BHARAT JHUNJHUNWALA

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MOVING
AVERAGE
THE ULTIMATE TRADING STRATEGY
LIMITED PERIOD PRICING: 5999 ONLY/-
We will discuss a trading strategy to catch new trends on reversal.

Tools:
Parabolic SAR
Moving Averages
Candlesticks
What is Parabolic SAR?

The Parabolic SAR trading tool is a dynamic tool widely utilized by professional
traders across various markets such as Forex, Stocks, Options, and Futures. Its
effectiveness is most pronounced in trending markets, as it may not perform
optimally during periods of market choppiness or sideways movement. Originally
introduced by Welles Wilder in his 1978 book titled "New Concepts in Technical
Trading Systems," this tool assists traders in identifying the potential end or
approaching conclusion of the current trend.
The key feature of this tool is the appearance of dots above or below the price
candle. These dots serve as visual indicators. When a dot appears above the
candle, it signifies a SELL signal or a downward trend. Conversely, when the dot
appears below the candle, it indicates a potential BUY signal or an upward trend. A
change in position of the dot from below to above the next candle suggests the
possibility of a reversal taking place.
One might question the idea of solely trading based on the dots generated by the
Parabolic SAR tool. The approach of entering a trade when a reversal occurs may
yield occasional wins, but it is a highly risky trading method. It is crucial to employ
additional tools to validate the potential trend reversal before making any trading
decisions. Relying solely on the dots without proper confirmation can expose
traders to unnecessary risks.
To avoid the frequent false signals shown earlier, it is essential to incorporate
additional indicators when using the Parabolic SAR tool. Combining this tool with two
moving averages can enhance the accuracy of identifying entry points and
confirming trend reversals. The inclusion of moving averages helps to validate the
occurrence of a reversal. This versatile strategy can be applied across various time
frames, catering to day traders, swing traders, and scalpers alike.

To implement this trading strategy effectively, apply the following indicators to your
chart:
1. Parabolic SAR: Standard Settings
2. 40-Length Moving Average.
3. 20-Length Moving Average.

By integrating these indicators, traders can access reliable trend reversal setups,
minimizing false signals and improving their trading decisions.
Here are the rewritten rules for the trading strategy:

Rule #1: The Parabolic SAR dot must change and appear below the price candle, indicating a potential
reversal.

Rule #2: The moving averages must cross over. In a long trade, the 40-period moving average should cross
and move below the 20-period moving average.

Rule #3: Both the Parabolic SAR dot being below the price candle and the crossing of the moving averages
with the 20-period MA above the 40-period MA are required. It's important to note that either element may
occur before the other. The reversal dot can appear before the MA lines cross, or the moving averages can
cross before the reversal candle. As long as both elements are present, the entry criteria is met.

Rule #4: Enter on the next price candle after the Parabolic SAR dot appears below the candle and the MA
lines cross with the 20-period MA above the 40-period MA.

Rule #5: Set the stop loss and take profit levels. Place the stop loss between RR 2:1 away from your entry
point, considering previous resistance or support levels for determining the stop loss. The exit criteria is
when the 20 and 40-period moving average lines cross over again.
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The ADX Twist

Traders often use the ADX indicator to identify trending markets and assess their
strength. A rising ADX value suggests a strengthening trend, while a falling ADX
value indicates a weakening or sideways market. Traders may also use the ADX to
determine when to enter or exit trades, with values above certain thresholds
indicating strong trends that may present trading opportunities.
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