it is likely that an upward trend has formed and the price will rise:
– The green line crosses the blue line from below.
– The Japanese candlestick ended up green when the lines crossed.
– The next candlestick also ended up green and confirmed the upward trend.
If the following 3 signals appear in the chart in succession, it is likely that a downward trend has formed and the price will fall:
– The green line crosses the blue line from above.
– The Japanese candlestick ended up red when the lines crossed.
– The next candlestick also ended up red and confirmed the downward trend.
We do not recommend opening a trade if the lines of the indicator are moving beside each other or are intertwined.
This situation is called a “Sleeping” Alligator. This indicates lateral movement of the market; you should not trade at this time.
The longer the Alligator remains sleeping, the wider its “snout” opens, meaning that the following jumps in the price of the asset will be significant.
We recommend using the Alligator’s standard settings.
For convenience, you can change the thickness of the lines.
Pivot Points can be used for any time interval. In trading with Pivot Points, you can trade on breakthroughs or on rebounds.