The simple moving average simply known as SMA and parabolic SAR are very useful trend indicators that forex traders can use in making some decent pips from a trade, if applied correctly.
This strategy is very simple and basic that beginner traders can apply to start making good returns from the market. If applied correctly, it could be used on any currency pair and time frames one the necessary conditions for the strategy are met.
Here are the steps necessary to apply this strategy to work:
Ensure your MT4 chart have no other indicators inserted in order not to give you confusing signals.
Then insert the the Moving Average indicator into your chart, setting the period between 5 or 10. Use a suitable colour that you can see clearly
Next would be to insert the Parabolic SAR indicator into your chart as well, use a colour that would also be different from the one you use for the SMA, set the Step to 0.02.
After doing that, your chart should look like this:
The key to entering a trade using this to make sure that once a PSAR displays in the direction of a trend, and the SMA line have also penetrated at least two (2) similar candlestick in that direction, then you can enter a trade.
The PSAR indicates trend formation by displaying spots, for a bullish trend, the PSAR spots are displayed at the bottom of the new trend, while for bearish trend formation, the spots are displayed at the top of the trend that is about to be formed.
The PSAR alone would have been necessary for us, but we use the SMA 5 or SMA 10 to confirm this formation but making sure that it has penetrated a bullish/bearish candlestick in the direction of the PSAR spots.
Meaning that if say we have 3 PSAR spots in a particular direction say bullish, moving up, we would also look whether the SMA have successfully penetrated at least 2 bullish candlestick in the up direction also.
Once these criteria is met, you can enter the trade, setting your Takeprofit & Stoploss using appropriate resistance and support levels.
Please make sure you use proper money management whenever you are placing your trades in order to prevent loosing your entire investment in the Forex market.