Technical Analysis: 4-Dot Trading Strategy Using Parabolic SAR and ADX
Very common question how to invest in gold? Which strategy is better for gold trading? The two indicators Parabolic SAR and ADX seems to work perfectly when used together.ADX is commonly known as Average direction movement which is used by many professional traders to identify the trend strength and reversal. On the other hand parabolic, Sar acts as the momentum indicator which indicates the high probability of trend continuation and reversal. Professional traders have developed a unique trading system by using these two indicators which work best when buy and sell gold.
Let’s see the trade setup in the gold chart using parabolic SAR and ADX:
Trading the gold with parabolic SAR and ADX indicator
In the above figure, traders use two indicators to trade the 4-hour time frame in Gold. Usually, this trading system tends to perform better on the higher time frame. Professional trader first uses the momentum indicator (Parabolic SAR) to identify the potential entry point. When the parabolic SAR prints 4 new dots in the chart trader look for a crossover in the ADX indicator DI lines.
It’s imperative that before the formation of 4 dots, parabolic SAR prints at least 10 dots in the direction of previous trend. In the above figure before the formation of 4 dots and DI line cross over, the parabolic SAR printed more than 10 dots. When the Dot is below the price it means an uptrend when the dot is above it means downtrend.
Professional traders who know better how to sell gold they took sell entry when the negative DI lines crosses below the positive Di lines with at least new 4 dots printed above the price. Usually, all gold traders use a tight stop loss which is set just above the dot of the parabolic SAR indicator. Though the system is very profit in gold trading, it’s imperative that trader uses proper risk reward ratio before entering into the trade.