ADX and Parabolic SAR

I. Bullish Directional Movement Signal (Green Arrow Below Candle)

Purpose: Suggests new long positions and exiting short positions.

  1. Conditions:
    • +DI is above -DI (Bullish directional movement).
    • Price is above the Parabolic SAR.
    • ADX starts at low values and crosses above 21.
  2. Entry: Above the high of the signal candle.
  3. Stop Loss: Below the recent low.
  4. Exit Signals: Activated when EITHER:
    • +DI crosses below -DI. OR
    • SAR crosses above the price.

II. Bearish Directional Movement Signal (Red Arrow Above Candle)

Purpose: Suggests new short positions and exiting long positions.

  1. Conditions:
    • +DI is below -DI (Bearish directional movement).
    • Price is below the Parabolic SAR.
    • ADX starts at low values and crosses above 21.
  2. Entry: Below the low of the signal candle.
  3. Stop Loss: Above the recent high.
  4. Exit Signals: Activated when EITHER:
    • +DI crosses above -DI. OR
    • SAR crosses below the price.

III. Bullish Alignment Signal (Green Arrow)

Purpose: Suggests a retry of long positions.

  1. Conditions:
    • ADX is between 20 and 25.
    • Price is above the Parabolic SAR.
    • +DI crosses above -DI (Bullish directional movement).
  2. Entry: Above the high of the signal candle.
  3. Stop Loss: Below the recent low.
  4. Exit Signals: Activated when EITHER:
    • +DI crosses below -DI. OR
    • SAR crosses above the price.

IV. Bearish Alignment Signal

Purpose: Suggests a retry of short positions.

  1. Conditions:
    • ADX is between 20 and 25.
    • Price is below the Parabolic SAR.
    • +DI crosses below -DI (Bearish directional movement).
  2. Entry: Below the low of the signal candle.
  3. Stop Loss: Above the recent high.
  4. Exit Signals: Activated when EITHER:
    • +DI crosses above -DI. OR
    • SAR crosses below the price.

V. Exit Signals (Post-Correction)

A. Bullish Exit (Red Arrow)

Purpose: Signals the end of the bullish wave and suggests exiting all long positions.

  1. Conditions:
    • ADX is at high values (above 40) and above its moving average.
    • ADX crosses below its moving average.
  2. Activation/Execution: Below the low of the signal candle.

B. Bearish Exit (Green Arrow)

Purpose: Signals the end of the bearish wave and suggests exiting all short positions.

  1. Conditions:
    • ADX is at high values (above 40) and above its moving average.
    • ADX crosses below its moving average.
  2. Activation/Execution: Above the high of the signal candle.

Monitor Panel and Indicator Settings

I. Monitor Panel Functionality

  • The monitor panel outlines all signals on the enabled time frames.
  • Time frames can be activated or deactivated from the top of the panel.
  • More information about a signal can be found by clicking the envelope on the left side of the panel.

II. Accessing Indicator Settings

To access settings, right-click on the chart, select "Indicator list," highlight "Avramis ADX," go to "Properties," and select the "Inputs" tab.

III. Key Adjustable Parameters

  • Language: Can be changed via the drop-down menu.
  • Scanner Mode: Activates the indicator to scan all securities in the Market Watch window (available in the advanced version).
    • Clicking the envelope next to a scanned signal switches the chart to that signal's time frame.
    • Note: Use fewer securities in Market Watch for faster scanning times.
  • Time Frame Adjustment: All six time frames displayed in the Monitor panel can be customized.
  • Monitor Panel Dimensions: Height, width, and column width of the panel can be adjusted.
  • Indicator Depth: Refers to the number of candles the indicator is applied to (e.g., input of 150 makes PSAR visible across the last 150 candles).
  • Signal Duration: Refers to how many candles the signal arrow remains visible after generation (e.g., input of 2 means the arrow is removed after two candles).
  • ADX/PSAR Calculation Parameters: Parameters used for calculating the underlying ADX and Parabolic SAR indicators can be adjusted.

Detailed Summary

This document details a trading system based on the combination of ADX (Average Directional Index) and Parabolic SAR (Stop and Reverse) indicators, defining specific conditions for four types of trading signals (Bullish/Bearish Directional Movement and Bullish/Bearish Alignment) as well as two types of post-correction exit signals. The system uses the relationship between +DI and -DI, the position of price relative to the SAR, and ADX values (particularly the crossover of 21) to determine entry points, stop losses, and exit criteria. Additionally, the text describes the functionality of a Monitor Panel for tracking signals across various time frames and outlines key adjustable settings for the indicator, such as Language, Scanner Mode, Time Frame adjustments, and calculation parameters for ADX/PSAR.

Key Takeaways

  • The trading system relies on the interplay of ADX, +DI, -DI, and Parabolic SAR to generate signals.
  • Bullish Directional Movement requires +DI > -DI, Price > SAR, and ADX crossing above 21 from low values; entry is above the signal candle high.
  • Bearish Directional Movement requires +DI < -DI, Price < SAR, and ADX crossing above 21; entry is below the signal candle low.
  • The primary exit signals for directional trades are when +DI and -DI cross, OR when SAR crosses the price.
  • Alignment Signals (Bullish/Bearish Retry) occur when ADX is between 20 and 25, alongside the required DI crossover and price/SAR alignment.
  • Post-Correction Exit Signals occur when ADX is high (above 40) and above its moving average, and then crosses below its moving average, suggesting the end of the dominant wave.
  • A Monitor Panel tracks all active signals across enabled time frames, which can be customized or deactivated.
  • Key indicator settings include adjusting Language, enabling Scanner Mode (for advanced versions), customizing the six visible Time Frames, and adjusting Indicator Depth and Signal Duration.
  • For faster scanning, users are advised to limit the number of securities in the Market Watch window when using Scanner Mode.